MARS rule and “refinance to stop foreclosure” pitches: advance fees and fake lenders
A real lender quoting you a refinance is exempt from the MARS rule; anyone charging a fee to “arrange” a refinance that will stop a foreclosure is covered, may not collect until you accept a written offer, and must give you specific disclosures.
Who is covered when the pitch is a refinance
Regulation O applies to any service offered for a fee that claims to stop, prevent or postpone a foreclosure, or to obtain a modification, forbearance or other relief. A company that says it will “get you refinanced out of foreclosure” for an upfront fee is selling a mortgage assistance relief service, even if it never calls itself one. The rule exempts the lender or servicer acting on its own loan and, within limits, attorneys providing legal services in a state where they are licensed — which is why your servicer’s retention department and a lender’s own refinance offer are outside MARS, while the “consultant” who promises to find that lender is inside it.
What a covered provider may and may not do
The advance-fee ban is the core: a MARS provider may not collect any payment until you have a written offer of relief from your lender or servicer and you have accepted it. Applied to a refinance pitch, that means no “processing,” “file review” or “lender placement” fee before a real lender has issued a written approval you choose to take. The provider must also state, in every solicitation and in the first communication, that it is not associated with the government or your lender, that your lender may not agree to change your loan, and that you may stop doing business with it at any time. It may not tell you to stop paying your mortgage or to stop communicating with your servicer, may not misrepresent how likely a refinance is, and may not collect a fee for a result it did not obtain.
Why the refinance promise itself is the red flag
A homeowner in default rarely qualifies for a mainstream refinance: conventional and FHA cash-out loans generally require twelve months without a 30-day late, streamlines require a clean recent record, and the appraisal-based equity needed to pay arrears and fees is exactly what most distressed owners lack. The “refinance” that follows the fee is therefore often a high-cost private loan, a sale-and-leaseback in which you deed the house to an investor, or nothing at all. Each of these has a separate federal hook — HOEPA for the loan, deed-theft statutes in many states for the transfer — but the MARS disclosures and fee ban are what let the FTC and state attorneys general act before the house is gone.
The alternatives cost nothing: a HUD-approved housing counselor can review a refinance quote and your servicer’s loss mitigation options side by side, and your servicer must evaluate a complete loss mitigation application under the servicing rules. If a real refinance is feasible, a licensed lender will quote it without an advance fee; if it is not, no consultant can make it so.
What to check
- Pay no fee to anyone who promises to arrange a refinance that stops a foreclosure until a lender’s written approval is in your hands and you accept it.
- Look for the three required MARS statements in the solicitation; their absence is a violation in itself.
- Keep paying and keep talking to your servicer; an instruction to do otherwise is prohibited conduct and a fraud signal.
- Run any refinance quote past a HUD-approved counselor and check the funding lender on NMLS before signing an application.
Frequently asked questions
A company wants $2,000 upfront to refinance me out of foreclosure. Is that legal?
Under the MARS rule a company selling foreclosure-related assistance may not collect a fee until your lender has made a written offer that you accept. An upfront charge for a promised refinance is an advance fee the rule prohibits, unless the company is the actual lender making the loan. Decline, keep the solicitation, and report it to the FTC and your state attorney general.
Is my current lender’s offer to refinance me while I am behind covered by MARS?
No. Lenders and servicers acting on loans they own or service are exempt from Regulation O, as are their retention and loss mitigation departments. The offer is still subject to TILA, RESPA and the servicing rules, and a refinance while delinquent is uncommon, so ask for the approval in writing and have a HUD-approved counselor review the terms against a modification or deferral.
The rule in full: MARS rule (Regulation O): mortgage assistance relief services. The borrower profile: Refinancing homeowners. Related guides: Rate-and-term refinance: when it pays, how to compute the break-even · Cash-out refinance: limits, costs and when it is the wrong tool · Foreclosure rescue scams: the six patterns and the federal rule that bans upfront fees · HUD-approved housing counselors: free help that servicers take seriously.
Other federal rules for refinancing homeowners
TILA / Reg Z · RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · HPA / PMI · Servicing rules · FCRA · Flood insurance · SCRA · LO compensation
MARS rule for other borrowers
First-time buyers · Conventional borrowers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home