If you are investing in short sales or helping homeowners with short sales, you need to be fully aware of a Federal Trade Commission rule intended to protect consumers. As a real estate professional, it’s assumed you are a more sophisticated investor than the typical consumer. Unfortunately, there have been con artists taking advantage of homeowners attempting a short sale. That’s the reason the FTC came out with a ruling to protect consumers.

The ruling primarily covers three areas. First you or a short sale negotiator you hire cannot collect an up-front fee to negotiate a short sale on behalf of the homeowner. You or your vendor can collect a fee but only after an offer from the lender is presented to the homeowner and the homeowner accepts the short sale offer.

The second area covered by the rule requires certain disclosures to the homeowner. A short sale negotiator must disclose:

• The negotiator is 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.
• If the negotiator tells the homeowner to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.
• That the homeowner can stop doing business with the short sale negotiator at any time.
• That the homeowner can accept or reject any offer made by the lender.
• The amount of the fee the homeowner will be charged.

The good news is the homeowner is likely to accept any short sale offer from the lender because they won’t receive any money at closing anyway. The parts of the offer the homeowner might not find acceptable are how it will be reported to the credit bureaus and if the homeowner will be expected to make up the deficit from the short sale.

The third area covered is related to communications and claims made to the homeowner and is more involved. Short sale negotiators cannot make false or misleading claims about:

• The probability the homeowner will obtain the results they seek.
• The short sale negotiator’s affiliation with the government or private businesses such as a direct relationship with the lender.
• The homeowners’ payment and other obligations bound by the mortgage.
• The negotiator’s refund and cancellation policies.
• Whether the negotiator has actually performed the services promised.
• Whether the negotiator will provide legal representation to the homeowner.
• The availability or cost of any alternative for-profit mortgage assistance relief services.
• The amount of money a consumer will save by using their services.
• The cost of the services.
• The short sale negotiator cannot tell the homeowner to stop communicating with their lender.
• If the negotiator makes perferormance claims, they must have reliable evidence to back up the claims.

In general, attorneys are exempt from these rules when four conditions are met:

1. They are actively engaged in the practice of law.
2. They are licensed in the state the short sale property is located.
3. They are in compliance with state laws and regulations regarding attorney conduct related to the rule.
4. For attorneys to be exempt from the advance fee ban, they must deposit advance fees in a trust account and follow state laws and regulations covering trust accounts.

Disclaimer: Information made available here is not legal advice. It is general information sharing. I have no way of knowing your specific circumstances or laws in your state. If you need additional information, you need to seek competent legal advice specific to your circumstances.