From now on, if you have a business offering to help struggling homeowners avoid foreclosure, you don't get paid until that homeowner has a written offer from their lender that the deal you negotiated is acceptable.

It's the result of a new Federal Trade Commission (FTC) rule and is part of the government's effort to weed out the scammers who have, for the last several years, preyed on the growing number of people losing their homes.

"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."

The FTC's Mortgage Assistance Relief Services (MARS) Rule is aimed at bogus operations that 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.

What it means for homeowners

One of the most important aspects of the new rule is the way it helps identify a scammer. From now on, if a company offers to help a struggling homeowner avoid foreclosure, but requires a fee to be paid in advance, it clearly identifies the company as illegitimate. No homeowner should have any conversation with a company that asks for payment in advance.

The  new rule also 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 also must 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 also must disclose the amount of the fee.

Lawyers are generally exempt from the rule, but they must meet three conditions. They have to be engaged in the practice of law, they must be licensed in the state where the consumer or the dwelling is located, and they must comply with state laws and regulations governing attorney conduct related to the rule.

To be exempt from the advance fee ban, attorneys must meet a fourth requirement - they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.