Bogus Mortgage Relief Schemes Targeted by FTC

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

The Federal Trade Commission is moving to stop bogus mortgage providers from taking millions of dollars in fees from homeowners without providing promised services in return.

The FTC issued the Mortgage Assistance Relief Services (MARS) Rule on November 19. The rule bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they consider acceptable. All provisions of the rule except the advance-fee ban will become effective December 29, 2010. The ban on advance fees will go into effect on January 31, 2011.

“These scammers, often armed with official looking documents and false claims of connection to government programs for homeowners, sell legal services they can’t—and don’t deliver,” said FTC Chairman Jon Leibowitz.

The Chairman added that scammers also tell homeowners not to pay their mortgage, resulting in consumers losing their homes. “Hundreds of thousands of consumers have lost hundreds of millions of dollars this way,” he said.

Under the MARS Rule, companies must tell consumers what their services will cost, and that they are not associated with the government or the consumer’s lender. They are also barred from advising consumers to stop communicating with their lender.

“It’s an enforcement tool with teeth,” Leibowitz said, adding that if companies don’t comply, then the FTC has authority to impose hefty fines.

The MARS Rule makes an exception for attorneys who are engaged in the practice of law, live in the state where the consumer or dwelling is located, and comply with state laws governing attorney conduct in relation to the rule. In addition, attorneys must place any fees collected into a client trust account.

Details regarding the MARS Rule appear here on the FTC website. Text of the rule will be reported in the CCH Trade Regulation Reporter.