The Federal Trade Commission’s new short sale mandatory disclosure rule.
The FTC Rule Took Effect on January 31, 2011 and Real Estate Agents Are Subject to Substantial Fines and Penalties For Transactions Without the Mandatory Disclosures.
Most real estate agents are not aware of the new Federal Trade Commission rule that became mandatory on January 31, 2011, which regulates and requires additional advertising disclosures for real
estate agents working with short sales. The new rule at 16 CFR Part 322 is called the Mortgage Assistance Relief Services (MARS) rule. It was intended to protect consumers in financial distress from fraudulent loan modification companies and similar businesses who promised mortgage relief and retained the consumers money without providing the promised help. The FTC staff has determined that the definition of what a MARS services in the Rule encompasses short sale agents within its scope.
The definition of a MARS service provider in the Rule includes any person or business who either advertises for short sale business from a consumer homeowner or who negotiates the terms of a short sale with a consumer’s lender. The scope of the rule pulls in all real estate agents who work in short sales except for agents who exclusively work with short sale buyers and who never negotiate the terms of a short sale with a seller’s lender.
Compliance with the new MARS rule require new disclosures that now must appear in all real estate agents’ advertising and marketing for short sale business. The required MARS disclosure language varies depending upon whether the advertising is intended for a general audience or is intended for a specific consumer. The wording in the MARS disclosure may also vary depending upon the type of advertising medium, for example, whether it is print, audio or visual. The FTC Rule includes all traditional marketing channels such as newspapers, flyers, mail and radio and television advertising as well as web sites, sales pages and multimedia presentations on the internet.
When a prospective client turns into a real client and you list the client’s property as a short sale, there are different disclosures that your client must sign as well as new record retention rules for all consumer short sale transactions. Also, even if you started with a traditional listing, (i.e., a property with apparent equity) once you have a reasonable belief that it may turn into a short sale, you become automatically subject to the MARS rule any you are required to give a MARS disclosure to your client at that time.
Some if not all of the new required disclosure language is very basic knowledge and it is as if the agent is being required to over disclose, such as informing the consumer that the real estate agent is not part of a government agency and warning the consumer that if they stop making their mortgage payment they could damage their credit. Even if that is the case, the new disclosures are federally mandated and agents who fail to provide the disclosures are subject to fines in excess of $15,000 for each violation as well as being required to return all commissions that were earned in each non-complying transaction.
There are also other provisions of the MARS rule that relate to what you can and cannot say to the seller. For example, agents will be in violation of the law and subject to prosecution if they tell a client not to communicate with their servicer or lender. You cannot require that all communications related to the short sale must go through you. You also have to be able to back up what you advertise or say to the consumer about your short sale services with clear and competent evidence. For example, if you advertise that you close all your short sales within 30 days of listing a property or that all your clients receive deficiency releases, you had better be able to prove those statements are true or you could be deemed to have committed misrepresentations in violation of the Rule. Thus, the new Federal Trade Commission MARS Rule is something real estate agents need to take seriously and you need to do it now.