A new Federal Trade Commission rule bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until home owners have a written offer from their lender or servicer that they decide is acceptable.
"At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of home owners without ever delivering results," FTC Chairman Jon Leibowitz said. "By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams."
The FTC is issuing the Mortgage Assistance Relief Services (MARS) Rule to protect distressed home owners from mortgage relief scams that have sprung up during the mortgage crisis. Bogus operations falsely claim that, for a fee, they will negotiate with the consumer's mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure.
Many of these operations pretend to be affiliated with the government and government housing assistance programs. The FTC has brought more than 30 cases against operations like these, and state and federal law enforcement partners have brought hundreds more.
Advance Fee Ban
The advance fee ban says companies may not collect any fees until they have provided consumers until the lender gives the home owner a written document describing the key changes to the mortgage that would result if the consumer accepts a loan modification offer. The companies also must remind consumers of their right to reject the offer without any charge.
Disclosures
Mortgage relief companies will also have to disclose three things to consumers:
- Mortgage relief companies are not associated with the government, and their services have not been approved by the government or the consumer's lender.
- The lender may not agree to change the consumer's loan.
- If companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.
Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don't have to pay the company's fee. The companies also must disclose the amount of the fee.
Attorney exemption
The news rule doesn't apply to attorneys that are engaged in the practice of law, licensed in the state where the home owner's house is located, and they follow state attorney conduct rules. They still have to place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.
All provisions of the rule except the advance-fee ban will become effective December 29, 2010. The advance-fee ban provisions will become effective January 31, 2011.
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