UNDER FTC MARS RULING, REALTORS CANNOT NEGOTIATE SHORT SALES WITHOUT BEING IN COMPLIANCE ($11,00 penalty per day)
This new ruling (16 CFR Part 322) came in under the regulatory framework of the FTC and very people or organizations seem to be aware of it. Please read the ruling. Footnote 126 directly refers to the NAR requesting an exemption for Realtors and the FTC denying such. IF YOU ARE NEGOTIATING A SHORT SALE, YOU MUST BE IN COMPLIANCE WITH THE RULE which is burdensome. I am presenting the first seminar today to a Realtor group and shall hopefully 1)make it out of the seminar alive, 2)provide a process for Realtor compliance so they can continue short sale negotiations. If not, who will handle the negotiations? (most attorneys are overburdened and not knowledgeable in the daily negotiation process).
WHERE WAS OUR REPRESENTATION TO INFORM US OF THIS NEW RULING? Just curious!
126: As a general matter, the Final Rule is notintended to apply to the marketing of services to
assist consumers in selling their properties to third
parties. The Final Rule, however, does specifically
cover the marketing of services involving the sale
of properties to third parties if those services are
designed or intended to assist consumers in
averting foreclosure, e.g., through a short sale or
deed-in-lieu of foreclosure. One commenter urged
the Commission to exempt licensed real estate
professionals from the Final Rule. NAR at 1–2. The
commenter argued the Rule would restrict real
estate agents in helping consumers with the process
of selling their homes through short sales. Id. The
Commission concludes that an exemption for real
estate agents is not necessary. Real estate agents
customarily assist consumers in selling or buying
homes and perform functions such as listing homes
for sale, showing homes, and finding desirable
homes for consumers. The Commission is aware
that real estate agents may perform these functions
when properties are bought or sold through a short
sale transaction, but does not consider these
services to be MARS.
Replies to This Discussion
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Permalink Reply by Wendy Rulnick on
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I've spoken with the Florida Association of Realtors legal department. They were unaware of the MARS ruling. They said they would research it and get back to me by Friday regarding how and if Florida real estate agents are affected. I'll let you know what they say.
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Permalink Reply by Todd J Sullivan J.D. on
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Thanks,
Same here in Arizona. They have no comment until NAR makes a statement. Talk about dropping the ball. I'll post the NAR letter that objected to the original Rule last year and my email to NAR in regards to demanding a response on the issue.
tjs
Wendy Rulnick said:I've spoken with the Florida Association of Realtors legal department. They were unaware of the MARS ruling. They said they would research it and get back to me by Friday regarding how and if Florida real estate agents are affected. I'll let you know what they say.
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Permalink Reply by Smitty on
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Apparently other associations (Washington) have already adopted the disclosures into their paperwork.
http://www.yakimaassociationofrealtors.com/index.php?page_id=13&...
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Permalink Reply by Lisa Henderson on
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Thanks for the helpful replies. I have another question now. Will this have any effect on the new practice of listing agents and sellers insisting that the BUYER pays the negotiation fee?
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Hi Lisa,
I asked this too.
It doesn't matter who pays the fee. If you are negotiating short sales, you need to be compliant even though the law was written for the homeowner. If you are working with an agent or 3rd party firm accepting their fee from the buyer they still MUST be compliant.
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The only exemption is the Attorney Exemption. If you refer you client to an Attorney to negotiate the short sale, than by definition, such Attorney is exempt from the Rule except for Sect. 322.5 which regulates advance fees. If the Attorney requires an advance fee (which I don't know any Attorney that does not), than they must place such advance fee in their Trust fund and distribute in accordance to their State Bar requirements.
*So (a pitch for Attorneys.....), the only way that a Realtor does not have to comply with the MARS Rule is by referring the client to an Attorney for the short sale transaction. If you do that, find an Attorney/Firm that does not come back against the Realtor for part of the commission if the Attorney does not receive payment in full.
**I tell my agents that I work with that we will never and have never asked for commission dollars. If the Realtor can't sell the house, we have nothing to negotiate. If we can't negotiate a successful outcome, the Realtor has no commission. We all must do our parts professionally and not look at the commissions as a grab bag. Because of this practice with other Law Firms in my area, I have had some very good agents refer clients to us.
Thanks, tjs
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Permalink Reply by Jim Schneider on
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Smitty, I'm glad to see your association did something on this. Thank you for sharing.
I really felt most of our local Realtor associations failed us in not 1. telling us to write our congressman to give Realtors exemption to the FTC rule 2. Letting us know that the full rule had been adopted and the compliance dates and 3. Having disclosures like the ones on your association's websites that helped us interpret the law and get in compliance.
Smitty said:Apparently other associations (Washington) have already adopted the disclosures into their paperwork.
http://www.yakimaassociationofrealtors.com/index.php?page_id=13&...
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It's been the biggest failure that I've yet seen in NAR and local associations. I started this post and others about 2 weeks ago when I realized the extent of the Rule and it's impact. Everyone should complain loudly to their associations.
tjs
Jim Schneider said:Smitty, I'm glad to see your association did something on this. Thank you for sharing.
I really felt most of our local Realtor associations failed us in not 1. telling us to write our congressman to give Realtors exemption to the FTC rule 2. Letting us know that the full rule had been adopted and the compliance dates and 3. Having disclosures like the ones on your association's websites that helped us interpret the law and get in compliance.
Smitty said:Apparently other associations (Washington) have already adopted the disclosures into their paperwork.
http://www.yakimaassociationofrealtors.com/index.php?page_id=13&...
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Hi Jim,
That's not my association. I found that with some digging. I straddle two states and NEITHER association did anything.
The more and more I see regulations, the more and more I feel that negotiations is definitely something I'm looking to outsource, either to a 3rd party compliant company or lawyer. I have to get over my control issues though...LOL. I have outsourced some of my stuff with great success,but I'm thinking about outsourcing it all.
The issue is even if I do that, it looks like I still must be compliant. Not a huge deal, but I'm thinking of the time it will save me.
Jim Schneider said:Smitty, I'm glad to see your association did something on this. Thank you for sharing.
I really felt most of our local Realtor associations failed us in not 1. telling us to write our congressman to give Realtors exemption to the FTC rule 2. Letting us know that the full rule had been adopted and the compliance dates and 3. Having disclosures like the ones on your association's websites that helped us interpret the law and get in compliance.
Smitty said:Apparently other associations (Washington) have already adopted the disclosures into their paperwork.
http://www.yakimaassociationofrealtors.com/index.php?page_id=13&...
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Letter for my congressmen:
After reviewing this ruling, I have been writting up something that would be useable to send on to our congresspeople. Please take a look and give some feedback:
On Wednesday, December 1st, 2010 the FTC finalized 16 CFR 322 which regulates how for-profit companies engaged in "mortgage assistance relief services", or MARS, operate. The dates to be in compliance were Dec. 31 2010 or most of the rule's requirements and Jan. 31, 2011 for the advanced fee ban.
This rule is available at http://www.ftc.gov/os/fedreg/2010/december/R911003mars.pdf
This ruling appears to affect practically every real estate agent and broker that engages in short sales, involved in helping homeowners avoid foreclosure through short sales and deed-in-lieu of foreclosure processes.This ruling presents an enormous threat from disreputable loan-modification companies, and sites evidence that this is a common problem. What is unclear is why real estate agents and brokers were included, when the ruling does not even suggest that there have been tangible problems cause by real estate agents providing short sale services.
What is most disturbing is that many of these cumbersome regulations may prevent homeowners from getting the help they need in their most desperate hour.
Advanced Fees Ban:
Brokers providing MARS and others may not collect advanced fees, except attorneys who are allowed to collect advanced fees, but must deposit them in a “client trust account”.
Attorneys were granted this exemption because, “Unlike other MARS providers, attorneys commonly deposit advance fees in client trust accounts and, in some jurisdictions, are legally required to do so.State laws and licensing regulations strictly limit attorneys’ use of funds in these accounts.”
Real estate brokers (as well as other MARS provers) were not given this exemption because, “There is nothing in the record indicating that non-attorney MARS providers currently use dedicated accounts with any frequency to deposit advance fees or that an infrastructure to support such accounts exists.” Practically every real estate brokerage has client accounts used for earnest money deposits which are client trust accounts. These are frequently used. It is remarkable that the FTC is not aware of this fact.
I would ask that real estate brokers be allowed the same exemption to this rule granted to attorneys, as we have the same systems for client trust accounts well in place.
Prohibited Advice:
Brokers providing MARS may not advise consumers not to communicate with their lender or servicer. Not contacting a lender may at times be good advice, as it may prevent harassing phone calls and prevent the lender or servicer from attempting to “trip up” the consumer, or pressure them into making a poor financial decision.
Avoiding these collection calls is often very important to homeowners. What constitutes “good advice” depends largely on context, and a broad based prohibition of this kind may prevent homeowners from getting good advice.
Brokers providing MARS may not represent the efficacy of MARS services without “competent and reliable” evidence (as defined in the rule) that backs up this claim. Given the nebulous nature of proving that your evidence is legally considered "competent and reliable" most brokers will feel they may be in jeopardy if they make any claim to effectiveness.
This rule will prevent nearly all assistance providers to avoid making any claim that they can help homeowners, and as a result, many homeowners will simply do nothing until they are foreclosed upon.
Requirements that Cannot Be Fulfilled
When the broker sends the sellers a written short sale agreement, broker must also provide consumer’s with a notice from the consumer’s loan holder or servicer that describes material differences between the current loan and the offer. While this is a good thing, if there is no compulsion for the sellers’ lender or servicer to provide this document in the format that is required, the broker is in an untenable position, unable to present the offer in the incorrect form, and required by law to make the sellers aware of the offer.
Disclosures Not Provided:
This ruling requires elaborate disclosures, which must have specific wording, font size, font placement, etc. Defining all of these elements so that none is done incorrectly is an impractical burden, have specific disclosure forms prepared by the FTC and published so that every broker, and other MARS providers can be confident they are following the ruling.
I ask that you attempt persuade the FTC to exempt licensed real estate agents and brokers from the advanced fee ban, remove the prohibition on advising our clients, remove requirements that are in conflict with agency law requirements, and publish approved disclosure forms that conform to this ruling.
Thank you,
<insert your name,
company name,
company address>
PS I AM a constituent; I reside at <insert home address>
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Permalink Reply by AstewartRealtor on
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The key word is " negotiating"- "The commission is aware that real estate agents may perform these functions when properties are bought or sold through a short sale transaction, but does NOT consider these services to be MARS."
If the seller of a property negotiates directly with their lender, it is no different than any other transaction. As long as Realtors® does not negotiate on the behalf of other parties- it would seem that there is no consequence to them by the MARS ruling. O agree with BB on this one.
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Jim - I like your letter. If you enter it as a separate discussion, we can feature it. I am wondering if we can somehow get this is a petition form, too? Any wizards out there that can work on this?
Jim Schneider said:
Letter for my congressmen:
After reviewing this ruling, I have been writting up something that would be useable to send on to our congresspeople. Please take a look and give some feedback:
On Wednesday, December 1st, 2010 the FTC finalized 16 CFR 322 which regulates how for-profit companies engaged in "mortgage assistance relief services", or MARS, operate. The dates to be in compliance were Dec. 31 2010 or most of the rule's requirements and Jan. 31, 2011 for the advanced fee ban.
This rule is available at http://www.ftc.gov/os/fedreg/2010/december/R911003mars.pdf
This ruling appears to affect practically every real estate agent and broker that engages in short sales, involved in helping homeowners avoid foreclosure through short sales and deed-in-lieu of foreclosure processes.This ruling presents an enormous threat from disreputable loan-modification companies, and sites evidence that this is a common problem. What is unclear is why real estate agents and brokers were included, when the ruling does not even suggest that there have been tangible problems cause by real estate agents providing short sale services.
What is most disturbing is that many of these cumbersome regulations may prevent homeowners from getting the help they need in their most desperate hour.
Advanced Fees Ban:
Brokers providing MARS and others may not collect advanced fees, except attorneys who are allowed to collect advanced fees, but must deposit them in a “client trust account”.
Attorneys were granted this exemption because, “Unlike other MARS providers, attorneys commonly deposit advance fees in client trust accounts and, in some jurisdictions, are legally required to do so.State laws and licensing regulations strictly limit attorneys’ use of funds in these accounts.”
Real estate brokers (as well as other MARS provers) were not given this exemption because, “There is nothing in the record indicating that non-attorney MARS providers currently use dedicated accounts with any frequency to deposit advance fees or that an infrastructure to support such accounts exists.” Practically every real estate brokerage has client accounts used for earnest money deposits which are client trust accounts. These are frequently used. It is remarkable that the FTC is not aware of this fact.
I would ask that real estate brokers be allowed the same exemption to this rule granted to attorneys, as we have the same systems for client trust accounts well in place.
Prohibited Advice:
Brokers providing MARS may not advise consumers not to communicate with their lender or servicer. Not contacting a lender may at times be good advice, as it may prevent harassing phone calls and prevent the lender or servicer from attempting to “trip up” the consumer, or pressure them into making a poor financial decision.
Avoiding these collection calls is often very important to homeowners. What constitutes “good advice” depends largely on context, and a broad based prohibition of this kind may prevent homeowners from getting good advice.
Brokers providing MARS may not represent the efficacy of MARS services without “competent and reliable” evidence (as defined in the rule) that backs up this claim. Given the nebulous nature of proving that your evidence is legally considered "competent and reliable" most brokers will feel they may be in jeopardy if they make any claim to effectiveness.
This rule will prevent nearly all assistance providers to avoid making any claim that they can help homeowners, and as a result, many homeowners will simply do nothing until they are foreclosed upon.
Requirements that Cannot Be Fulfilled
When the broker sends the sellers a written short sale agreement, broker must also provide consumer’s with a notice from the consumer’s loan holder or servicer that describes material differences between the current loan and the offer. While this is a good thing, if there is no compulsion for the sellers’ lender or servicer to provide this document in the format that is required, the broker is in an untenable position, unable to present the offer in the incorrect form, and required by law to make the sellers aware of the offer.
Disclosures Not Provided:
This ruling requires elaborate disclosures, which must have specific wording, font size, font placement, etc. Defining all of these elements so that none is done incorrectly is an impractical burden, have specific disclosure forms prepared by the FTC and published so that every broker, and other MARS providers can be confident they are following the ruling.
I ask that you attempt persuade the FTC to exempt licensed real estate agents and brokers from the advanced fee ban, remove the prohibition on advising our clients, remove requirements that are in conflict with agency law requirements, and publish approved disclosure forms that conform to this ruling.
Thank you,
<insert your name,
company name,
company address>
PS I AM a constituent; I reside at <insert home address>
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