SHOCKER!!   Buyer of a short sale doesn’t own the property he just purchased (or does he?).  Seller of the short sale paid off the wrong party (or did he?).

The below email was sent to Neil Garfield at Living Lies.  Sadly this is not shocking at we know of two other lawsuits where the seller and the buyer acted in good faith and sold the property and the money was sent to BofA (and MERS was involved as well) and later the “real” owner of the deed of trust came forward and demanded that the transaction be undone due to a mistaken release of the deed of trust by the wrong party.

What does this mean to a real estate agent involved in the transaction?

Get an attorney involved – preferably BEFORE the short sale closes.  Why?  Quite simply you need to make sure that the transaction is buttoned up tight.   Many of the short sales that involve an attorney and litigation against the pretender lender will require a settlement agreement to be signed at closing (or at least have enough documentation that the seller & buyer have some ground to stand on).

But what does a settlement agreement do and how does it help you as the real estate agent?

First, the pretender lender whose is receiving the proceeds of the short sale “swears” they are the real lender or working for the real lender (like Fannie Mae).  Second, a well crafted settlement agreement will indemnify the seller (or whichever parties are named) – meaning that the lender getting the money has to defend the seller if they are sued over the specifics related to the settlement, i.e. the short sale.

Does the buyer lose the house and does the real estate agent have to give back their commission?

Very likely the answer is no.  But you will have to hire an attorney to fight this battle for you.   The title company should be on the hook for the value of the home – meaning they will either have to pay off the “real” lender or the new homeowner.   The downside is that it could cost more than the commission just to fight this type of suit AND the title insurance is only good for the amount of the policy (if the house was bought for less than full value or thousands of dollars in updates/remodeling has been performed you could lose this amount).

Bottom Line

Short sales and even purchasing foreclosure can be great equity and value builders for the buyers and assist the seller with disposing of a property but a good title company and good lawyer can help you keep this value hopefully keep your sanity and commission.

Seek legal counsel from a real estate attorney and one who has experience in dealing with short sale and foreclosure.

- The Bank Slayer

Mortgage insurance adds another and potentially difficult step to closing out a short sale.

Why?  Quite simply it adds another approval needed in the short sale approval process.

When negotiating with the bank for a short sale it may appear that the assigned negotiator is the person that you are dealing with but only on the surface.  The reality is that there are several folks and possible several layers of approvals needed to approval a short sale.

Not only does the mortgage company (the Servicer of the loan) need to approve it but they need to make sure it is within the guidelines of the investor for whom they are servicing the loan.  For example, they may be processing the loan for Fannie Mae and within their guidelines.  Most times they still need to send the short sale to Fannie Mae for approval.  Now add in a mortgage insurance company as well.

Why is this a problem that one more approval must be sought?  Because the mortgage insurance company has to write a check!

When they have to write a check to cover a loss for the investor they want to scrutinize the deal.  Furthermore, they may want a payment from the seller.  Yes, a payment from the seller to help cover the loss.

Mortgage insurance doesn’t help the seller/borrower?

No, in fact the purpose of the mortgage insurance (for which the borrower pays) only serves to protect the banks.  When the seller/borrower defaults then mortgage insurance comes into play to help cover the loss for the lender.  This sounds good for the borrower, right?  Yes, it sounds like normal insurance that protects the purchaser of the insurance.

Unfortunately, this type of insurance you buy helps only the lender and in a default situation where the mortgage insurance company pays, they can turn around and seek payment from the borrower/seller.  Either a partial payment before or at closing or suing the defaulted borrower/seller later for the paid out funds.

If the home you are short selling has mortgage insurance, this needs to be addressed as early as possible in the sale cycle to insure a smooth approval process.

– The Bank Slayer

NAR is touting a new bill the “Prompt Decision for Qualification for Short Sale Act of 2011” which has been introduced in the U.S. House of Representative and will mandate that mortgage servicers respond to short sale requests within 45 days!

Sounds good but guess what? They already tried this once.  It was called Prompt Decision for Qualification for Short Sale Act of 201o. It never made it out of committee.

You think to yourself, “But hey, at least they are trying again.”   (You can track the progress of the 2011 attempt here:  http://www.govtrack.us/congress/bill.xpd?bill=h112-1498 )

But the real problem is that the bill is virtually worthless.  Why?

First, it provides exceptions – meaning it doesn’t apply – for most mortgages.

Example #1 – It doesn’t apply to any loan that has been securitized. – READ: Fannie or Freddie Loans. This covers over 50% of all mortgages in the U.S.

…except as provided in subsection (b) and notwithstanding any other provision of law or of any contract, including a contract between a servicer of a residential mortgage loan and a securitization vehicle or other investment vehicle…

Example #2 – It doesn’t apply to any loan where the short sale process or review of that process (such as HAFA, HUD’s ATP, etc.) is already in the works.  Furthermore, the bank can claim that the “procedure” for handling a loan in default is already spelled out in a written agreement such as the deed of trust (which governs foreclosures as well).

…shall not apply with respect to any residential mortgage with respect to which the mortgagor and the mortgagee or servicer have entered into a written agreement before the date of the enactment of the Prompt Decision for Qualification of Short Sale Act of 2011.

Second, the time limit of 45 days does little to help Texas homeowners.  Why? Because it won’t stop a foreclosure which takes only 21 days.

…may not be construed to preempt, annul, or otherwise affect any other provision of law or of any contract or program that provides a shorter period than is provided under subsection (a)…

Third, there are no real teeth or penalties if the mortgage servicer doesn’t abide by the 45 day period.

…any creditor who fails to comply with any requirement imposed under this part…any actual damage sustained by such person as a result of the failure OR not less than $400 or greater than $4,000.

Bottom line is this:

• It is unlikely this bill will ever make it out of committee and into law.
• It doesn’t apply to most mortgages.
• There are few if any remedies available to the homeowner.
• Unless you have MASSIVE equity in your home you are not going to be able to prove actual damages that are in excess of what is owed on the mortgage AND even if the homeowner is awarded the maximum damage of $4,000 it will likely be used to offset missed mortgages payments, taxes, insurance, and whatever else the bank tacks on.

Oh and by the way…the response within the 45 days could still very well be NO.

We still maintain that in most cases, direct and aggressive litigation against the bank is the best way to secure: short sale approval, maximum commission for the REALTOR, and debt forgiveness for the homeowner.

Use a local real estate lawyer in your area not just to threaten, but SUE THE BANK.

- The Bank Slayer

The FTC’s (Federal Trade Commission) MARS rule (Mortgage Assistance Relief Services) has caused a lot of confusion for licensed real estate agents.

In just the past three weeks I (along with attorneys from The Gore Law Firm) have spoken to two of the largest Keller-Williams & RE/Max offices in the Houston area as well at the Champion School of Real Estate in response to requests for information on how to deal with MARS.

While in previous posts we addressed the questions of:

1. When does the FTC’s MARS rule apply to real estate agents assisting homeowners in a short sale.  READ MORE HERE.
2. Next we addressed the types of disclosure requirements the MARS rule enforces.  READ MORE HERE.
3. Then we reviewed when and how you can be paid for assisting a family trying to sell their home in a short sale.  READ MORE HERE.
4. Finally we discussed the types of “misrepresentations” that can cause an agent/broker to be sued for lack of compliance.  READ MORE HERE.

Let’s address a recent article posted by TAR (Texas Association of REALTORS) Legal Department in regards to MARS.

Titled “How to Navigate MARS” this article in it’s entirety is attached here. –>  MARS article from TAR

Unfortunately the article is VERY brief and doesn’t address some of the most disturbing aspects of the MARS rule. (Such as requirements for recordings phone calls and logging personal email accounts and providing this to the broker.)

Part One – The Ignorant Agent

A quick read makes it sound like “ignorance is bliss”.  If you didn’t know the homeowner needed a short sale in advance and you just did your part in calling the bank to negotiate a short pay that somehow this “should” exclude you from MARS.

The author writes, “Some authorities have opined that this ordinary behavior of a listing broker defines her as a provider subject to the MARS rule. The Texas Association of REALTORS® Legal Department, however, believes that so long as Texas REALTORS® limit their behavior to that demonstrated in the above scenario, they won’t be subject to MARS regulations.”

Really?!??!   Not sure what Edra Anderson’s court room litigation experience resume reads like but this seems like shaky ground.   Most attorneys will tell you ignorance is a not a defense.

I sincerely doubt this argument is going to hold up in court and I’m quite sure that TAR’s Legal Department is not going to spring into action to defend agents who claim, “Hey I didn’t know Sally Seller needed a short sale and I HAD to call the bank 50x to get them to agree to take a short payoff.”

I guess the author ignores this MARS Rule interpretation:

“…the new MARS rule applies to all real estate brokers, agents, title officers, etc. who attempt to negotiate, or otherwise provide services, and/or endeavor in efforts related to halting a foreclosure, or obtaining lender or servicer approval of a short sale.”

Part Two – The Short Sale Expert Agent

At least in this section the author gets it right that there are lots of requirements required to stay out of trouble.  Namely items like not collecting money in advance.   If you want to read more go here.

Or what about this:

Under the Rule, when you give a customer an offer of mortgage relief from their lender or servicer, you have additional disclosure requirements:

1. You have to give your customer a separate written page that clearly and prominently says “This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount you disclosed upfront] for our services.”
2. You have to give your customer a separate one-page written notice from the customer’s lender or servicer that explains all material differences between the offer of mortgage relief you got from the lender or servicer and the customer’s current loan.

Part Three – Wait…TAR left off this part

What type of monitoring is required to stay in and prove compliance?

You also must take reasonable steps to ensure that your employees and independent contractors (agents) comply with the Rule. At a minimum, this would include:

► Performing random, blind monitoring and recording of sales and customer service calls. This includes and involves your employees/contractors or people who do sales & marketing on your behalf;

► Establishing polices & procedures for receiving and responding to consumer complaints. This includes the procedures for investigating each one promptly and thoroughly;

► Determining the number and nature of consumer complaints related to transactions involving individual employees or contractors. This includes the taking of corrective action – which may include training, discipline, or termination – if they’re not complying with the Rule;

► Keeping records sufficient to establish that you’re meeting your monitoring responsibilities under the Rule. This is best performed by documenting the procedures and scheduling and performingand keeping the results of the “random” and blind monitoring of recorded calls and spot checking employees/contractors for compliance.

Unfortunately the FTC did not take into account that most real estate agents do not sit an office where their phone calls, email, and faxes are automatically logged and recorded to ensure they are in compliance with the stipulations mandated by the MARS rule.  The very nature of the independent contractor status of real estate agents sets the stage for a nearly impossible task for any brokerage to stay in compliance and thus puts that brokerage at extreme risk.

You can read more here – >>>  Proof of Compliance with MARS

Bottom Line:  The FTC MARS rule greatly impacts agents and every brokerage needs to be VERY AWARE of the legal implications of going it alone without legal assistance in negotiating short sales.

You can click here to download the MARS Compliance Guide for Business

– The Bank Slayer

Although the FTC’s claims the new MARS rule is meant to protect homeowners from scammers and incompetents; it also places an enormous number of and frankly burdensome responsibilities on real estate agents/brokers who assist homeowners with short sales or deed in lieu.  Penalties run as high as $11,000 a day thus every agent and broker needs to  fully understand the risks to their business and seek legal counsel if they plan to work short sales apart from an attorney and/or MARS compliant 3rd party.

In previous posts we addressed the questions of:

1. When does the FTC’s MARS rule apply to real estate agents assisting homeowners in a short sale.  READ MORE HERE.
2. Next we addressed the types of disclosure requirements the MARS rule enforces.  READ MORE HERE.
3. Then we reviewed when and how you can be paid for assisting a family trying to sell their home in a short sale.  READ MORE HERE.
4. Finally we discussed the types of “misrepresentations” that can cause an agent/broker to be sued for lack of compliance.  READ MORE HERE.

In this final installment of our MARS rule review we cover the compliance & record-keeping responsibilities that practically and (unfairly) shuts out agents from performing short sales without 3rd party assistance.  But let’s assume for the moment that you as an agent or you as the broker are confident that all materials, disclosures, contract and activity logging is in compliance.  Now the FTC says prove it.

What type of record-keeping is required to prove compliance?

The Rule requires you to keep certain records for at least two years from the date the document is created,  generated, or received:

► Advertising and promotional materials. You must keep a copy of each substantially different advertisement, brochure, telemarketing script, website, training document, or other material related to the advertising or marketing of your service. You don’t have to keep separate copies of documents that have minor, immaterial differences.

► Sales records. You have to keep records showing the name, last known address, and telephone number of each of your customers; the services they bought from you; and how much they paid you. You need to maintain records relating only to customers who agree to use your services.  You don’t have to keep records relating to people who asked about your services, but didn’t sign up.

► Communications with customers. You must keep copies of all written communications between you and customers that occurred before they agreed to use your service.  This includes emails and faxes from employee’s personal accounts or home.

► Agreements with customers. You must keep copies of all contracts or other agreements between you and your customer.

For the detailed oriented and organized agent this is possible but viewed from the brokerage perspective this becomes extremely burdensome.  Especially the fact that the broker is responsible for retrieving, maintaining and storing every written communication including those taking place outside of the brokerage’s main place of business – most agent work remotely and use personal cell phones, email and fax.

What type of monitoring is required to stay in and prove compliance?

You also must take reasonable steps to ensure that your employees and independent contractors (agents) comply with the Rule. At a minimum, this would include:

► Performing random, blind monitoring and recording of sales and customer service calls. This includes and involves your employees/contractors or people who do sales & marketing on your behalf;

► Establishing polices & procedures for receiving and responding to consumer complaints. This includes the procedures for investigating each one promptly and thoroughly;

► Determining the number and nature of consumer complaints related to transactions involving individual employees or contractors. This includes the taking of corrective action – which may include training, discipline, or termination – if they’re not complying with the Rule;

► Keeping records sufficient to establish that you’re meeting your monitoring responsibilities under the Rule. This is best performed by documenting the procedures and scheduling and performing and keeping the results of the “random” and blind monitoring of recorded calls and spot checking employees/contractors for compliance.

Unfortunately the FTC did not take into account that most real estate agents do not sit an office where their phone calls, email, and faxes are automatically logged and recorded to ensure they are in compliance with the stipulations mandated by the MARS rule.  The very nature of the independent contractor status of real estate agents sets the stage for a nearly impossible task for any brokerage to stay in compliance and thus puts that brokerage at extreme risk.

In reiteration of a previous post on :

How should short sales be handled?

As an agent/broker you have four choices when it comes to working with homeowners in a short sale.

1. Stay away from short sales completely.  (Tough considering that 1 out of every 16 listings are are short sales.)
2. List and negotiate the short sale yourself. (Low chance of success due to failure rate of ~73% plus high risk due to new MARS rule.)
3. List but defer short sale negotiation to a 3rd party. (Increased chance of success but referral to 3rd party doesn’t fully release liability under MARS.)
4. List but defer short sale negotiation to a MARS compliant/licensed 3rd party and/or attorney.  (Best chance of success and nearly eliminates MARS liability.)

Bottom line is if you want to negotiate short sales without a 3rd party or attorney you should first have a qualified real estate attorney/firm look over ALL of your correspondence, marketing and forms to make sure everything is in compliance.

- The Bank Slayer

The FTC’s new MARS rule is meant to protect homeowners from scammers and incompetents. Since penalties run as high as $11,000 a day every agent and broker needs to  fully understand the risks to their business.

In previous posts we addressed the questions of:

1. When does the FTC’s MARS rule apply to real estate agents assisting homeowners in a short sale.  READ MORE HERE.
2. Next we addressed the types of disclosure requirements the MARS rule enforces.  READ MORE HERE.
3. Last post we reviewed when and how you can be paid for assisting a family trying to sell their home in a short sale.  READ MORE HERE.

In this article we’ll address how to stay out of trouble by not “over promising”.

THIRD ELEMENT – PERFORMANCE REPRESENTATIONS

“The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek (very vague and widely cast);
• the company’s affiliation with government or private entities;
• the consumer’s payment and other mortgage obligations;
• the company’s refund and cancellation policies;
• whether the company has performed the services it promised (need to disclose past performance);
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services (must provide info about HOPE line, etc.);
• the amount of money a consumer will save by using their services (cost justify why this makes sense for them to pay); or
• the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.”

What does this mean?

Unfortunately the MARS rule is very liberal in its definitions; meaning that the government cast a wide net so that if a homeowner complains about the result of an agent’s help (be it a failed short sale that ended in foreclosure or a successful short sale closing resulting in a deficiency judgment) the FTC can pursue and punish the agent/broker.  Furthermore, the homeowner can sue the agent  if he can prove $50,000+ in damages (credit, loss of home, liabilities, deficiency judgment, etc.) due to the “mismanagement” of the short sale due to violations of the MARS rule.

This new federal rule applies to all types of mortgage assistance relief assistance services, including anything having to do with loan modifications AND/OR short sales or Deed-in-Lieu settlements.

How should short sales be handled?

As an agent/broker you have four choices when it comes to working with homeowners in a short sale.

1. Stay away from short sales completely.  (Tough considering that 1 out of every 16 listings are are short sales.)
2. List and negotiate the short sale yourself. (Low chance of success due to failure rate of ~73% plus high risk due to new MARS rule.)
3. List but defer short sale negotiation to a 3rd party. (Increased chance of success but referral to 3rd party doesn’t fully release liability under MARS.)
4. List but defer short sale negotiation to a MARS compliant/licensed 3rd party and/or attorney.  (Best chance of success and nearly eliminates MARS liability.)

Bottom line is if you want to negotiate short sales without a 3rd party or attorney you should first have a qualified real estate attorney/firm look over ALL of your correspondence, marketing and forms to make sure everything is in compliance.

>>>Next up the final component of staying in compliance with MARS and frankly is the most unfair and back breaking of them all.

How does the FTC’s MARS rule affect fees and income from assisting homeowners in a short sale?  In other word, how do you get paid for your hard work?

In previous posts we addressed the questions of:

1. Ddoes the FTC’s MARS rule apply to real estate agents assisting homeowners in a short sale.   The answer is yes.  READ MORE HERE.
2. Then we addressed the types of disclosure requirements the MARS rule enforces.  READ MORE HERE.

SECOND ELEMENT – ADVANCED FEES

“The most significant consumer protection under the FTC’s new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.”

This is the easiest one for most agent to understand as commissions aren’t paid until the transaction is complete. But plenty of agents have started collecting money in advance of the closing to cover costs such as hiring assistants, inspectors, or appraisers to assist in processing the short sale.  This is forbidden.

When can you get paid?

The Rule says you can’t collect any fee from a customer until you’ve met three requirements:

1. You get an offer of mortgage relief from your customer’s lender or servicer. You must have persuaded your customer’s lender or servicer to reduce, modify, or otherwise change the terms of the customer’s mortgage loan;
2. You give your customer the written offer. You must provide your customer with a written agreement from the lender or servicer to reduce, modify, or otherwise change the terms of the customer’s  mortgage loan; and,
3. Your customer accepts the written offer. The customer’s acceptance must be in the form of an executed written agreement with the lender or servicer that incorporates the changes to the terms of his or her mortgage loan.

What about other services?

You can’t collect any fees for intermediate steps you take as part of the process. For example, it would be illegal to charge separately for:

► conducting an initial consultation with a customer;

► reviewing or auditing a customer’s mortgage or foreclosure documents to detect errors, including robosigning or title problems;

► gathering financial or other information from a customer;

► sending an application for mortgage relief or any other request to a customer’s lender or servicer;

► communicating with a lender or servicer on a customer’s behalf; or

► responding to requests for information from a customer’s lender or servicer.

What needs to be disclosed about my fees?

You must clearly and prominently disclose certain information before you sign people up for your services. You must tell them upfront key information about your services, including:

► the total cost (how your commission is paid),

► that they can stop using your services at any time (yes, the listing agreement must be cancellable),

► that you’re not associated with the government or their lender, and

► that their lender may not agree to change the terms of their mortgage (approve a short sale).

Thanks to Kevin Hardin, esq, Mandelman Matters & The Gore Law Firm for content, insight & analysis.

Next up >>> Performance Misrepresentations

- The Bank Slayer

We have established that brokers/agents assisting homeowners with a short sale do fall under the FTC’s MARS rule:

In fact, the new MARS rule applies to all real estate brokers, agents, title officers, etc. who attempt to negotiate, or otherwise provide services, and/or endeavor in efforts related to halting a foreclosure, or obtaining lender or servicer approval of a short sale.  The penalties are steep, and more than just your entire commission is at risk if you step over the line.  When it says steep penalties we’re talking about up to $11,000 a day!!!

Let’s just say that you, as an agent, and more importantly as a broker, DO NOT want to run afoul of the MARS rule!  To that end let’s examine some key elements.

While the MARS rule has three primary elements (which we will address over the next few articles) one of the most important parts is the need to preserve and retain copies and evidence of compliance for two to five years.

FIRST ELEMENT – DISCLOSURE

Short Sale Negotiators (whether 3rd party or the agent) must now provide significant disclosures in any and all commercial communications issued to homeowners.  For purposes of the rule, “commercial communications” means any written or oral statement, illustration or depiction that is designed to effect a sale or create interest in purchasing any short sale service, plan, or program.  Promotional materials and items and Web pages are included in the term “commercial communication.”

With respect to general commercial communications that occur prior to the consumer agreeing to use a Short Sale Negotiator (and that is not directed at a specific consumer), Short Sale Negotiators must include the following:

(1) “(Name of company) is not associated with the government, and our service is not approved by the government or your lender.”

(2) “Even if you accept this offer and use our service, your lender may not agree to change your loan.”

And there’s more…

When making any commercial communications directed at a specific consumer, the disclosures must also include the following:

“You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services.”

For the purposes of this disclosure, the amount the consumer has to pay consists of the total amount the consumer must pay to purchase, receive, and use all of the mortgage assistance relief services that are the subject of the sales offer including, but not limited to, all fees and charges.  Many Short Sale Negotiators attempt to get paid by the listing broker.  Even if that is the case, a disclosure of that fee must be made.

Let’s examine specific situations and the impact by these required disclosures.

1. Every type of conversation or marketing is covered. All written (letter, email, car magnet, etc.) as well as all oral statements such as: “I’ve closed 5 short sales like yours in the last year,” or “RE/MAX sells more real estate than any other brand and that includes short sales,” or “Keller-Williams trains agents like myself how to get tough short sales done.  I can yours done,” etc. etc. are required to be discounted with the above language and disclaimers.
2. Listing agreements are no longer sacred. You must provide the following new additions: a) the seller can cancel at anytime; b) that you’re not associated with the government or lender; c) that their lender may not agree to change the terms of the loan thereby permitting the short sale; d) the total cost.
3. You better get a finance degree.  You must disclose the differences between their loan and the short sale offer/approval.  Frankly, this is going to be the toughest for most agents.  No longer can you just “get it approved” without a detailed explanation of the “new loan terms.”  For example, an agent must explain in detail ALL material differences between their current loan versus taking the short sale approval and closing the transaction.  Items such as how much of an a deficiency will remain, how much the mortgage insurance company can or will pursue, and what is the remaining balance and the terms for re-payment if the short sale approval includes a promissory note.

Truth In Lending on Steroids

Under the Rule, it’s illegal to misrepresent, either expressly or by implication, any “material aspect” of your services.   That includes any information that’s likely to affect a consumer’s decision to use your service or choose one service over another.

Here are some examples of claims that would be material:

• the likelihood of negotiating, getting, or arranging a specific form of mortgage relief (like a short sale)
• how long it will take to get the advertised mortgage relief;
• an affiliation with the government, public programs, or lenders or servicers;
• the terms and conditions of homeowners’ mortgages including how much they currently have to pay;
• your refund and cancellation policies;
• whether homeowners will be getting legal services;
• the benefits and costs of using alternatives to for-profit MARS providers;
• the amount homeowners may save if they use your service;
• the total cost of your service; and
• the terms, conditions, or limitations of a lender or servicer’s offer of mortgage relief, including how much time the homeowner has to accept the offer.

In addition, if you make claims about the benefits, performance, or efficacy of your services, your statements must be truthful and you must have competent and reliable evidence to back them up.

So, for example, if you make claims about how good you are at closing short sales but the reality is you have lost 50% of the past listings to foreclosure, or that your previous closed short sale left the homeowner on the hook for a deficiency judgment, this must be disclosed, or at least addressed.

Short Sale offer/approval requires more disclosures

Under the Rule, when you give a customer an offer of mortgage relief from their lender or servicer, you have additional disclosure requirements:

1. You have to give your customer a separate written page that clearly and prominently says “This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount you disclosed upfront] for our services.”
2. You have to give your customer a separate one-page written notice from the customer’s lender or servicer that explains all material differences between the offer of mortgage relief you got from the lender or servicer and the customer’s current loan. Some examples of differences in loan terms that would be material to customers – and would have to be disclosed – include:

The quick answer is yes, REALTORS® as well as anyone else is involved in short sales or other “pre-foreclosure” activities are subject to the MARS Rule.

Although the FTC’s MARS Rule took effect on January 31, 2011, most real estate brokers have little or no knowledge regarding the impact on their practice.

Why hasn’t someone told me about MARS?

Most publications only recently have had a chance to read through and analyze the MARS Rule.  Not only is the Rule 15 pages long in semi-legalese; the actual “law” as added to the Federal Register 16 CFR Part 322 Mortgage Assistance Relief Services; Final Rule is 51 pages plus another 160 pages of explanation and history.  In other words, government work at its finest.

Additionally, the most ardent and traditional supporters for REALTORS® are local trade associations such as TAR and HAR or the name brand franchisors such as Century 21, Coldwell Banker, EXIT, Kellar-Williams, Prudential, RE/Max and others.  But HAR & TAR have no answer for federal mandates pushed through the Federal Trade Commission and the national chains are scrambling to advise their local offices when the fact of the matter is this should have been headed off by NAR.

Has NAR stepped up to protect REALTORS®?

No, the National Association of REALTORS® (NAR) failed to get their members excluded from the MARS Rule.   Although NAR did comment on the Rule, the FTC specifically addressed real estate agents thereby making them subject to the Rule.  Bottom line is that no group even as powerful as NAR wanted to argue with the FTC over this issue.

When is a REALTOR® specifically subject to the MARS rule?

Good news: The intent was to avoid including real estate brokers and agents handling sales of real property and thus the new MARS rule does not apply to real estate brokers (and their agents), provided they provide only real estate brokerage services to their clients (e.g. listing, showing, negotiating the transaction with the buyer).

Bad News: The new MARS rule does apply to real estate brokers (and their agents) (as well as title officers, etc.) who attempt to negotiate or otherwise provide services and/or endeavor in efforts related to halting a foreclosure or obtaining lender or servicer approval of a short sale.  The penalties are steep and more than just your entire commission is at risk if you step over the line.

Is everyone subject to the MARS Rule?

The quick answer – Yes.  But in general, the rule exempts attorneys if:

1. They provide mortgage assistance relief services as part of the practice of law.
2. They are licensed in the state where the consumer or dwelling is located.
3. They comply with state laws and regulations governing attorney conduct related to the rule

>> Up next: What disclosures are required when doing a short sale —>  Go Here

- The Bank Slayer

Sad but true – the real estate website Zillow.com is reporting that 27% of all homeowners are “upside down” or underwater.

Are you upside down in your home?

Economist David Blitzer with Standard & Poor’s says, “First of all, you may have somebody who’s underwater, you know, they owe $200,000 on the mortgage and the house is only worth $198,000. Well, they’re technically underwater.”

The reality is more stark than that simple equation.  If your mortgage balance is equal to or greater than 88% of your home’s value the answer is YES – you’re underwater.   Not the value of the appraisal but what it can SELL for on today’s market.  Why 88%? Simple, it takes approximately 12% the value of a home to sell it.  Title fees, prorated taxes, seller’s concessions, real estate commissions, etc., add up very quickly and will on average “eat” 12% the value of the home.

So now what?

The result for most homeowners is it means nothing unless you need to sell.  If you need to sell then you will need to work towards a short sale.  This means finding a REALTOR that knows what they are doing AND working with an attorney that can keep you out of foreclosure.

The Fox News report from today is below…

– The Bank Slayer

Homeowners Hit Brick Wall, With Many Owing More Than Homes Are Worth

By Laura Ingle

Published February 09, 2011 | FoxNews.com

More than15 million American homeowners currently owe more on their mortgages than their homes are worth, up from 13.9 million in the previous three months. The numbers indicate that higher foreclosure rates could be on the horizon, a potential trend supported by a sobering report from real estate website Zillow.com that details 27 percent of homeowners are “underwater.” That’s up from 23.2 percent the previous quarter.

Economist David Blitzer with Standard & Poor’s tells Fox News the new numbers need to be put in perspective. Blitzer says, “First of all, you may have somebody who’s underwater, you know, they owe $200,000 on the mortgage and the house is only worth $198,000. Well, they’re technically underwater.”

That’s not much he says but, on the other hand, “You may have somebody else who owes $200,000 and his house is $75,000 and he is really way, way underwater.”

The areas most in need of a life preserver are Nevada, Arizona, California and Florida. Las Vegas takes the lead with more than 81% of all properties showing negative equity. Phoenix follows Sin City with nearly 70%; Reno, Nev., with almost 68% of homeowners underwater; Orlando, Fla., has 61.7%; and 58% of homeowners in Modesto, Calif., are drowning in negative equity.

Economists say home prices are declining as foreclosed properties sell at discounted rates and unemployment looms at nine percent, holding potential homeowners back. The drop in home values, at 2.6 percent, is the largest quarterly decline since the beginning of 2009.

While a boom in home values is expected later this year as the market recovers, there is a silver lining if you are in the market for a house. Blitzer says it is still a good time to buy. He adds that for those who are fearing the dreaded call from the bank, “My guess is most of them will not end up in foreclosure.

“These people will manage to make their mortgage payments, hold onto the house and, if home prices resume their long-term trend, which is to do a touch better than inflation, a lot of these underwater situations will turn out to be above water.”

Read more: http://www.foxnews.com/us/2011/02/09/homeowners-hit-brick-wall-owing-homes-worth/#ixzz1DVEE6zj0