FTC target: dubious claims made to short sellers

FTC logo for post on loan modificationsMany Westside families have succumbed to financial realities: As in, selling their homes in Playa Vista, Culver City or Westchester to avoid foreclosure. Or, if they’re lucky, modifying their loans.

In November 2010 the Federal Trade Commission issued rules to protect struggling homeowners, known as Mortgage Assistant Relief Services (MARS).

The MARS rules protect homeowners from companies that offer mortgage foreclosure rescues and loan modification services by barring them from collecting fees before homeowners have a written offer from their lender or servicer. MARS rules further prohibit companies from making false or misleading claims to distressed homeowners.

Some loan modification companies with dubious ethics go after these sellers without properly disclosing vital information.

Here’s a summary of three of the most important elements in the federal MARS rules, according to the FTC’s website.

1. Advance fee ban
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.

A written document from the lender or servicer is required. This document should summarize the key changes to the mortgage that would result if the homeowner accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

2. Disclosures
This MARS rule requires mortgage relief companies to disclose information that helps protect consumers from being misled. The information is intended to help homeowners make informed decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose:

  • They are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
  • Lenders might 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 to homeowners that they can stop doing business with them at any time, can accept or reject any offer obtained from the lender or servicer. If the homeowner choses to reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

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

  • 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; and
  • the cost of the services.

To file a complaint, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure online database available to more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC website provides information on a variety of consumer topics.

Here is my MARS disclosure:

  • Keller & Associates and Cindy Marty are not associated with the government, and their services have not been approved by the government or your lender.
  • Your lender might not agree to change your loan.
  • I would never advise you to stop paying your mortgage. It is clear that if you stop paying their mortgage you could lose your home and damage your credit rating.

The FTC Mars rules will seem obvious to any educated reader. Just one more crackdown in this current crisis that does little to solve the problems of so many families facing foreclosure.

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