Federal Law Protecting Homeowners from Foreclosure Scams
Learn how to the federal Mortgage Assistance Relief Services (MARS) law helps protect homeowners from foreclosure rescue scams.
Homeowners facing foreclosure sometimes pin their hopes on companies that claim they can stop a foreclosure by negotiating new mortgage terms with lenders. These companies are often called foreclosure consultants or mortgage assistance services. Unfortunately, some of these services are scams -- and homeowners end up losing their homes and lots of money too.
Congress passed the Mortgage Assistance Relief Services (MARS) in an effort to protect homeowners from foreclosure consultant scams. The federal law requires mortgage assistance relief service companies to disclose information about their services. Read on to learn more about the MARS rule and how it protects consumers from unscrupulous companies associated with mortgage assistance relief services.
(To learn more about how these scams work, and how to avoid them, see our Foreclosure Rescue Scams topic area.)
Mortgage Assistance Relief Services Companies
The MARS rule applies to mortgage assistance relief services companies. It defines “mortgage assistance relief service” as any service, plan, or program offered to a consumer to assist, or attempt to assist, the consumer with:
- stopping, preventing, or postponing a foreclosure
- negotiating, obtaining, or arranging a loan modification or forbearance
- negotiating, obtaining, or arranging any extension of the period of time to cure a default, reinstate the loan, or redeem the property
- obtaining a waiver of an acceleration clause or balloon payment, or
- negotiating, obtaining or arranging a short sale, deed-in-lieu of foreclosure, or any other disposition of the dwelling (other than a sale) to a third party.
The rule requires certain disclosures, prohibits mortgage assistance relief services companies from taking advance fees, and bans certain untrue or misleading claims. Below are the details.
The MARS rule requires mortgage consultants to disclose specific information to consumers. In advertising to a general audience, companies must disclose that:
- they are not associated with the government
- their services have not been approved by the government or the lender
- your lender may not agree to adjust your loan, and
- if the company instructs you to stop making payments, that you could lose your home and damage your credit rating by not making payments.
Companies also must explain in their in communications with prospective customers that:
- you can stop doing business with the company at any time
- you can accept or reject any offer the company obtains from the lender or servicer, and
- if you reject the offer, you don’t have to pay the company’s fee, the amount of which must be disclosed.
Advance Fees are Prohibited
Under the MARS rule, mortgage assistance relief services companies are not allowed to collect any fees until:
- you receive a written offer from your mortgage lender to reduce, modify, or otherwise change the terms of mortgage, and
- you accept the offer.
This means that even if you hire a company to help you, you are not required to pay a fee until they get results that you like. The company must also provide you with a written document from the lender or servicer that explains the key changes to your loan that would result if you accept the offer, as well as remind you that if you reject the offer you do not have to pay the company its fee.
Additionally, if you negotiate an alternative to foreclosure, like a loan modification, on your own, you are not required to pay the mortgage assistance relief services company’s fee.
Mortgage assistance relief services companies sometimes make misrepresentations to consumers to convince them to sign up for the company’s services. The MARS rule prohibits companies from making untrue or misleading claims about, among other things:
- the likelihood of obtaining a specific form of mortgage relief
- the amount of time it will take to obtain mortgage relief
- the company’s refund and cancellation policies
- affiliation or endorsement by the government or any other entity
- the terms and conditions of the homeowners’ mortgage, including how much they currently have to pay
- the amount homeowners may save if they use the mortgage relief services
- whether the company has performed the services it promised
- whether the company will provide legal representation to consumers
- the total cost of the mortgage relief 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.
If a company makes claims about the benefits, performance, or effectiveness of the services they provide, they must be able to support those claims.
Example. If a company claims they can reduce your mortgage payment by 50%, this claim must accurately reflect the results they achieved for previous customers.
In addition, the MARS rule prohibits companies from telling consumers to stop communicating with their lender or loan servicer.
Attorneys Are Generally Exempt from the MARS Rule
Attorneys that provide mortgage assistance relief services are generally exempt from the law. To be eligible for the exemption, the attorney must:
- be providing mortgage assistance relief services as part of the practice of law
- be licensed in the state where the consumer lives or where the property is located, and
- comply with state laws and regulations that cover the same type of conduct the MARS rule addresses.
To be exempt from the prohibition on advance fees, an attorney must place any fees collected in a client trust account, withdraw fees only as they are earned, and abide by state regulations covering such accounts.
For More Information
To learn more about the MARS rule, go to www.ftc.gov and search for “Mortgage Assistance Relief Services” to find links to further information.