The Question - Are Real Estate Agents Furnishing MARS?
The issue regarding real estate agents and the new FTC MARS Rule (as in Mortgage Assistance Relief Services) is that there is no clear cut rule. The Commission states in footnote 126 of the Rule that an exemption for real estate agents is not necessary because real estate agents customarily assist consumers in selling or buying homes and perform functions such as listing homes for sale, showing homes, and finding desirable homes for consumers. Although the Commission realized that these services may be performed when a home is in foreclosure or will be a short sale, those circumstances do not change the "traditional character" of what services the real estate agent is performing. (see page 75102 for the footnote).
MARS Casts A Wide Net -
That being said, the Commission also states that the interpretation and application of the Rule is very broad. A Mortgage Assistance Relief Service ("MARS") is any service, plan or program, offered or provided to the consumer in exchange for consideration, that is represented, expressly or by implication, to assist or attempt to assist the consumer in negotiating a modification of a dwelling loan that reduces the amount of interest, principal balance, monthly payments, or fees; stopping, preventing or postponing a foreclosure or repossession,; or obtaining one of several other types of relief, i.e.: forbearance or repayment plan, extension to cure a default, reinstate a loan or redeem a property; a waiver of an acceleration clause or balloon payment; a sort sale, deed in lieu of foreclosure or other disposition of the property except a sale to a third party that is not the loan holder) to avoid delinquency or foreclosure. Further, the Commission states, ". . . Sec 322.2(i) is intended to apply to every service MARS providers offer, expressly or by implication, for the purpose of obtaining loan concessions, avoiding foreclosure or saving their homes."
When The Real Estate Agent Is Not a MARS Provider -
Several commentary entries to blogs are saying that a real estate agent is exempt because the agent is involved in the sale to "a third party that is not the loan holder." Others are saying that the real estate agent is providing MARS services and subject to the Rule if they are in any way negotiating with the lender. I believe that the Rule does not apply to the real estate agent, but only when the other incidentals to the sale do not include a short sale or a foreclosure in progress. In other words, if the sale is a traditional sale and only traditional sale services are being rendered, the Rule does not apply to that transaction as far as the real estate agent is concerned.
The Rule specifically states that it is intended to apply to every service MARS providers offer, expressly or by implication, for the purpose of obtaining loan concessions (ie a short sale), avoiding foreclosure, or saving the owner's home.
If an agent is handling a short sale and contracts with a short sale negotiating entity (title company, negotiating company, etc) to do the negotiating, or the real estate agent does the submission/contact of the short sale package with the lender, the real estate agent is performing MARS services and is subject to the Rule.
Do you as a real estate agent advise the client not to pay the mortgage? If you do, that is a violation of the Rule and such a statement must include specific disclosures set forth in the Rule. Also by giving that advice, you are squarely being subject to the Rule because (1) you are providing MARS defined advice and (2) you are receiving or have the expectation to receive consideration as a result of the advice.
Now I Am Very Very Confused!
As a corollary, as stated in the Commission's commentary, "...if an otherwise exempt mortgage broker is providing a loan refinancing ... as a means for (a homeowner) to save his home from foreclosure, then the mortgage broker is providing MARS and the Rule covers this conduct." I find this statement to be a point of significance to real estate agents because applying this model to a real estate agent, if the home has equity but the mortgage is none-the-less in foreclosure, then the real estate broker is providing MARS and the Rule covers this real estate agent conduct. I know this seems harsh, but look at the comment yourself on page 75102, middle column, 2nd full paragraph) Section 322.2(i) b. It seems to me that this comment and its corollary are in direct conflict with the statement in footnote 126, making the statement in footnote 126 suspect that the circumstances in that footnote must be such as to be very constraining to the traditional services of a real estate agent even if the property is in foreclosure. Perhaps the Commission's thinking was that a mortgage broker seeking to refinance the home is different because the result being sought between a mortgage broker's refinancing (the client keeps the home) is different than the real estate agent's sale (the client sells the home). This will need some discussion and clarification.
Remember "Traditional" Real Estate Agent Services?
I think the Rule's language and commentary as discussed by the Commission applies to real estate agents that do anything more than traditional buying and selling services for their clients. If an action undertaken by the agent is something that would not occur in a traditional real estate transaction (in other words, if the agent is working with a short sale negotiator or does the short sale negotiations itself, or if the agent is receiving a fee that it would not receive in a traditional sale because it is providing some non-traditional service - as in some agents collecting a special yet nominal "short sale fee"), then the agent is providing directly or indirectly MARS provider services and the real estate agent is subject to the Rule.
The problems that were discussed in this writer's previous blogs have been addressed in the new Rule. (AGENT PAYS FOR ATTORNEY - THE CONTINGENT SHORT SALE ATTORNEY FEE AND CONFLICT OF INTEREST ; DISTRESSED HOMEOWNERS DEFRAUDED BY ATTORNEYS - EXPOSED IN CALIFORNIA ; LOAN AUDITS - FORECLOSURE DEFENSE FALLACY? SHOULD I PAY MY MORTGAGE?
The BIG Question -
So let's get down to the big question. If the agent is retained to market what will be a short sale or a home in foreclosure, how can the agent stay away from the Rule while still providing commissionable services? The answer appears to be clear - the agent cannot provide anyMARS services and cannot contract on behalf of the client to have provided to the client any MARS services. If there are MARS services to be provided to the client, the client must contract for those services independent from the real estate agent. To be outside the MARS Rule, the real estate agent is limited to providing traditional real estate services (ie: for those in the business before 2006, think before short sales became "de rigueur" which is not the same as "traditional" - for those that started after 2006, think of what you thought real estate agents were supposed to be doing and not what you are presently having to do).
A lot of you may comment that if the real estate agent is not receiving a fee for the services of dealing with the short sale negotiating then why would the Rule apply. The Rule does not condition itself on the mere receipt of a distinct fee for the negotiating. The commission from the sale which is a result of the negotiating is enough to create the "consideration" set forth in the Rule (and the same would go for the closing agent example of getting closing and title fees as the consideration for MARS services). It is the rendering of any part of the service - directly or indirectly - that the Commission is addressing. For example, if as a sales agent you ever provided the advice that the borrower should stop paying on the mortgage, you would have violated the Rule. Now if you give that MARS defined advice, you need to inform the borrower of all of the downsides of not paying the mortgage on time, give disclosures on your fee, and keep special records of the contact with the client and the lender and all others involved.
Even Attorneys Are In This Big A Net!
Attorneys remain exempt from the Rule - but only if certain criteria are followed - including escrowing of the fees paid by the client. We have set up a special law firm escrow account with sub accounts just for our clients which would otherwise be governed by MARS, and we had already complied for years with all of the other disclosure criteria, so but for some interim paperwork and the special escrow account, we don't need to change anything we were doing before.
Affiliated With A MARS Provider? Then You Are A MARS Provider.
Further, short sale / loan modification negotiators (unless they are in fact the attorney - not a merely affiliated with an attorney) are held to very strict disclosure, reporting, and fee arrangements (which detail is not the purpose of this article). If you as a real estate agent have an affiliation with the short sale negotiator, you are also held to the same requirements as the negotiator and you must comply with MARS.
MARS Is Not A Prohibition - It Is A Road Map - But Deviation Is Expensive!
Although the MARS Rule does not prevent real estate agents from performing MARS services, if they choose to perform MARS, it does make them comply with all of the requirements of the Rule. This will definitely change the way real estate agents work with short sales. To stay outside the Rule, a real estate agent should not contract with an entity that does the work of a seller's short sale negotiator nor have any contact the lender's short sale negotiator. The client must contract with a short sale negotiator or attorney independent of the real estate agent for the negotiations to be undertaken and to keep the real estate agent out of that transaction and outside of the MARS scope of application. Since lenders deal with real estate agents all the time in short sale negotiations, because a great number of real estate agents will now not want to be subject to the MARS Rule, I foresee a significant restructuring of the way short sales are accomplished.
Copyright 2011 Richard P. Zaretsky, Esq.
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Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 email: RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com Website www.Florida-Counsel.com.
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