New Regulation Helping Consumers with Loan Modifications and Short Sales

A couple wants to do a short sale of their Mesa home. They are both licensed real estate agents in Wisconsin and would like to list and sell the home themselves. A real estate agent in our community advertises “experience as short sale negotiators.” Neither of them have ever done a short sale before and would like to hire this real estate agent to handle the short sale negotiations. However, when they contacted her, she said that she could only do the short sale negotiations if she gets the listing on the home. Why can’t they hire this real estate agent to do the short sales, and still list the home themselves?

The Federal Trade Commission enacted a rule effective January 29, 2011, regulating “mortgage assistance relief services” (“MARS”) such as short sales and loan modifications. There are numerous disclosures and other requirements imposed by MARS. A real estate agent can list and negotiate the short sale of a home, provided that there is compliance with the MARS requirements and the real estate agent receives no additional compensation for negotiating a short sale. In other words, a real estate agent cannot charge the seller a 7% commission and a $2,500 fee for negotiating a short sale. If the real estate agent does not have a listing for the short sale of the home, however, the real estate agent can only receive compensation for short sale negotiations if, in addition to compliance with MARS requirements, the real estate brokerage firm has a loan originator (mortgage broker) license.

Note: A MARS provider cannot receive any advance compensation, and cannot receive any compensation at all unless the seller and seller’s lender agree on the terms of the closing of the short sale. Unfortunately, although this MARS rule is salutary and pro-consumer, this MARS rule illustrates the maxim of “locking the barn door after the horse has bolted.” Several years ago there were numerous firms receiving upfront fees of $2,500-$5,000 based on deceptive advertising, and not doing anything to assist owners of distressed homes. Due to consumer awareness and the threat of criminal prosecution, almost all of these firms are now out of business.

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