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Mortgage modification rules issued

Mortgage modification rules issued

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The Federal Trade Commission has issued new rules banning providers of mortgage foreclosure rescue and loan modification services from collecting fees from homeowners before a written offer from their lender is made and accepted.

The Mortgage Assistance Relief Services (MARS) Rule also requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions.

The final rule contains an exception for attorneys who assist clients in mortgage modifications. Lawyers will be exempt from the rule if they meet four criteria: they engaged in the practice of law; they are licensed in the state where the consumer or the dwelling is located; they are complying with state laws and regulations governing attorney conduct related to the rule; and they place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts. Those conditions apply to most attorneys advising clients on mortgage matters.

The move was praised by ABA President Stephen N. Zack.

“By exempting most practicing lawyers who help consumer clients to renegotiate their mortgages or avoid foreclosure, the final FTC rule released [will] allow lawyers to continue to provide the critical legal services and expertise homeowners in crisis need,” Zack said in a statement. “The attorney exemption in the final rule protects consumer clients by largely preserving both the confidential attorney-client relationship and rigorous state court enforcement of professional regulations.”

The ABA had initially expressed concern that the proposed rule would impose additional or contradictory requirements on attorneys.

“Lawyers already are subject to extensive state court regulations that impose stringent duties of competency, diligence, confidentiality and undivided loyalty on lawyers and ensure that they provide the best possible legal representation to their clients,” Zack said. “By maintaining the existing state court regulatory environment and declining to impose an unnecessary new federal layer of regulation on most lawyers, the FTC has secured a lifeline for homeowners in danger of losing their homes.”

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