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The FTC has issued a final rule that gives federal and state authorities a new tool to combat the increase in deceptive mortgage relief practices.
The final rule does not affect attorneys who provide mortgage assistance relief services (MARS) in connection with the practice of law if certain basic requirements are met, but the FTC warns of MARS providers that try to use attorneys as fronts to avoid state laws.
Over the past three years, the FTC noticed a spike in the number of consumers scammed by MARS providers that charge advanced fees in the hundreds or thousands of dollars then disappear or fail to provide the promised service. Often, the delay and the cost combine to leave homeowners in a much worse position.
Many states have responded by passing state laws, commonly known as mortgage rescue statutes, under which MARS providers cannot charge advanced fees. Lawyers often are exempt from these mortgage rescue statutes.
Mortgage Assistant Relief Programs

In general, MARS means "any service, plan, or program" that offers or provides assistance in preventing or postponing foreclosure sales, negotiating loan modifications, obtaining forbearances or modifications in the timing of loan payments, or negotiating extensions.
Lawyers often provide these services in connection with representing clients in bankruptcy, foreclosure, or other administrative proceedings. Without an exemption, lawyers would become subject to all the requirements of the new federal rule.
Under the new rule, any for-profit entities providing mortgage assistance relief services are, among other things, prohibited from misrepresenting any material aspect of their services, advising a consumer to cease communication with a lender, or taking advanced fees. The prohibition on advanced fees is not effective until Jan. 31, 2011.
In addition, a person violates the rule by providing substantial assistance to a MARS provider if the person knows (or consciously avoids knowing) the provider is violating the rules.
The rule also is designed to prevent abuses by mandating that MARS providers disclose certain information to the consumer, including their "for-profit" status.
Attorney Exemption/ Client Trust Accounts

Attorneys who are providing MARS "as part of the practice of law" are partially exempt  from the new rule as long as the attorney is licensed in the state in which services are provided (or where the consumer's "dwelling" is located) and the attorney complies with applicable state laws and regulations.
However, to get the full benefit of the exemption, attorneys must comply with certain provisions regarding client trust accounts.  In order to be fully exempt, lawyers must place advanced fees in a client trust account before performing legal services and comply with state laws and regulations, including licensing regulations, applicable to client trust accounts.
A lawyer who does not comply with the client trust account provisions cannot charge advanced fees, or "request or receive payment of any fee or other consideration," until the lawyer executes a written agreement between the consumer and the consumer's loan holder. In addition, the lawyer must make specific disclosures through the written agreement, but is otherwise exempt from other provisions of the final rule.
The proposed rule did not exempt lawyers at all, but several state bar associations, along with the American Association, sought an amendment to the proposed rule that would provide an exemption for lawyers.
Without an exemption, these bar associations feared the rule could undermine the confidential attorney-client relationship and "make it difficult or impossible for many consumer debtors to obtain the legal services that they desperately need to help negotiate changes to their residential mortgages with their lenders and keep their homes."
All in all, it is hoped that the new FTC MARS rule will curb the "mortgage rescue" charlatans who prey on the most vulnerable of our public.
 Attorneys are fully exempt if they:
  • Provide mortgage assistance relief as part of the practice of law
  • Are  licensed to practice law in the state in which the consumer for whom the attorney is providing mortgage assistance relief services resides or in which the consumer's dwelling is located.
  • Comply with state laws and regulations that cover the same type of conduct the rule requires.
  • Deposit any funds received from the consumer prior to performing legal services in a client trust account
  • Comply with all state laws and regulations, including licensing regulations, applicable to client trust accounts

From the Federal Trade Commission
"FTC Issues Final Rule to Protect Struggling Homeowners from Mortgage Relief Scams"
Rule Outlaws Advance Fees and False Claims, Requires Clear Disclosures
Homeowners will be protected by a new Federal Trade Commission rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners 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 homeowners 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 homeowners 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 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.

The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose 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; and
  • 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.
Prohibited claims
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;
  • 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;
  • whether the company will provide legal representation to consumers;
  • the availability or cost of any alternative to for-profit mortgage assistance relief services;
  • the amount of money a consumer will save by using their services; 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.


Attorney exemption

Attorneys are generally exempt from the rule if they meet three conditions: they are engaged in the practice of law, they are licensed in the state where the consumer or the dwelling is located, and they are complying with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must meet a fourth requirement -  they must 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.
The FTC rulemaking proceeding was conducted pursuant to Congressional legislation sponsored in 2009 by Senators Jay Rockefeller and Byron Dorgan. The Final Rule applies only to entities within the FTC's jurisdiction under the Federal Trade Commission Act, which excludes, among others, banks, savings and loans, federal credit unions, common carriers, and entities engaged in the business of insurance. In June 2009, the FTC issued an Advance Notice of Proposed Rulemaking seeking comment on the practices of for-profit mortgage relief companies. In February 2010, the FTC announced a Notice of Proposed Rulemaking and sought comments from interested persons, including advocates for consumers, the business community, and the legal profession.
For the full article visit the Federal Trade Commission
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