The document summarizes key elements of a new rule by the Federal Trade Commission aimed at protecting homeowners using mortgage assistance relief services, known as MARS. The rule requires significant disclosures by MARS providers, prohibits upfront fees until an agreement is signed, and limits representations providers can make about services. The rule aims to give homeowners more information before committing to short sales and regulates the MARS industry.

1. KEVIN W. HARDIN CMB, CMC, CMPS
KHardin@ThomsonLawPLC.com
IS THERE LIFE ON MARS?
On November 19, 2010, the Federal Trade Commission announced a new rule aimed at protecting
financially distressed homeowners who use so-called mortgage assistance relief services which is known as “MARS”.
The new rule is 15 pages long and is supported by more than 160 pages of explanation and history. This discussion
is not intended to be an exhaustive review of the new rule. Rather, this article focuses only on the basic elements of
the new MARS rule to homeowners who are considering a short sale and to Short Sale Negotiators and real estate
brokers who attempt to negotiate short sales or refer their seller clients to third party negotiators.
First, some key terms under the new rule.
• A “provider” includes any person who provides, offers to, or arranges for others to negotiate, obtain or arrange a
short sale of a dwelling.
• A “dwelling” means a residential structure containing four or fewer units, whether or not that structure is attached to
real property, that is primarily for personal, family, or household purposes and includes individual condominium units,
cooperative units, mobile homes, manufactured homes and trailers.
Now, to be clear, the new MARS rule does not apply to real estate brokers who provide only real estate brokerage
services to their clients (e.g. listing, showing, negotiating the transaction with the buyer) and who do not attempt to
negotiate or otherwise provide services related to obtaining lender approval of a short sale. In addition, attorneys who
satisfy certain conditions are exempt from the new MARS rule.
The MARS rule has three main elements.
FIRST ELEMENT – DISCLOSURE
Short Sale Negotiators must now provide significant disclosures in any and all commercial communications issued to
homeowners. For purposes of the rule, “commercial communications” means any written or oral statement,
illustration, or depiction, that is designed to effect a sale or create interest in purchasing any short sale service, plan,
or program. Promotional materials and items and Web pages are included in the term “commercial communication.”
With respect to general commercial communications that occur prior to the consumer agreeing to use a Short Sale
Negotiator (and that is not directed at a specific consumer), Short Sale Negotiators must include the following:
(1) “(Name of company) is not associated with the government, and our service is not approved by the government or
your lender.”
(2) “Even if you accept this offer and use our service, your lender may not agree to change your loan.”
And there’s more. When making any commercial communications directed at a specific consumer, the disclosures
must also include the following:
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“You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we
obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will
have to pay us (insert amount or method for calculating the amount) for our services.”
For the purposes of this disclosure, the amount the consumer has to pay consists of the total amount the consumer
must pay to purchase, receive and use all of the mortgage assistance relief services that are the subject of the sales
offer, including, but not limited to; all fees and charges. Many Short Sale Negotiators attempt to get paid by the listing
broker. Even if that is the case, a disclosure of that fee must be made.
SECOND ELEMENT – FEES
Under the MARS rule, a Short Sale Negotiator:
(a) may NOT request or receive payment of any upfront fees or other consideration until the consumer has
executed a written agreement with their lender or servicer incorporating the offer of mortgage assistance
relief the Short Sale Negotiator obtained;
(b) MUST disclose, at the time the Short Sale Negotiator furnishes the consumer with the proposed written
agreement with their lender or servicer (e.g. the short sale approval letter), the following information:
“This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject
the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us
[same amount as previously disclosed] for our services.” “and,
(c) MUST provide, at the time the Short Sale Negotiator furnishes the consumer with the written agreement
specified in paragraph (a) above, a notice from the consumer’s lender or servicer that describes all material
differences between the terms, conditions, and limitations associated with the consumer’s current mortgage
loan and the terms, conditions, and limitations associated with the consumer’s mortgage loan if he or she
accepts the dwelling loan holder’s or servicer’s offer.
THIRD ELEMENT – PERFORMANCE REPRESENTATIONS
The MARS rule makes it unlawful for any Short Sale Negotiator to engage in certain conduct including:
(a) Representing in connection with the advertising, marketing, promotion, offering for sale, sale, or
performance of the short sale negotiation service, that a consumer cannot or should NOT contact or
communicate with his or her lender or servicer;
(b) Misrepresenting any material aspect of the short sale service, including such things as:
• the likelihood of negotiating, obtaining, or arranging any represented service or result;
• the amount of time it will take the Short Sale Negotiator to accomplish the short sale negotiation;
• the consumer’s obligation to make scheduled periodic payments or any other payments pursuant to
the terms of the consumer’s dwelling loan;
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• the terms or conditions of the consumer’s dwelling loan, including but not limited to the amount of
debt owed;
• that the mortgage assistance relief service provider has completed the represented services or has
a right to claim, demand, charge, collect, or receive payment or other consideration;
• that the consumer will receive legal representation;
• the availability, performance, cost, or characteristics of any alternative to for-profit mortgage
assistance relief services through which the consumer can obtain mortgage assistance relief,
including negotiating directly with the dwelling loan holder or servicer, or using any nonprofit
housing counselor agency or program;
• the amount of money or the percentage of the debt amount that a consumer may save by using the
mortgage assistance relief service;
• the total cost to purchase the mortgage assistance relief service; or
• the terms, conditions, or limitations of any offer of mortgage assistance relief the provider obtains
from the consumer’s dwelling loan holder or servicer, including the time period in which the
consumer must decide to accept the offer.
(c) Making a representation about the benefits, performance, or efficacy of any short sale negotiations
service unless, at the time such representation is made, the provider possesses and relies upon competent
and reliable evidence that substantiates that the representation is true.
For homeowners who are considering a short sale, the benefits of the new MARS rule are clear.
• The new disclosures will arm consumers with more information about the relationship with the Short Sale
Negotiator before they commit to the short sale process.
• The Short Sale Negotiator can accept no fees before the consumer agrees to the short sale terms offered by
their lender.
• There are now clearly defined limits to the representations that can be made by a Short Sale Negotiator.
For Short Sale Negotiators, the new rule places significant regulatory constraints on their business. Any legitimate
person or company engaged in the providing of short sale negotiation services will quickly call their legal counsel for
advice on how to comply with the new rule. With the added costs of compliance, it is uncertain how many smaller
Short Sale Negotiation firms will be able to stay in business.
For real estate brokers, the new rule should now make one thing patently clear. Stay out of short sale negotiation
unless you are ready to fully comply with the MARS rule. Remember, while typical real estate brokerage services are
not classified as a provider under the new MARS rule, you cannot use the real estate brokerage services as a shield
to compliance with the new rule if you are legitimately engaged as a Short Sale Negotiator. In addition, it is a violation
of the rule for any person to provide substantial assistance or support to any Short Sale Negotiator when that person
knows or consciously avoids knowing that the provider is engaged in any act or practice that violates this rule. So,
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any real estate broker who refers his or her client to a Short Sale Negotiator should be certain that the Short Sale
Negotiator is fully compliant with the new MARS rule.
The Consequences for Violators can be significant and severe; fines up to $11,000 per day for those who fail to
comply with the new MARS rule.
All parts of the new rule went into effect on December 29, 2010 with the exception of the prohibition on advance fees
that go into effect on January 31, 2011.
Kevin W. Hardin CMB, CMC, CMPS
Neil W. Thomson, Attorney
www.ThomsonLawPLC.com
www.MortgageMediationGroup.com
2701 E. Camelback Rd. Suite 150
Phoenix, AZ 85016
602-774-3757
If you have any questions please call our firm at the number above. The Mortgage Mediation Group is a
practice group of the Law Firm of Thomson Law, PLC. This group is focused on assisting homeowners
facing a point today or in the future when they can no longer afford their mortgage or it no longer is
feasible to pay AND owe more than their home is worth. Solutions can range from Mortgage Liability
Review, Short Sale Review and Negotiation, Loan Modification, Lien Settlement, Foreclosure Defense,
Deficiency Defense, Deed in Lieu and Bankruptcy (Chapter 7, 13, Lien Strip and Mortgage Cramdown).
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602.774.3757 | 602.840.3290 Fax | 2701 East Camelback Road | Suite 150 | Phoenix, Arizona 85016 | www.ThomsonLawPLC.com