A recent memo from the legal department of the National Association of Realtors® (NAR) spells out how agents doing short sales will be required to make specified disclosures under new federal regulations. These rules came about as a result of the Mortgage Assistance Relief Services final rule ("MARS rule") which was published by the Federal Trade Commission in November 2010. The disclosure rules took effect January 31, 2011.

The MARS rule is primarily directed toward those who offer loan modification services, but it also applies to those who negotiate "a short sale of a dwelling on behalf of a consumer." This is interpreted very broadly. According to the NAR memo, "FTC staff has determined that ‘negotiate’ will include communications with a lender about the possibility of a short sale transaction involving a consumer’s loan." Under the regulations, anyone who provides short sale negotiation services is considered a MARS provider.

There are three types of disclosures and disclosure situations covered by the rules.

1. General Commercial Communications Disclosures Many real estate agents and brokerages advertise to the general public that they provide short sale services. Even if they don’t claim special expertise, the fact that such services are offered will trigger the disclosure requirement. All such advertisements must include a clear and prominent disclosure with the following:

IMPORTANT NOTICE (in two-point type larger than the font size of the disclosure): (Name of Company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.

2. Consumer-Specific Commercial Communications This refers to communications directed to specific persons. It could be to a "farm". It could be to a mailing list of people who are on a mortgage-default list, or a list of people whose loans appear to be larger than the value of their property. It could even be to an individual client when you learn that their transaction will have to be a short sale. The timing of the disclosure will vary, as the circumstances vary. If the communication about short sale services is directed to a targeted list, the disclosure will probably have to accompany the communication. If the short sale situation is discovered later in the game, so to speak, it should probably be done in a letter. (NAR has provided a sample disclosure for such a situation. Members can find it on Realtor®.org. Search for MARS disclosure.) The required consumer-specific disclosure looks like this:

IMPORTANT NOTICE (in two-point type larger than the font size of the disclosure): You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.

3. Disclosure When Providing an Offer of Mortgage Relief So you have done everything right. You put your short sale package together and negotiated in an accomplished professional manner. You have a lender approval letter. Now you have to make another disclosure! It must say this:

IMPORTANT NOTICE: Before buying this service, consider the following information (in two-point type larger than the font size of the disclosure): This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject this offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount as disclosed previously] for our services. If you stop paying your mortgage, you could lose your home and damage your credit rating.

So there you have it. These are the new rules. We must abide by them. Will this make the world a better place? Let me know.

Published: March 8, 2011

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .