RISMEDIA, March 14, 2011-Homeowners will soon be protected by a new Federal Trade Commission (FTC) rule that 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 decide is acceptable.
"At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results," FTC Chairman Jon Leibowitz said. "By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams."
While the rule makes these practices illegal, homeowners need to be aware that it may not stop these practices entirely. "What it does do is make the advance payments illegal, but that may not be enough to stop some con artists from breaking the new law," observed Bruce Hahn, President of the American Homeowners Foundation. "A homeowner can now seek immediate redress because such advance payments are now illegal, but that may not be much help if a con artist has already left town with your money," he added.
The FTC issued the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. Bogus operations falsely claim that, for a fee, they will negotiate with the consumer's mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs. The FTC has brought more than 30 cases against operations like these, and state and federal law enforcement partners have brought hundreds more.
The most significant consumer protection under the FTC's new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies must also remind consumers of their right to reject the offer without any charge.
The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:
-they are not associated with the government, and their services have not been approved by the government or the consumer's lender;
-the lender may not agree to change the consumer's loan; and
-if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.
Companies must also explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don't have to pay the company's fee. The companies must also disclose the amount of the fee.
The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:
-the likelihood of consumers getting the results they seek;
-the company's affiliation with government or private entities;
-the consumer's payment and other mortgage obligations;
-the company's refund and cancellation policies;
-whether the company has performed the services it promised;
-whether the company will provide legal representation to consumers;
-the availability or cost of any alternative to for-profit mortgage assistance relief services;
-the amount of money a consumer will save by using their services; or
-the cost of the services.
In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies must also have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.
The American Homeowners Foundation urges homeowners who need mortgage assistance to contact a local nonprofit mortgage counseling agency in their area. The services provided by these nonprofits are usually free.
Courtesy of the American Homeowners Foundation and the American Homeowners Grassroots Alliance, www.AmericanHomeowners.org.
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