MARS rule (Regulation O): no fee until your lender agrees, and the warnings you are owed

The MARS rule makes it illegal for a loan modification or foreclosure rescue company to take a dime before it delivers a written offer from your lender that you accept.

In the years after 2008, companies sprang up promising to “stop foreclosure” or “cut your payment” for an up-front fee of a few thousand dollars, then did little or nothing. The Federal Trade Commission issued the Mortgage Assistance Relief Services rule in 2010 to end the business model; in 2011 the rule transferred to the CFPB as Regulation O, 12 CFR Part 1015. Its central mechanism is simple: a relief company may not collect any fee until the consumer has a written offer from the lender or servicer in hand and has accepted it. Everything else in the rule — the mandatory warnings, the banned claims — exists to make that mechanism work.

Who the rule covers

A mortgage assistance relief service is any service, plan or program offered or provided to a consumer in exchange for consideration that is represented to help the consumer, with respect to a dwelling loan, to negotiate a modification, stop or postpone foreclosure, obtain a forbearance or repayment plan, obtain an extension to cure a default, obtain a waiver of acceleration, arrange a short sale or deed in lieu, or save the home from foreclosure by any other means. Loan modification companies, “foreclosure defense” firms that are not law practices, short-sale negotiators, forensic audit sellers and lease-back operators all fit. The rule covers the dwelling loans of individuals, whether or not the loan is consumer-purpose, and applies to anyone who provides, offers or arranges such services, including those who assist providers. Two groups are outside it:

the lender or servicer of the loan itself, and its agents, when dealing with their own borrowers;
attorneys meeting the conditions below.

HUD-approved housing counseling agencies provide the same help at no charge and are not the rule’s target, though they are technically covered if they charge.

The advance-fee ban

A provider may not request or receive any payment until the consumer has executed a written agreement with the lender or servicer incorporating the offer of relief that the provider obtained, and the provider has given the consumer a written description of the offer. That means no application fee, no “retainer,” no “processing fee,” no partial payment, and no payment taken by a third party on the provider’s behalf. A provider who obtains an offer the consumer rejects is owed nothing. The fee is earned only when the lender’s written offer is accepted, and the rule makes clear that a consumer may walk away at any point without paying.

Required disclosures

Every advertisement and general communication must state, in plain terms, that the provider is not associated with the government and its service is not approved by the government or the lender, and that even if the consumer uses the service, the lender may not agree to change the loan. In any communication directed at a specific consumer, the provider must add that the consumer may stop doing business with it at any time, may accept or reject any offer obtained, owes nothing if the offer is rejected, and must pay a stated amount if the offer is accepted. If the provider suggests, or its plan implies, that the consumer stop making mortgage payments, it must disclose that stopping payments could mean losing the home and damaging credit. When the provider presents the lender’s offer, it must do so in writing, with a notice of how the offered terms differ from the current loan. The disclosures have formatting rules (clear and prominent, in the same language as the communication, audio in broadcast ads).

Prohibited conduct

Regulation O bans specific representations and acts regardless of what is disclosed:

telling or advising the consumer not to contact or communicate with the lender or servicer;
misrepresenting the likelihood of obtaining relief, or guaranteeing a result;
misrepresenting affiliation with the government, a HUD counseling program, the lender, or a non-profit;
misrepresenting the time it will take, the terms of any offer, the total cost, or the consumer’s ability to cancel;
misrepresenting that the consumer cannot get the same result without the provider, or that the provider has completed work it has not;
misrepresenting that the provider is a lawyer or that a “forensic audit” will produce relief;
substantially assisting another provider while knowing, or consciously avoiding knowing, that it is violating the rule.

Providers must keep records — contracts, advertisements, consumer files — for 24 months.

The attorney exemption, precisely

An attorney is exempt from most of the rule only if the attorney is providing the service as part of the practice of law, is licensed in the state where the consumer or the dwelling is located, and complies with state laws and rules governing attorney conduct. To be exempt from the advance-fee ban as well, the attorney must also deposit any fee into a client trust account and comply with state rules on such accounts, withdrawing only as fees are earned. A non-attorney company that “works with” a lawyer, or an attorney licensed in another state, does not qualify. Many foreclosure rescue schemes recruit an attorney’s name precisely to claim the exemption; ask for the bar number and check it with the state bar.

Limits, enforcement and what to do

It does not guarantee that any relief exists for you; what a servicer can offer is governed by the investor’s guidelines and the servicing rules. It does not police the pricing of a lawful fee once earned, and it does not reach services unrelated to a dwelling loan. It does not prevent a servicer from charging its own permitted fees, and it does not cover credit repair, which has its own federal statute with a similar advance-fee ban.

Enforcement. The CFPB and FTC enforce Regulation O, with civil penalties and restitution; state attorneys general may sue under it, and most states also have foreclosure consultant laws with licensing or bonding requirements. There is no express private right of action under the rule itself, but state consumer protection laws and contract remedies usually apply, and a fee taken in violation of the advance-fee ban is recoverable under many of them. If you paid a company that did nothing, write a demand for the refund citing 12 CFR 1015.5, report it to the FTC and CFPB, and contact your state attorney general. Then call a HUD-approved counselor — free, and able to submit a complete loss mitigation application to your servicer with the same deadlines a paid company would use. See our foreclosure rescue scams guide, the counselor guide, and the mortgage problems hub for the options a servicer can actually offer. The FTC’s consumer materials are at ftc.gov.

Key points

FTC rule issued 2010, transferred to the CFPB in 2011 as Regulation O (12 CFR 1015).
Covers anyone paid to help negotiate a modification, forbearance, short sale, deed in lieu or foreclosure delay on a dwelling loan; lenders and servicers acting on their own loans are exempt.
No fee of any kind until the consumer has a written offer from the lender and has executed an agreement accepting it.
Ads must state the provider is not associated with or approved by the government or the lender, and that the lender may not agree to change the loan.
Consumer-specific communications must disclose the right to stop at any time, to reject the offer without paying, and the exact fee if accepted.
Any suggestion to stop paying must carry a warning about losing the home and credit damage; telling a consumer not to contact the lender is banned outright.
Attorney exemption only for lawyers practicing law, licensed in the consumer’s or property’s state; advance fees allowed only through a client trust account.
Enforced by the CFPB, FTC and state attorneys general; records kept 24 months; free help exists through HUD-approved counselors.

How MARS rule applies to you

Frequently asked questions

Can a loan modification company charge me an up-front fee?

No. Under Regulation O a mortgage assistance relief provider may not request or receive any payment until you have a written offer of relief from your lender or servicer and have signed an agreement accepting it. Application fees, retainers and processing fees are all prohibited, whatever they are called. The only exception is an attorney practicing law in your state who holds the money in a client trust account until earned.

How do I know if a foreclosure help company is legitimate?

Legitimate providers charge nothing until your lender makes a written offer that you accept, never tell you to stop talking to your servicer, and never guarantee a result. Check whether the company claims an attorney exemption and verify the lawyer’s license in your state. HUD-approved housing counselors offer the same services free; if a company is charging for something a counselor does at no cost, ask why.

Does the MARS rule apply to lawyers?

Partly. An attorney is exempt from the disclosure and conduct rules only when providing the service as part of the practice of law, licensed in the state where you or the property are located, and in compliance with state attorney rules. To collect a fee before the lender’s offer, the attorney must also deposit it in a client trust account and withdraw it only as earned. A company that merely uses a lawyer’s name does not qualify.

What can I do if I already paid a company that did nothing?

Send a written demand for a full refund citing the advance-fee prohibition in 12 CFR 1015.5, and file complaints with the FTC, the CFPB and your state attorney general, who can act under the rule and under state foreclosure consultant laws. Keep the contract, payment records and all messages. At the same time, contact your servicer directly and a HUD-approved counselor so that any loss mitigation deadlines are not missed.