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Help for Homeowners

Regulation O

The Consumer Financial Protection Bureau, a new federal agency established to regulate and protect consumer lending and financing, has adopted a new rule that prohibits providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their mortgage lender or servicer and have accepted the offer. The new rule is called “Regulation O.” Regulation O requires anyone offering mortgage foreclosure relief and loan modification services to do the following:

  • state in writing that they are not associated with any governmental unit and\or their services are not approved by the government;
  • the mortgage lender may not agree to the homeowner’s proposal;
  • that not making mortgage payments as scheduled during a modification review could result in foreclosure and loss of the home. Regulation O also prohibits firms offering foreclosure relief and modification services from making false or misleading statements about:
  • the likelihood of getting results;
  • changes in the mortgage payment amount or interest rate;
  • whether the provider is associated with other service providers such as a realtor or attorney;
  • the amount of money to be saved by hiring the service provider;
  • the cost of services and the terms of refund, if any.

Attorneys are exempt from the advance fee ban if they comply with state court rules governing client trust accounts and the use of advance retainer payments. However, beware of any mortgage relief or modification service that advertises the service but then requires you to retain an attorney “associated” with the agency--they could be using the attorney to get around the prohibition against advance fees, i.e., the homeowner has to pay the attorney, who then pays the mortgage relief provider even though the service provider has not obtained a written modification offer as required by Regulation O.


Example to see if an organization is complying with Regulation O (Click to view example).

Does the MCMS solicitation (link above) comply with Regulation O? Here are some things for a housing counselor or homeowner to note:

  • The solicitation letter does not state that MCMS is not associated with the government and its services are not approved by the government.
  • The solicitation letter does not state that if the homeowner uses MCMS for loan modification services, the lender may not agree to a modification.
  • The solicitation letter does not state that the homeowners may stop doing business with MCMS at any time or may reject any offer from the mortgage lender and if rejected, the homeowner does not owe MCMS a fee.
  • While the solicitation letter states that there is no fee for an initial consultation, it does not disclose that MCMS may not charge any fee, or collect any fee, until the homeowner accepts in writing a modification offer from a lender. This includes fees for intermediate steps such as reviewing foreclosure documents, gathering financial information, and communicating with the lender or servicer.

Information About Short Sales

As a homeowner considering the sale of your home in a real estate market that is likely to offer you less than what you owe on the home, realtors or mortgage lenders often suggest a “short sale” as a way of getting the home sold. A short sale is basically the sale of the home for less than what is owed against it; the lender agrees to release its mortgage lien on the home in order to receive payment from the sale.

A short sale is not as easy as it sounds. You need a realtor who is experienced in negotiating with one or more mortgage lenders or servicers, and who is committed to making sure your interests are adequately represented in the negotiations with a buyer and mortgage lender. An experienced and trustworthy realtor will make sure you understand the following before putting your home on the short sale market:

  • Your mortgage lender may insist that you receive nothing from the sale;
  • Your mortgage lender may require you to pay the balance of the the loan remaining after the short sale;
  • You may have a potential income tax liability if any portion of the loan is forgiven by the lender;
  • If there is a second mortgage on the home, a short sale does not necessarily release you from the obligation to pay the second loan in full;
  • The sale transaction will usually be concluded by warranty deed, by which you warrants the physical condition of the home and good title;
  • The realtor’s compensation is from the sale, which may cause some conflict if you do not accept the buyer’s or lender’s conditions.

How to Find a Realtor Experienced in Short Sales

In today’s real estate market, it is all too common to encounter a realtor who claims to be an expert in short sales but in reality does not understand the details of the transaction or how to bring a short sale to conclusion that is satisfactory to the homeowner. Here are some questions to ask your realtor to make sure he or she is the right person to help you negotiate the minefield of a short sale:

  • In your experience, what are the success factors that make a short sale likely?
  • What is your expected timeline for concluding the short sale?
  • How do you prove financial hardship?
  • Will this be an arms length transaction?
  • What lender approvals will be required and what is the expected time period?
  • What documents are the responsibility of the seller?
  • What are the possible Seller costs, i.e. HOA fees, insurance, and utilities?
  • How will you keep in contact with me, the Seller?
  • Who will be responsible for negotiating with the lender and other lien holders?
  • What monthly payments is the seller responsible for until the sale occurs?

If your realtor does not know the answers to these questions, or has to consult with another realtor, then you should get another realtor to assist you in the sale.

Minnesota Mortgage Foreclosure Prevention Association |  424 W Superior St | Duluth, MN 55802