New FTC MARS Rulings for Short Sales and Loan Modifications

Reading FTC rulings is not the most exciting stuff, but the new MARS ruling that has mostly gone into effect will dramatically change the market for providers of loan modification and short sale negotiation services across the country.

As the market crashed and people started scrambling for a new way to make a buck (at anyone’s expense),  short sale and loan modification negotiators started popping up everywhere.  It was quite amazing how many ‘experienced’ people came out of the woodwork when short sales and loan mods were a very new thing.  The scammers were loving it!

Even now a quick search on Google for ‘loan modification Lynnwood’ turns up pages of results of people offering to help modify your loan for a fee.  Some are probably reputable and some are the more shady type.  It is hard to tell the real loan modification specialists from the fakes but the stories are pretty much all the same.

Typically shady loan modification providers will promise that they can work with your lender, reduce your mortgage payment and save your home.  All it would require is an up front fee (non-refundable of course).

After several years and loads of complaints, the FTC finally has issued the MARS ruling that will put a lot of the more shady ‘negotiators’ out of business.

With the start of the new year, all short sale and loan modification providers are now required to make some big disclosures right up front.  These are that:

  • They 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.

Classically one of the best tricks shady loan modification companies had was to tell people to stop all communication with their banks so that they would never find out how little the negotiators were doing.

You must be licensed to do short sales and loan modifications now!

Before now, ANYONE could set up a business to help you negotiate your short sale or loan modification.  Now the rules have dramatically changed.  As a real estate agent, I can still help negotiate a short sale with the bank for the sellers of a property I have listed.  But I know there are agents out there making money doing this on the side for other agents and that looks like it will be going away.

The base of it all is that they want some way to regulate who is doing modifications and short sales.

Short Sale and Loan Modification Services May No Longer Charge Up Front Fees!

The other huge change for any MARS provider, is that as of the end of January 2011, these services may no longer charge up front fees!  Again, as part of the scam, loan modification services would require an up front fee of several hundred to several thousand dollars.  Of course, this was no guarantee that they would ever get any benefit from it.

I recently talked with one of my clients that had put up a large fee to a loan modification service that did nothing and didn’t get his loan modified.  Luckily, he managed to make them fulfill their ‘money back guarantee’, but the word is that he is the exception to the rule.  Most of the time people will never see their money again.  Please make sure that if you decide to utilize a third party for a modification or short sale, that they are properly licensed to do the work!

Honestly, I am very happy these new laws are in effect.  Too many homeowners have gotten hurt already.  If you are having trouble paying your mortgage, I encourage you to make use of the free resources available.  Here are a few places to get information if you need help with your loan and of course you can always call me directly!  As always, my advice regarding any loan modification is free of charge.  In regards to short sales, I only make money when the deal is closed.

Don’t Let A Foreclosure Impact Your Future (PDF)
Washington Foreclosure Prevention Resource Guide – (PDF: 2 MB)
Protect Yourself from a Loan Modification Scam
About Foreclosure Rescue Scams

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  • JoAnna Jensen

    Hi,

    You did not include the Attorney Exception to the FTC.mars rulling which says attorneys are now allowed to charge for Loan Modifications.

    We can charge for Loan Modifications as long as the following apply:

    1) Attorneys are practicing Law 
    2) The attorney is in the same sate as either the home or the home owner
    3) either the retainer goes into a trust fund or we get paid as the services are complete.

    Attorneys are able to help homeowners on a legal level.  We can dispute FDCPA, UDAP, and FCRA violations.  Additionally most attorneys will do more than just fill out a loan mod package.  

    I have heard and seen people say you do not need to pay any one to do your loan modificaiton.  Well that may be true, but how would you know if the following have happened:

    1) you have illegal fees added to your loan balance.
    2) your note and deed of trust have not been authenticated
    3) your lender does not have legal authority to foreclose

    even though it is tempting to save money, at some time we need to hire a competent attorney who can help us when creditors collectors are taking advantage of us. 

    JoAnna Jensen
    Volo Law 
    Ca