Federal rule aimed at mortgage relief scams takes effect, attorneys exempt 

By 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 met.

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, 2011.

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 “for-profit” status.

Violations allow the FTC and states to enforce the rules and seek penalties and other relief by bringing civil actions in federal district courts.

Attorneys exempt 

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 lawyers.

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.