The Federal Trade Commission proposed a new rule that would prohibit loan modification specialists and loss mitigation attorneys from collecting advanced payment for foreclosure prevention services until after they obtain results.
“Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” FTC Chairman Jon Leibowitz said. “The proposed rule would outlaw up-front fees so companies can’t take the money and run.”
The FTC has brought 28 cases against companies suspected of foreclosure rescue and mortgage modification scams in addition to those brought by state and other federal law enforcement agencies.
“Far too many homeowners have paid up-front fees to bad actors who promised loan modifications but never delivered,” Treasury Secretary Timothy Geithner said.
For about two years now, I have been approached by speakers and service providers asking me to promote various forms of loan modification services given the close connection between loan modification and short sales. Believing that loan modification is NOT something real estate investors should be involved in for a profit, I have always declined. Here’s what I have told them:
- Real Estate investors provide an essential role in the economy by being a Buyer of distressed assets which are not well addressed by the retail market.
- A Buyer is adverse to a Seller and sits on the opposite side of the transaction. (That doesn’t mean we can’t operate with the dignity and interest of the seller in mind, but technically, we’re “on the other side”.)
- That legitimate and important role should be kept distinct and not blurred with anything that resembles foreclosure prevention, advice giving, consulting services, or anything else that might confuse the seller such as loan modification services.
- If a Seller can and wants to stay in the house, they should – it is in the market and the economy’s best interest that they keep their house if they can.
- A buyer of investment real estate has no interest in working to keep a seller in their house because it is in conflict to our interest of buying the house.
- Loan Modification work should be left for seller to do themselves or if help is needed, then to attorneys, non-profits, or legitimate services that charge fees only upon successful delivery of results.
The FTC’s proposed rule should not present problems for short sale real estate investors who understand what hats they wear and which ones they shouldn’t put on. Hopefully, a new rule will remove the scam artists from the market, give sellers who have a shot at staying in their house a better chance of doing so, and if they can’t then Short Sale investors will be prepared to do what we do distinct from any confusion in the minds of a seller.
The proposed rule, however, defines Short Sale as a “Mortgage Assistance Relief Service” together with loan modification and therefore the Rule would affect how real estate investors market and advertise. More on that . . .
