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The Federal Trade Commission allows the option for Real Estate Brokers conducting short sales to charge Upfront Fees: Is it healthy for Brokers to charge Upfront Fees? Federal Trade Commission on MARS rules Full view

The Federal Trade Commission allows the option for Real Estate Brokers conducting short sales to charge Upfront Fees: Is it healthy for Brokers to charge Upfront Fees?

Short sales are unquestionably becoming a viable option for most homeowners and are rapidly becoming popular in our country today. The Federal Trade Commission (FTC) recently cancelled rules set by the Mortgage Assistance Relief Services (MARS). Their reasoning was they did not want to “inadvertently discourage real estate professionals from helping consumers with these types of transactions.” The rules that were cancelled for those trying to assist consumers in obtaining approval of a short sale from their lender or servicer were required disclosures, recordkeeping requirements, and the legal option to charge upfront fees. However, there has been a huge debate on whether it is fair for brokers to charge upfront fees to homeowners who are pursuing a short sale.

*Email received from staff in the Bureau of Consumer Protection:
The FTC’s stay means that the mars rule does not prohibit real estate professionals who assist consumers in obtaining short sales from charging advance fees. However, the mars rule does not preempt state law. This, in turn, means that if a state law bars such advance fees, real estate professionals who operate in that state continue to be prohibited from charging them.

The basic premises of the debate amongst Realtors are:

  • There are realtors who believe charging an upfront fee to sellers who are already struggling financially is unethical and even unlawful in their respective states. It exposes homeowners to realtors who are not experienced in short sales but are hungry enough to take on the transaction knowing there is a considerable chance of failure. If the short sale transaction falls through, the homeowners will be put in a position worse than where they started.
  • On the other hand, there are numerous brokers who are experts in the field of short sales having successfully closed hundreds under their belt that advocate charging an upfront fee is fair because of their many hours put into the transaction.  If the seller simply decides to walk, the brokers do not receive any compensation for all their efforts put into the deal.  Remember, we are not talking about inexperienced, unsuccessful Realtors. The “stay applies only to real estate professionals who: 1) are licensed and in good standing under state licensing requirements; 2) comply with state laws governing the practices of real estate professionals; and 3) assist or attempt to assist consumers in obtaining short sales in the course of securing the sales of their homes.”

Is it wrong for them to charge a small upfront fee for their legitimate services? Some realtors claim that they had sellers who were excited for the upfront fees and hired them because of it. The upfront fee establishes a commitment in a transaction that is a prolonged process and requires many hours of effort dealing with banks/servicers, sellers, and buyers.

What is your opinion on this matter? Do you believe upfront fees are justified and even beneficial for the short sale or is it unethical for Realtors to charge prior to closing a short sale because of the detriment it may have on the homeowner in case of failure. Homeowner’s opinions are greatly encouraged.

Our team of agent’s stance is to not charge an upfront fee for any given short sale transaction.

Peter

Written by SSB

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