by Broderick Perkins
(2/21/2011) - Effective Jan. 31, 2011 modification and foreclosure assistance firms have been banned from collecting fees until a home owner agrees with a written foreclosure or modification plan approved by their lender or loan servicer.
The ban and other related regulatory provisions are part of the Federal Trade Commission's (FTC) "Mortgage Assistance Relief Services (MARS) Rule", designed to curb fraud, scams and rip-offs that have grown with the modification and foreclosure assistance industry.
Some foreclosure rescue and loan modification services became a festering outgrowth of the mortgage market meltdown that left many home owners underwater with a mortgage balance greater than the value of the home.
Struggling, vulnerable home owners too often became unsuspecting victims of firms preying on ignorance and promising to help, only to sell home owners a bill of goods.
The operations often promised to be a go-between and negotiate with the lender to obtain a modification, short sale or some other relief from foreclosure. Some also duped home owners into believing they were affiliated with real government assistance programs.
That got the Feds' attention.
Now, without up front fees, many fly-by-night operations don't have the capital to resume operations.
MARS allows licensed attorneys to charge advance fees, provided the fees are held in an escrow (trust) account and provided the attorney complies with state laws and regulations related to the federal rule.
Other rules include disclosures:
That reveal the proposed cost of the service.
That consumers have a right to reject any offer from the service or the lender without charge and can stop doing business with the service company at any time.
That the service is not affiliated or associated with nor approved by any government entity.
That the lender can reject any change to the home owner's loan.
That home owners could lose their home and damage their credit rating if they follow a service's advice to stop paying their mortgage.
If services are offered or negotiated in Chinese, Korean, Spanish, Tagalong or Vietnamese, the disclosures must also be provided in the same language.
Foreclosure rescue and loan modification services are also prohibited from making any false or misleading claims about their services, including claims about results, government affiliation; the consumer's financial obligations; refund and cancellation policies; legal representation and the amount of savings a consumer can expect, among others.
Home owners should also check with their state rules for the services. Some states have stronger regulations than MARS.