Last month, new rules went into effect governing how Maryland real estate agents can handle short sales.
The Maryland Mortgage Assistance Relief Services Act, commonly referred to as MARS and patterned after a Federal Trade Commission rule, is designed to protect homeowners in financial trouble.
Whenever the economy falters, predators come out to prey on unsuspecting and worried homeowners. “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 in a statement at the time when that agency issued its rule in 2010.
The FTC rule specifically prohibits any mortgage relief company — which now could include Maryland real estate agents — from collecting any fees until they have provided the homeowner with a written offer from their mortgage lender that is acceptable to the consumer.
Additionally, anyone engaged in mortgage relief must disclose such matters as: They are not associated with any government. The lender may not agree to the proposed plan. And if the homeowner is advised to stop paying the mortgage, they must also be told that they could lose their home and damage their credit rating.
Short sales are included in the definition of “mortgage relief” since the home is sold for less than the balance owed on the mortgage and the lender agrees to accept the sales proceeds. Two years ago, however, the FTC announced that it would not pursue the provisions of the federal MARS rule against real estate brokers engaged in short sales, if they are licensed and in good standing under state licensing requirements.
The new Maryland MARS act changes this. The Maryland Commissioner of Financial Regulations — the agency authorized to enforce the law — has determined that “negotiation of a short sale deficiency agreement or any other type of mortgage collection forbearance with a seller’s mortgage lender” is not within the scope of a real estate license.
Maryland real estate agents may enter into contracts with a homeowner to market their house for a short sale, and may conduct a comparative market analysis (referred to as a broker’s price opinion). However, there are a number of restrictions and conditions.
Last month, the Maryland Real Estate Commission issued guidelines for handling short sale transactions. Agents will have to comply with the MARS Act if they do any of the following:
●Collect any money in addition to the customary commission.
●Assist a seller in negotiating with the lender to obtain approval of a short sale.
●Represent to the public that they are “experts” in short sales.
●Make representations that they can obtain a short sale.
●Provide advice regarding the benefits of a strategic default.
●Make predictions on the likelihood of a deficiency or the payment of relocation costs involved in a short sale.
Prior to July 1, anyone involved in short sale negotiations were required to be licensed as a credit services business. Now, however, such service providers are covered under the new Maryland MARS act.
Does this also impact real estate agents in Virginia and the District? Unless it changes its decision, the FTC will not enforce the federal MARS act against them. However, all agents must take note of the decision by both the Maryland Real Estate Commission and the Financial Regulation Commission that involvement in many aspects of short sales is outside the scope of the real estate license. If other states adopt that same interpretation, then all agents will have to comply with MARS — wherever they are licensed.
Accordingly, all real estate agents — wherever they are located — should comply with the various requirements of the MARS rule.
Benny L. Kass is a Washington lawyer. This column is not legal advice and should not be acted upon without obtaining legal counsel. For a free copy of the booklet “A Guide to Settlement on Your New Home,” send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.