The Federal Trade Commission (FTC) published the Mortgage Assistance Relief Services (MARS) final rule on Dec. 1, 2010 directed at companies that offer loan modification services to consumers for a fee; it requires certain disclosures and prohibits upfront fees. The FTC later announced that it would forbear from enforcing most provisions of the MARS Rule against real estate professionals who assist financially distressed consumers in obtaining short sales. The Consumer Financial Protection Bureau (CFPB) is now the enforcement agency and is pledged to honor the forbearance previously announced by the FTC.
On July 15, 2011, the Federal Trade Commission (“FTC”) announced it has decided not to enforce most provisions of its Mortgage Assistance Relief Services (“MARS”) Rule against real estate professionals who are acting in their licensed capacity while assisting sellers to obtain a short sale for their residence. The FTC will still enforce the Rule against real estate professionals who make misrepresentations during the course of obtaining a short sale for their clients.
The FTC’s action is an important step in clarifying the application of the Rule to real estate professionals, as compliance with the Rule had caused a great deal of confusion. While the Consumer Financial Protection Bureau (“CFPB”) and state attorneys general will have the ability to enforce the Rule, both groups are expected to follow the lead of the FTC and not enforce the Rule against real estate professionals, except as noted above. NAR will continue to work with the CFPB to further clarify the application of the Rule to real estate professionals.
Below are some Q&A’s further explaining the FTC’s decision. In addition, NAR has recorded a podcast with the FTC about the policy change.
1. FTC Stay
1.1 What does the FTC’s action mean for real estate licensees?
The FTC’s stay will remove the need for real estate professionals to comply with most of the Rule’s requirements, including the required disclosures, advance fee ban, and recordkeeping requirements, while acting in their licensed capacity to obtain a short sale for their clients. The FTC will still enforce the Rule against real estate professionals if a misrepresentation is made to a client during the course of assisting the client to obtain a short sales transaction.
1.2 Why did the FTC take this action?
When drafting the Rule, the FTC used very broad language to define who was covered by the Rule, including those who provided assistance to a consumer in negotiating a short sale. The FTC has acknowledged that the agency didn’t realize the number of real estate professionals who would need to comply with the Rule as written. Also, the language contained in the MARS disclosures didn’t make sense in the real estate brokerage context and the other prohibitions in the Rule had an unintended consequence when applied to real estate professionals. Therefore, the FTC decided not to enforce of the Rule against real estate professionals. Due to the fact that the rulemaking authority for MARS is switching to the CFPB, the FTC did not have time to conduct a rulemaking to amend the Rule itself.
2. Eligibility for Stay
2.1 When will a real estate professional qualify for the FTC’s “forbearance of enforcement”?
A real estate professional will need to meet the following conditions in order to qualify for the FTC’s stay:
Must be properly licensed and in good standing pursuant to any applicable state law requirements;
In compliance with state laws governing the practices of real estate professionals; and
Assisting or attempting to assist a consumer in negotiating, obtaining or arranging a short sale of a dwelling in the course of securing the sale of the consumer’s home.
The stay applies to both brokers and salespeople associated with the broker. So, if a salesperson assists a broker with a client’s short sale and meets the criteria listed above, the salesperson will also fall under the terms of the FTC’s stay.
2.2 Does the stay apply to short sale negotiators with a real estate license?
No, the stay will only cover activities undertaken pursuant to the individual’s real estate license to assist a client obtain a short sale of their residence. Other types mortgage assistance services provided by a real estate licensee, such as a short sale negotiation service, will need to comply with all of the requirements of the MARS Rule.
3. How the MARS Rule will apply to Real Estate Professionals.
3.1 What part of the MARS Rule will the FTC continue to enforce?
The FTC will continue to enforce the misrepresentation provisions in Rule against any real estate professional who makes a misrepresentation while assisting consumers in the obtaining of a short sale.
3.2 What would constitute a misrepresentation in the FTC’s eyes?
The FTC considers a “misrepresentation” to be a misleading or deceptive act in or affecting commerce. Examples of acts by a real estate professional that the FTC would likely view as a misrepresentation: promising the consumer that the real estate professional could obtain a certain price for a short sale; misrepresenting the types of services that the real estate professional will provide, such as claiming an expertise in short sales when this is not true; and otherwise misrepresenting the results that the real estate professional may obtain for the consumer, such as promising a consumers that they will not have any deficiencies from the short sale when there is no basis for the statement.
3.3 If a misrepresentation is made by a real estate professional, will the real estate professional need to comply with the entire Rule, such as making the required disclosures?
Since a real estate professional who makes a misrepresentation during the course of representing a client during a short sale will likely no longer be in compliance with his/her state license law, the real estate professional will need to comply with all of the provisions of the Rule, such as making the required disclosures to consumers. Certainly, real estate professionals should always be careful about not making misrepresentations to their clients, but they should be especially careful in a short sale transaction to avoid being swept into having to comply with all of the MARS Rule’s requirements. Therefore, real estate professionals need to make realistic statements to their clients and also market their services accurately, as failing to do either could be seen as a misrepresentation.
3.4 Will the FTC go after real estate professionals for noncompliance with MARS prior to the stay?
The FTC has said that it will enforce the Rule against a real estate professional for any misrepresentations made to a client during the course of obtaining a short sale for the client. While the FTC retains the ability to prosecute real estate professionals who may not have fully complied with other provisions within the MARS Rule prior to the issuance of the stay, NAR thinks it is extremely unlikely that the FTC will go after any real estate professionals for prior noncompliance with the Rule. FTC actions are designed to enforce compliance with the Rule, and so real estate professionals are unlikely targets at the present time so long as they are not making misrepresentations. The rule is aimed at foreclosure rescue scams, not real estate professionals helping homeowners sell their home as a short sale.
3.5 Can real estate professionals now receive an upfront fee for a short sale transaction?
Yes, real estate professionals can now receive an upfront fee for a short sale transaction, so long as they meet the criteria in Section 2.1 of this article. The ban on upfront fees is within the part of the Rule that will not be enforced by the FTC. Note that the non-enforcement only applies when the real estate professional is acting pursuant to his/her license, and so the real estate professional cannot receive an upfront for other mortgage assistance services.
3.6 Does a real estate professional need to comply with the Rule when he/she refers a client to a MARS provider?
A real estate professional can refer a consumer to a MARS provider without needing to comply with the Rule, but the real estate professional will need to be careful that he/she is not seen as “arranging” the short sale negotiations. If you “arrange” to have another person or entity conduct the MARS negotiations for a consumer, then you are still required to comply with the MARS rule. The MARS rule includes in the definition of MARS provider “any person that…arranges for others to provide any mortgage assistance relief service.”
One possible way to avoid this problem is to offer the client a list of providers and allow the client to choose the MARS provider. Whether the real estate professional is seen as arranging the transaction will again be a factual determination, but allowing the client to choose the provider and making it clear that the client is not required to use the MARS providers offered by the real estate professional should eliminate the need for the real estate professional to comply with the MARS rule.
4. CFPB, State Attorneys General, and Private Right of Action
4.1 What is the CFPB’s role with the Rule?
On July 21, 2011, the rulemaking authority for the Rule will switch from the FTC to the CFPB. CFPB can also enforce the Rule, in addition to the FTC and state attorneys general.
4.2 While the FTC has stayed most of its enforcement of the Rule, both the CFPB and state attorneys general can continue to enforce the Rule. Will those groups also stay enforcement of the Rule against real estate professionals?
NAR expects that both the CFPB and state attorneys general will follow the FTC’s lead. The CFPB is a new agency and NAR believes that the agency will defer to the FTC, the federal agency that created the MARS Rule. The CFPB had published a statement that the “official commentary, guidance, and policy statements issued prior to July 21, 2011, by a transferor agency with exclusive rulemaking authority for the law in question…will be applied by the CFPB pending further CFPB action.”
State attorneys general seeking to enforce the Rule will need to alert the FTC to these plans prior to filing any actions. If the FTC does not agree with the proposed state prosecution, the FTC can intervene in the state action and make its views about the action known to the court. All of this leads NAR to the conclusion that the FTC’s action will have the effect of staying the Rule as described above against real estate professionals.
4.3 Can a consumer bring a civil lawsuit for alleged violations of the MARS Rule?
The Rule does not contain a private right of action for consumers who want to bring lawsuits for alleged violations of the MARS Rule.
5. Next Steps by NAR
5.1 How will NAR further clarify the application the Rule to real estate professionals?NAR will contact the CFPB as soon as the Rule is transferred to the agency in order to seek further clarification. In addition, NAR will work to have the FTC’s policy incorporated into the Rule by the CFPB to make it absolutely clear that real estate professionals do not have to comply with the Rule so long as they are acting within their licensed capacity and do not make any representations to their clients during the course of assisting a client in obtaining a short sale.
What is the fundamental issue?
To protect distressed homeowners from mortgage relief scams that have sprung up in recent years, the Federal Trade Commission (FTC) published the Mortgage Assistance Relief Services (MARS) final rule on December 1, 2010. The rule is now in effect. The rule had impacted real estate professionals who represent clients involved in a short sale transactions.
I am a real estate professional. What does this mean for my business?
While the intent of the MARS rule is to protect distressed homeowners from mortgage relief scams, it is written so broadly that it also required real estate brokers and agents acting in their licensed capacity to comply when they negotiate with the lender on the terms of a short sale.
NAR and the FTC discussed the difficulty real estate brokers and agents have in complying with the literal requirements of the MARS rule since it was not drafted with a real estate sales transaction in mind. On July 15, 2011, The Federal Trade Commission (FTC) announced that it will forbear from enforcing most provisions of its Mortgage Assistance Relief Services (MARS) Rule against real estate professionals who assist financially distressed consumers in obtaining short sales from their lenders or servicers.
NAR broadly supports efforts to ensure that MARS services truly benefit consumers but noted that the disclosure language required by the rule does not make sense in a real estate brokerage context. NAR asked the FTC to amend the rule or provide additional guidance for when a real estate broker is representing a consumer in a short sale transaction.
NAR discussed with the FTC the difficulty real estate brokers and agents have in complying with the literal requirements of the MARS rule since it was not drafted with a real estate sales transaction in mind. On July 15, 2011, The FTC announced that it will forbear from enforcing most provisions of its MARS Rule against real estate professionals who assist consumers in obtaining short sales from their lenders or servicers.
The FTC’s forbearance should have the effect of resolving this issue for real estate professionals who are acting in their licensed capacity. While the Consumer Financial Protection Bureau and state attorney generals can still enforce the Rule as written, both groups are expected to follow the FTC’s lead. NAR will continue to work on obtaining a complete resolution of this issue.
Business Issues Policy Committee