KW Default Solutions
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This is for agents with a seller who is behind on the mortgage. Scammers target homeowners in this spot, and your seller may mention an "offer" to you first.
What you'll be able to do: spot the red flags, warn your seller and point them to free help. You'll also know where to report a scam.
011. Is someone asking your seller to pay up front?
Ask: Has anyone asked you to pay them before they get you any help from your lender?
Check: What the seller was told, and any paper or text the company sent.
The Federal Trade Commission (FTC) is the federal agency that protects consumers from unfair and deceptive business practices. It says it's illegal for a company to charge up front for promises of mortgage relief.
That comes from the Mortgage Assistance Relief Services rule. People call it the MARS rule or Regulation O. Under it, a company offering this help can't ask for or take a fee too early. It has to wait until the homeowner signs a written agreement with their lender or servicer.
A servicer is the company that collects the payments and handles the loan. The fee rule covers outside companies that sell mortgage help. It doesn't cover the lender or servicer itself.
The Consumer Financial Protection Bureau (CFPB) is the federal agency for consumer finance laws. It puts it simply: these companies can collect a fee only after they work out a deal the homeowner wants to accept.
Watch how they want to be paid, too. Scammers may ask for a cashier's check, a wire or a payment app. The FTC says that money is hard to get back.
Script (to the seller): "Before you pay anyone, here's one thing to know. They can charge only after your lender offers a deal you want to accept. Would you hold off until we look at this together?"
022. Has anyone told your seller to stop paying or to stop talking to the servicer?
Ask: Did anyone tell you to stop making your mortgage payments, to pay them instead or to stop calling your servicer?
Check: Who the seller is sending payments to now, and who they've been told to call.
These are three red flags. The CFPB says being told to stop paying is a warning sign. It can hurt a credit score and limit options. Sending payments to anyone other than the lender or servicer is another.
The MARS rule bans a company from telling a homeowner not to talk to their lender or servicer. The homeowner always has the right to call their lender.
Script (to the seller): "Your payments should go to your servicer, the company on your monthly statement. And you can always call them yourself. If anyone tells you otherwise, that's a warning sign."
033. Is someone asking your seller to sign over the deed or sign papers they don't understand?
Ask: Has anyone asked you to sign over the deed or sign papers in a hurry?
Check: Any papers the seller has signed or been handed, and whose name is on them.
The deed is the legal paper that shows who owns the home. The FTC says that if a homeowner transfers the deed, they're not likely to get it back.
It shows up in a few ways the FTC names:
- Rent to buy: "Give us the deed, rent it and buy it back later." The homeowner still owes the mortgage.
- Equity skimming: "Sell us your home and get it back later." The scammer may rent it out and keep the rent while the lender forecloses.
- Rescue loan: "We'll get you a new loan to catch up." A paper giving away the deed can be buried in the stack.
Being pushed to sign papers the homeowner doesn't understand is on the CFPB's list too.
A HUD-approved housing counselor works at an agency approved by the U.S. Department of Housing and Urban Development (HUD). That's the federal housing department.
Script (to the seller): "Please don't sign anything that changes who owns the house yet. Let's have a real estate attorney or a HUD-approved housing counselor look at it with you first."
044. Is the offer guaranteed, rushed or dressed up as government help?
Ask: Did they promise you won't lose the home, tell you to decide today or say they work with the government?
Check: The mailer, website or card, and the exact words of the promise.
These are on the CFPB's list of warning signs:
- A guarantee that the mortgage terms will be changed
- A guarantee the homeowner won't lose the home
- Pressure to act right away
- An offer to do a "forensic audit" of the loan
- A claim of a government tie, or a logo that looks almost like a government seal
The CFPB says real government officials never ask for payment to help. A forensic audit is a review of the loan papers for mistakes. The FTC says scammers can't promise an audit will get a homeowner any relief.
Script (to the seller): "No one can promise your lender will say yes. Only your lender decides that, so let's slow down and check."
The red-flag checklist
Keep this handy when a seller mentions outside "help."
| What the seller hears | Why it's a red flag | What you say |
|---|---|---|
| "Pay us first and we'll get you a modification." | The MARS rule bans fees until the homeowner signs a deal with the lender or servicer. | "They generally can't charge you until you accept a written offer from your lender." |
| "Pay by wire, cashier's check or a payment app." | The FTC says this money is hard to get back. | "Let's hold off on sending money until we know who this is." |
| "Stop paying your mortgage." | It can hurt the seller's credit and limit their options. | "Please talk to your servicer before you stop any payment." |
| "Send your payments to us." | Payments should go only to the seller's lender or servicer. | "Your payment should go to the company on your statement." |
| "Don't talk to your lender." | The MARS rule bans companies from telling a homeowner this. | "You can always call your servicer yourself." |
| "Sign the deed over to us and rent it back." | The seller likely won't get the deed back and still owes the mortgage. | "Please don't sign over ownership until an attorney or counselor reviews it." |
| "Sign here, here and here. We need it today." | Pressure and papers the seller doesn't understand are both warning signs. | "Let's have a counselor or attorney read these with you first." |
| "We guarantee you'll keep the house." | No one can promise that. Only the lender decides. | "No one can promise what your lender will do." |
| "We're with the government" or a seal that looks almost right | Real government officials don't charge to help. | "Let's check this with a HUD-approved counselor first." |
| "We'll do a forensic audit of your loan." | An audit can't promise any relief. | "Let's ask a housing counselor if that would help you at all." |
At a glance
Foreclosure rescue scam red flags: what the seller hears
| 1 | Pay us first and we'll get you a modification. |
| 2 | Pay by wire, cashier's check or a payment app. |
| 3 | Stop paying your mortgage. |
| 4 | Send your payments to us. |
| 5 | Don't talk to your lender. |
| 6 | Sign the deed over to us and rent it back. |
| 7 | Sign here, here and here. We need it today. |
| 8 | We guarantee you'll keep the house. |
| 9 | We're with the government (or a seal that looks almost right) |
| 10 | We'll do a forensic audit of your loan. |
Free help: a HUD-approved housing counselor. Report a scam to the FTC at ReportFraud.ftc.gov.
How to warn your seller
Keep it calm and short. Share what the federal agencies say, and point your seller to free help.
Script (to the seller): "I'm really glad you told me. A few things you mentioned are on the CFPB's list of scam warning signs, but I can't say for sure it's a scam. Before you pay or sign anything, let's call your servicer and a free HUD-approved housing counselor."
055. Where can your seller get real help, and where do you report a scam?
Ask: Has the seller talked to their servicer and a HUD-approved housing counselor yet?
Check: The CFPB's Find a housing counselor tool, searched by ZIP code.
Real help starts with the servicer. The CFPB says to call right away, using the number on the monthly statement.
Then a housing counselor. The CFPB says HUD-approved counselors help homeowners having trouble paying their mortgage at no cost. Agencies may offer other services too, often at little or no cost. Not every counselor offers every service.
The CFPB also lists the HOPE Hotline, open 24/7, at (888) 995-HOPE (4673).
If the seller was served legal papers or foreclosure is close, the CFPB says they might need an attorney. State rules vary, so point them to a local real estate attorney.
If your seller thinks they've run into a scam, they can report it to:
- The FTC at ReportFraud.ftc.gov
- The CFPB, online or at (855) 411-CFPB (2372)
- Their state attorney general
The FTC says the sooner a homeowner acts after paying a scammer, the better.
Script (to the seller): "Would you like to sit down together and report this today?"
066. Does the MARS rule apply to your short sale work?
Ask (your broker): How does our office handle the MARS rule on short sale files?
Check: Your state's rules for real estate licensees and any written policy your broker has.
This question is about your own work. A short sale happens when a home sells for less than the mortgage payoff and the lender agrees to take less so the sale can close.
The MARS rule covers anyone who negotiates, obtains or arranges a short sale for pay. There is no written exemption for real estate agents in the rule. It exempts certain attorneys only. It also leaves out the lender, the servicer and the companies working for them.
The FTC did speak to agents, though. It put out an enforcement policy on July 14, 2011. It said it would not enforce most of the rule against some brokers and their agents. It covered licensed brokers, and agents under their direction, who meet three conditions:
- They're licensed and in good standing under state law.
- They follow their state's laws for real estate professionals.
- They help with a short sale as part of selling the homeowner's home.
That policy has limits. It still bans misleading claims, and federal law against unfair or deceptive practices still applies. It doesn't cover help with a loan modification or other kinds of mortgage relief. A loan modification is a change to the loan's terms, like the interest rate or monthly payment.
The FTC issued the policy "until further notice." A week later, the power to write this rule moved to the CFPB. So don't treat the policy as a permanent safe harbor, meaning a promise you won't be penalized.
Your state can also have its own rules, and they can be stricter. Before your next short sale, ask your broker and a local real estate attorney how this applies to you.
Script (to your broker): "I'm starting to work short sales. How do we handle the MARS rule and our state's rules? Could we check it with a real estate attorney?"
Worked example: what an up-front fee really costs
This example is fictional.
Your seller, Dana, is 3 months behind. Her monthly payment is $1,800, so she owes $5,400 in missed payments.
A company mails her a flyer with an official-looking seal. They ask for a $2,500 fee to start. They tell her to stop calling her servicer and send her payments to them.
Say she does this for 3 months, and the company never pays her lender:
| Amount | |
|---|---|
| Fee paid to the company | $2,500 |
| Payments sent to the company (3 × $1,800) | $5,400 |
| Total Dana paid out | $7,900 |
| Missed payments before | $5,400 |
| Missed payments now (6 × $1,800) | $10,800 |
She paid $7,900 and is now twice as far behind. That's the pattern the FTC describes.
If Dana had called you first, you'd have heard four red flags. Those are the fee, the seal, the payment switch and "don't call your servicer."
What a scam warning doesn't do
- One red flag doesn't prove a scam. It's a reason to check.
- Not every fee is illegal. Attorneys licensed in the homeowner's state who follow state rules and use a client trust account may take money up front.
- Free counseling doesn't guarantee a result. The servicer decides what options it will offer, if any.
- Reporting doesn't promise the money comes back.
- Your warning isn't legal advice. Share what the agencies say and refer.
Naming traps
- "Housing counselor" on a business card doesn't mean HUD-approved. The FTC says scammers may claim to be counselors. Use the CFPB tool.
- "Rescue loan" sounds like refinancing. The FTC says some hide a deed transfer in the paperwork.
Practice: what would you do?
Five fictional situations. Decide, then check the answer.
- A company will "handle the bank" for $1,500, paid before they start. What you'd do: Share that these fees come only after a lender deal the seller accepts. Suggest a HUD-approved counselor first.
- Someone told your seller not to call their servicer. What you'd do: Tell them they can always call their servicer directly.
- Someone offers to take the deed and rent the home back to your seller. What you'd do: Suggest a local real estate attorney before signing. Remind them the mortgage stays theirs.
- Your seller already sent $2,000 by wire. What you'd do: Help them report it to the FTC, the CFPB and the state attorney general right away.
- A seller asks if a HUD-approved counselor costs money. What you'd do: Say help with mortgage trouble is free, and other services vary by agency.
Next step
Working with a seller in this spot and get stuck? We're happy to talk it through with you. Reach out to the KWDS team
Who we are
KW Default Solutions (KWDS) helps Keller Williams agents find and handle listings tied to default. That includes homeowners behind on the mortgage, short sales, bank-owned homes and homes owned by companies or investors. We also train agents to do this work. Most of our opportunities are for Keller Williams agents.
General U.S. real estate education, not legal or tax advice. State law varies and all examples are fictional. For a specific situation, talk with a local real estate attorney or a HUD-approved housing counselor.
Sources:
- FTC: Mortgage relief scams
- FTC: Enforcement policy, real estate professionals and the MARS rule (July 14, 2011)
- CFPB: How to spot and avoid foreclosure relief scams
- CFPB: What are mortgage loan modification scams?
- CFPB: If I can't pay my mortgage loan, what are my options?
- CFPB: Find a housing counselor
- 12 CFR 1015.2, Definitions (Regulation O)
- 12 CFR 1015.3, Prohibited representations (Regulation O)
- 12 CFR 1015.5, Prohibition on collection of advance payments (Regulation O)
- 12 CFR 1015.7, Exemptions (Regulation O)