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Short Sales Disclosure Rules for Realtors

By the Mortgage Guy / MortgageLoanRequest.com


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The American real estate market from coast to coast is rife with foreclosures and has been since the bust began back in 2006. The amount of foreclosures in 2010 according to www.realitytrac.com was 3,800,000, and as recently as February of this year one out of every 577 homes was foreclosed; in California alone the statistics climbed to 1 out of every 119 for the same month. As of April of this year the Mortgage Bankers Association was estimating that 1 out of every 200 homes in America will be foreclosed upon, and www.realitytrac.com reports that 1,880,530 homes were already foreclosed upon within the first quarter of 2011.

Considering the massive amount of foreclosures, and homeowners desperately trying to remain in their homes or get out with their credit intact, it is no wonder that an industry has sprung up offering advice and assistance. To steer clear of foreclosure, many homeowners are looking for relief from a strategy called "short sales". Short sales allow property owners to get rid of their homes for less than the amount of their outstanding loan balance. But, selling these distressed homes often means lower commissions for the real estate agents handling the deals. In 2008, the National Association of Realtors® (NAR) started to develop a strategy that would make it easier for real estate agents to share information about short sales and disclose the statuses of these financially troubled homes.

In November 2010 the Federal Trade Commission announced specific foreclosure rules for short sales known as the Mortgage Assistance Relief Services final rule ("MARS rule"). The MARS rule spells out how agents doing short sales will be required to make specified disclosures under new federal regulations.
The MARS rule is chiefly aimed at those who proffer loan modification services, but it also applies to those who negotiate a short sale of a dwelling on behalf of a consumer. The National Association of Realtors® issued a memo to its members in an attempt to clarify MARS. According to the NAR memo, "FTC staff has determined that ‘negotiate' will include communications with a lender about the possibility of a short sale transaction involving a consumer's loan." Ostensibly what this means is that the new regulations consider anyone providing short sale negotiation services to be a MARS provider.
Further, the legal opinion issued by NAR is that any certified agent working on short sale transactions will be subject to MARS if they negotiate a short sale with a lender, advertise short sale experience or take any up- front fees from their clients.

Why MARS?

Because Realtors® were frequently unaware that the homes they were selling were short sale properties the initiative set forth by NAR aims to remove the guesswork for real estate agents who were often surprised to learn that a home they were selling was considered a "short sale" property. Since short sale properties most often remain on the market longer, and agents do not receive the same amount of commission as they would for selling a traditional for-sale home in good financial standing, NAR feels they need to be aware of a home’s status before they agree to list the home.

As the number of short-sales grew, so did disputes that required arbitration. To achieve better transparency regarding these short-sale properties, and avoid the deluge of disputes, the NAR approved a policy that provides multiple listing services the authority to demand their participating agents disclose the short sale status of affected properties. Also, multiple listing services which make available extensive databases of home sale information to their subscribing brokers can now demand the disclosure of short sale properties or leave it non-compulsory. In these instances the choice is theirs to make.

NAR also says that the recent disclosure rules should not apply to real estate agents who “limit their short sale services to providing customary assistance to consumers in selling or buying short sales, such as listing homes for sale, showing homes, and finding desirable homes for consumers, and who do not negotiate with lenders and do not promote their services as a way to help consumers avoid foreclosure.”

There are the Three Types of Disclosures and Disclosure Situations Encompassed by MARS: 

General Commercial Communications Disclosures

Currently many real estate brokerages and agents across America solicit clients for their short sale services. Even if they don't claim special skill or know-how, because these services are being advertised, the disclosure is required. All advertising of short-sale services need to include an obvious and prominent disclosure with the following:

    IMPORTANT NOTICE (in two-point type larger than the font size of the disclosure): (Name of Company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.

  1. Consumer-Specific Commercial Communications

    Any and all communications that are intended to solicit a sale from a specific individual must include the MARS disclosure. Whether it is from a general mailing list of people in mortgage default or people whose loans appear to be larger than the value of their property, the notice must be given. The required consumer-specific disclosure looks like this:

    IMPORTANT NOTICE (in two-point type larger than the font size of the disclosure): 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. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.


  2. Disclosure When Providing an Offer of Mortgage Relief

    For agents and brokers who have compiled a short sale package together and have a lender approval letter, one final disclosure is required:

    IMPORTANT NOTICE: Before buying this service, consider the following information (in two-point type larger than the font size of the disclosure): This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject this 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 disclosed previously] for our services. If you stop paying your mortgage, you could lose your home and damage your credit rating.


 
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