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In Arizona, we have been battling over the application of the FTC MARS Ruling to Realtors and/or any other individual or entity handling short sales.  Over the last several weeks, it has become clear that the Rule applies directly to all Realtors and/or Negotiators handling short sales.  I thought I would share my law firms Legal Opinion Letter which includes how to be in compliance with the Rule. I have had half a dozen consultations on brokers inquiring into the rules and how to submit violations (ie: their competitors). With $11,000 per violation, per day, it will pay to be in compliance.

Please also see the FTC's handbook for businesses on the issue which also clearly states that Realtors are required to be in compliance with the Rule.:

http://business.ftc.gov/documents/bus76-mortgage-assistance-relief-services-rule

Here's the Legal Opinion Letter:

Are Realtors required to comply with the Federal Trade Commission’s Mortgage
Assistance Relief Services Rule 16, cfr Part 322 (the Rule), and if so, how does a
Realtor become compliant with the Rule requirements?

APPLICATION OF THE RULE
According to the Federal Trade Commission and pursuant to the 2009 Omnibus Appropriations
Act and as effective December 29, 2010, with the exception of '322.5 which is effective on
January 31, 2011, a Realtor that promotes their services as a way to help consumers avoid
foreclosure, such as negotiating or referring to another negotiator for a lender’s approval on a
short sale, must be in compliance with the Rule.

As defined under '322.2(j), a “Mortgage Assistance Relief Service Provider” or “Provider”
means any person that provides, offers to provide, or arranges for others to provide, any
mortgage assistance relief service.” Further clarification is found in the historical background as
documented by the Rulemaking process and found in footnote 126:

“As a general matter, the Final Rule is not intended 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.”

In conclusion, it is clearly stated in the Rule and supported by the rulemaking history that any
person or entity negotiating or referring to another person or entity to negotiate with a
homeowner’s lender is a MARS provider and must comply with the Rule.

To date, the Arizona Department of Real Estate (ADRE) and the Arizona Association of Realtors
(AAR) have done little to clarify the issues involved in the application of the Rule to the Realtor
community. For example, on January 29, 2011, ADRE and AAR stated that the application of
the Rule remains “unclear.” As part of the issued statement, ADRE and AAR intend to wait
until the National Association of Realtors (NAR) issues further guidance along with the FTC.
Unfortunately, the opinion of the NAR is irrelevant regarding the application of the Rule because
NAR is a private entity composed of Realtors and their membership in the organization. To be
clear, NAR is not a federal rule making entity. Conversely, the FTC is a federal rule making
entity whose legal authority supersedes conflicting state law let alone private membership
organizations such as the NAR.

Under the “Mortgage Assistance Relief Services Rule, A Compliance Guide For Business”
produced by the FTC, (http://business.ftc.gov/documents/bus76-mortgage-assistance-reliefservices-
rule), the FTC has again unequivocally stated that:

 Real Estate Agents. The Rule covers real estate agents who promote their
services as a way to help consumers to avoid foreclosure, for example, by getting
a lender's approval for a short sale. However, the Rule doesn't cover real estate
agents who don't promote their services this way, and who only provide services
to help people in buying or selling homes – like listing homes for sale, showing
homes, or finding homes that meet buyers' needs. (Please see the FTC Compliance
Guide, page 3).

In conclusion, a Realtor cannot negotiate with a lender nor can they refer a short sale to another
party on behalf of the homeowner without being in compliance with the Rule. The Rule
supersedes NAR or even ADRE’s interpretation of the rule.
The only exemption to the Rule is found under '322.7(a) where “an attorney is exempt from this
part” if such attorney is in compliance with all state laws governing client trust accounts and any
advance fees are placed in the attorney’s trust account prior to earning such fees.

REALTOR COMPLIANCE
To be compliant, a Realtor is prohibited from making certain representations; they must provide
disclosures in their communications which includes a final statement from the lender stating all
material changes to the homeowner’s loan, the Realtor cannot take any advance fees and a two
year recordation requirement for all written, electronic and verbal communications between the
Realtor and the homeowner.

Prohibited representations from the Realtor to the homeowner include, but are not limited to the
following paraphrased statements as found in '322.3:

a) That the homeowner cannot communicate with their lender,
b) The amount of time it will take,
c) Any association with any governmental agency, nonprofit or lender(s),
d) Legal representation will be provided by the Realtor,
e) The amount the debt may be reduced or saved by the homeowner,
f) Or the benefits, performance or efficacy of the Realtor.

Disclosures required in all and specific communications by Realtors in short sales include, but
are not limited to the following paraphrased statements as found in '322.34:

a) The Realtor is not associated with any government nor lender,
b) Your lender may not agree to change your loan,
c) All communications must have the heading “IMPORTANT NOTICE” in bold
face font two points larger than the required disclosures,
d) All oral or audible communication must be preceded by “Before using this
service, consider the following information,”
e) And written and/or verbal statements must include “If you stop paying your
mortgage, you could lose your home and damage your credit rating.”

Final statements required by the Realtor to the homeowner under '322.5 include but are not
limited to the following:

a) Final and separate statement to the homeowner at the time of the settlement
offer which includes certain statements that this is an offer and the
homeowner is free to reject the offer and if so, the homeowner owes no fees
for the services,
b) Final and separate statement to the homeowner at the time of the settlement
offer from the lender that describes the material differences between the
terms, conditions and limitations form the current loan compared to the
proposed loan or relief being provided.

To be fully compliant, a Realtor has the challenging task of ensuring that they, or their team,
makes no prohibited statements, all required disclosures are provided on written, electronic
(includes websites), oral and audible communications and that the lender(s) provide a separate,
single page statement that clearly states the homeowner’s current loan and how the acceptance of
the offer will materially change their original loan. In addition to the above requirements, the
Realtor is required to keep all written, verbal and audible records for two years and provide a
documented program for resolution of conflicts as between the homeowner and the Realtor.

With FTC penalties ranging up to $11,000 per day, per violation and the general liability of the
designated broker for actions by their Realtors, it is absolutely vital that the Rule is complied
with by the Realtor and/or designated.

www.opshortsale.com
www.oplaw.com