There has been a substantial amount of buzz in the real estate industry lately about MARS. No, not the red planet; although the market has been rather other worldly. MARS is the acronym for “Mortgage Assistance Relief Services”, a set of real estate-related services now defined and regulated by the Federal Trade Commission. The Final Rule, which became effective on December 29, 2010 was published in the Federal Register on December 1, 2010 at Vol. 75, No. 230, pages 75092 to 75144. It has REALTOR® associations scrambling to ensure that their members are compliant (see, e.g., the Florida Assn. of Realtors Legal Center Hot Topics page), lest they run afoul of the rule in their short sale negotiations and subject themselves to scrutiny and civil penalty.
All of this buzz convinced me to take a closer look at the rule as it relates to our title insurance-related short sale services. As far as I know, neither our national nor state (FL) title industry associations have issued any advisory opinions on the new rule regarding mortgage relief. This is understandable. The rule is pretty complicated; and either an over- or an under-reaction by the associations could cause issues for their members. But since Winged Foot Title provides short sale title solutions, I thought it worth our while to look at the rule more closely. So without going into too much annoyingly detailed analysis, I would like to explore the rule a bit and explain what Winged Foot Title is doing to prepare and to react.
- What services are covered by the rule?
- Whose acts are covered by the rule?
According to the rule, a “‘Mortgage Assistance Relief Service’ means any service, plan, or program, offered or provided to the consumer in exchange for consideration, that is represented, expressly or by implication, to assist or attempt to assist the consumer with . . . : Negotiating, obtaining or arranging: A short sale of a dwelling . . . .” (16 CFR 322(i)(6)(i)). I would say without much hesitation that, even in a liberal interpretation of the rule, our short sale orchestration services could fairly be fit into this MARS box. That is to say, we assist in the obtaining or arranging of the short sale of the dwelling and, if the transaction should close and if we are able to issue title insurance, we receive consideration for the provision of those services.
At the same time, the rule defines a MARS “Provider” as “any person that provides, offers to provide, or arranges for others to provide, any mortgage assistance relief service.” Again, it is fair to say that Winged Foot Title, LLC, because it provides short sale orchestration services as a necessary incident to its issuance of title insurance, could fairly be labeled a “Provider” under the rule.
For the sake of being safer rather than sorrier and because compliance with the rule is pretty simple, we have taken proactive measures which, based on our reading of the rule, ensure our compliance therewith. You should anticipate and will find the following disclosures in our short sale-related communications.
General Commercial Communications Disclosure
The rule defines “General Commercial Communication” as “commercial communication that occurs prior to the consumer agreeing to permit the provider to see offers of mortgage assistance relief on behalf of the consumer, or otherwise agreeing to use the mortgage assistance relief service, and that is not directed at a specific consumer.” 16 CFR 322.2(c)(1), emphasis added. And the rule’s definition of “Commercial Communication” covers just about every type of communication. See, e.g., 16 CFR 322.2(c). Under the rule, General Commercial Communication requires the following disclosure (n.b., we have modified the notice slightly to more precisely fit our services] :
IMPORTANT NOTICE TO SHORT SELLER(S): Winged Foot Title, LLC is not associated with the government, and our service [specifically, our short sale orchestration service related to the release of your mortgage lien and our issuance of title insurance] is not approved by the government or your lender. 16 CFR 322.4(a)(1).
You will therefore find this disclosure in our staff’s email signatures and on all general commercial communications, including but not limited to web pages related to our short sale transaction services. 16 CFR 322.4(a)(2) requires the following disclosure “[i]n cases where the MARS provider has represented, expressly or by implication, that consumers will receive any service or result . . . .”:
Even if you accept this offer and use our service, your lender may not agree to change your loan.
The rule’s supplementary information explains that this second disclosure is “related to the goal of preventing deception.” Federal Register Vol. 75, No. 230, p. 75112. The FTC rightly wants consumers to understand that if someone is promising them the moon, they are unlikely to be able to deliver on that promise. Since Winged Foot Title, LLC does not make any sort of representations or guarantees, we are not quite sure how or where to make this disclosure. So for the meantime, we are not going to include it in our general commercial communications.
Consumer-Specific Commercial Communications
The rule defines “consumer-specific commercial communications” as “a commercial communication that occurs prior to the consumer agreeing to permit the provider to seek offers of mortgage assistance relief on behalf of the consumer, or otherwise agreeing to use the mortgage assistance relief service, and that is directed at a specific consumer.” 16 CFR 322(c)(2). Under the rule, Consumer-Specific Commercial Communication requires the following disclosure:
IMPORTANT NOTICE TO SHORT SELLER(S): You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance [i.e., the terms of the short sale approval letter] 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 the amounts contemplated in Section 1100 of the HUD-1 Settlement Statement, which will accompany the offer of mortgage assistance, for our services.
Winged Foot Title, LLC is not associated with the government, and our service [specifically, our short sale orchestration service related to the release of your mortgage lien and our issuance of title insurance] is not approved by the government or your lender. 16 CFR 322.4(a)(1).
We have therefore already implemented this disclosure in our consumer-specific short sale introductory documents. Consumers must initial and sign these introductory documents to acknowledge their having read the disclosures and in order for us to begin our short sale orchestration services.
Disclosure Required Upon Short Sale Approval
The rule also requires disclosure when the MARS provider “furnishes the consumer” with the “written agreement between the consumer and the consumer’s dwelling loan holder or servicer incorporating the offer of mortgage assistance relief the provider obtained from the consumer’s dwelling loan holder or servicer.” 16 CFR 322.5(a) & (b). That disclosure reads:
IMPORTANT NOTICE: Before buying this service, consider 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 the amounts contemplated in Section 1100 of the HUD-1 Settlement Statement, which will accompany the offer of mortgage assistance, for our services. 16 CFR 322.5(b).
We will include this disclosure on a separate sheet of paper every time a short sale approval letter we have obtained is presented to a short seller. In addition, a preliminary HUD-1 settlement statement will accompany every such presentation so that the consumer understands what the terms of the short sale approval letter mean in terms of their potential financial obligation.
This particular disclosure will no doubt cause some issues and some misunderstanding. Because our short sale orchestration services are rooted in our duties as title agent, we do not believe that we are charging for MARS as they are described in the rule. Our fees include charges for closing services, title and lien searches, and for title insurance; but we do not charge separately for the enhanced title clearance services related to short sale approvals. Consumers will therefore likely be confused by the language of the disclosure, since it should have been made clear to them that they are not paying for mortgage relief services.
So that’s it in a rather large nutshell. We have taken the industry lead on compliance even though Winged Foot Title’s services may not fall under the purview of the rule. This is important to us and our business for a couple of reasons.
First, we want consumers to fully understand our services for what they are and for what they are not. To wit, we are not a fly by night mortgage modification company that charges exorbitant up front fees but gets no results. Rather, we are a respected local, independent title agency that has chosen to include short sale orchestration in its business model; and we perform those orchestration services incidentally to our issuance of title insurance and with no monetary obligation should the transaction not close nor for any up front fees.
Second, it is important for the real estate professionals with whom we work to be confident that our title agency understands and appreciates the current issues in our industry, especially when it comes to mortgage relief. Ultimately, our operation reflects on those real estate professionals, and we take that responsibility very seriously.
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P.S. Have you noticed all of our recent short sale success stories? There are many more to come!