Federal rule aimed at mortgage relief scams takes effect, attorneys
A new federal rule will help federal and state law enforcement crack
down on mortgage relief scammers who prey on distressed homeowners.
Attorneys are not subject to the rule, so long as they comply with
By org jforward wisbar Joe Forward, Legal Writer,
State Bar of Wisconsin
Dec. 29, 2010 –
Effective today, new Federal Trade Commission (FTC) regulations govern
unfair or deceptive practices in providing mortgage loans or loan
modification and foreclosure rescue services. Attorneys who provide such
services are exempt from the rule if certain requirements are
According to the FTC, deceptive and unfair practices among for-profit
companies who provide, or claim to provide, mortgage assistance relief
services (MARS) are widespread. Individual states, including Wisconsin,
have also enacted laws to address deceptive MARS practices.
These “scams” are designed to extract money from consumers
by making false promises to help save the consumer’s home from
foreclosure. Substantial upfront fees are often required, but MARS
providers often fail to deliver the promised services after obtaining
the fee. Often, the delay and the cost combine to leave homeowners in a
much worse position.
Under the new rule, any for-profit entities providing mortgage
assistance relief services are, among other things, prohibited from
misrepresenting any material aspect of their services, advising a
consumer to cease communication with a lender, or taking advanced fees.
The prohibition on advanced fees is not effective until Jan. 31,
In addition, a person violates the rule by providing substantial
assistance to a MARS provider if the person knows (or consciously avoids
knowing) the provider is violating the rules.
The rule is also designed to prevent abuses by mandating that MARS
providers disclose certain information to the consumer, including their
Violations allow the FTC and states to enforce the rules and seek
penalties and other relief by bringing civil actions in federal district
Attorneys who are providing MARS “as part of the practice of
law” are exempt from the new rules as long as the attorney is
licensed in the state in which services are provided, or where the
consumer’s dwelling is located, and the attorney complies with
applicable state laws and regulations.
Attorneys are not exempt from the rule prohibiting advanced fees unless
they deposit advanced fees in a client trust account before performing
legal services and comply with state laws and regulations applicable to
client trust accounts.
The State Bar of Wisconsin was one of several state bar associations
– along with the American Bar Association – that sought an
amendment to the proposed rule that would provide an exemption for
The Jan. 5 edition of WisBar InsideTrack will feature more on
this development. Also, visit the FTC’s website
for more information about the final rule.