A Federal Trade Commission rule, called the Mortgage Assistance Relief Services (MARS) Rule, went into effect in January, 2011, and governs those entities that fall under FTC jurisdiction.  The rule addresses mortgage relief scams that have lured financially distressed homeowners in Idaho and across the nation.  The typical scam falsely claims that, for a fee, the company will obtain a loan modification, will negotiate a short sale, will force the lender to accept a deed-in-lieu-of foreclosure, or in some other way prevent the foreclosure of the homeowner’s home.

Perhaps the most important element of the MARS Rule is its ban on the collection of an up-front fee for services.  With some exceptions, no fee can be collected until the homeowner has a written offer from the lender that the homeowner is willing to accept, coupled with a written explanation of the terms of the offer.

Also important in the MARS Rule are the disclosure requirements.  In advertising and other communications with homeowners, the companies MUST disclose that:

(1)  The company is not associated with the government, and its services have not been approved by either the government or the homeowner’s lender; and

(2)  The lender may not agree to change the homeowner’s loan; and

(3)  If the company tells the homeowner to stop paying on the loan, the company must also tell the homeowner that the homeowner could lose the home and have a damaged credit rating; and

(4)  The homeowner can stop doing business with the company at any time; and

(5)  The homeowner can accept or reject any offer the company obtains from the lender; and

(6)  If the homeowner rejects an offer from the lender, the homeowner does not have to pay the company’s fee; and

(7)  The company must disclose its fee.

In addition to telling the companies what they MUST do, the MARS Rule also tells the companies that they may NOT make any false or misleading claims about the company’s services, and may NOT tell the homeowner to stop communicating with the lender or loan servicer.

Attorneys are generally exempt from the MARS Rule if they meet three criteria: the attorney is engaged in the practice of law, AND the attorney is licensed in the state where the homeowner or the homeowner’s property is located, AND the attorney is complying with state laws and regulations governing attorney conduct related to the MARS Rule.

Idaho has supplemented the MARS Rule with legislation that went into effect September 11, 2011.  With some exceptions, the new law prohibits those who are not licensed through the Idaho Department of Finance to provide these for-profit mortgage assistance relief services.  Only an Idaho licensed attorney can charge an upfront fee for loan modification services, and only a person licensed or exempt from licensing through the Idaho Department of Finance can charge a fee after obtaining a modification offer for the homeowner.