Effective July, 1, 2013, Maryland has a new law that regulates individuals and entities providing services in “short sale” transactions. The new law is named the Maryland Mortgage Assistance Relief Services Act (“Maryland MARS”). The provisions dealing with this new statute may be found in the “Real Property Article,” Section 7-501 et seq. and also in the “Commercial Law Article,” Section 14-1901 et seq.
A short sale occurs when (1) the proceeds realized from real property sold falls short of the balance needed to pay off the secured liens filed against the real property, and (2) the real property owner is unable to repay the balance due, which is then called the deficiency.
Short sales are not new to the experience of real property owners and investors. Since the real property bubble burst starting in 2007, millions of short sales have occurred across the United States, including in Maryland, and that trend continues. This caused federal regulators to first step in and, at the end of 2010, major regulations were established under the guidance of the Federal Trade Commission by developing the Mortgage Assistance Relief Services Rule. The concern was not that a parcel of real property was selling for less than what the owner paid for it due to result of market adjustments. The fear was that owners, investors and lenders needed specific guidance as a result of a few among them who engaged in practices later found to be unfair or deceptive. In Maryland, most of the official and unofficial commentary regarding these concerns has focused on the role of real estate agents, who are licensed and regulated by the Maryland Real Estate Commission.
Federal Regulation O and Maryland MARS do not provide a specific exemption for real estate agents. The role of real estate agents has been defined as limited to assisting clients in the purchase, sale, or lease of real property and not the negotiation of a short sale, delinquency, or other types of mortgage collection, foreclosure or cancellation. A further level of protection has now been added in Maryland due to the increased jurisdiction of the Maryland Commissioner of Financial Regulation.
Prior to July 1, 2013, Maryland real estate agents were prohibited from engaging in short sale discussions and negotiations unless they were separately licensed by Maryland regulators. Negotiating a short sale agreement or any other kind of mortgage foreclosure collection was not within the scope of a real estate agent’s license; however, by practice, no action was taken by the Maryland Real Estate Commission against real estate agents in good standing who may have engaged in such restricted activities as part of the sales transaction. Beginning on July 1, 2013, Maryland MARS changes all this and requires that real estate agents follow certain guidelines and procedures. The Maryland Commissioner of Financial Regulation has provided guidelines for use in such transactions, which may be found at http://www.dllr.state.md.us/finance/advisories/advisory-shortsales.shtml.
In summary, a real estate agent must comply with Maryland MARS if any of the following activities are performed:
- collecting monies from a short sale owner in addition to the real commission charged
- helping an owner negotiate with a lender/lienholder to achieve approval for a short sale; release of a lien; modification of a secured debt instrument; waiver of a deficiency; or to otherwise avoid a foreclosure proceeding
- making any statements to save the owner’s dwelling, stop foreclosure proceedings, obtain a short sale, or otherwise providing advice to benefit an owner who engages in “strategic” default
- making any predictions of the outcome of a short sale
A Maryland attorney who provides mortgage assistance relief services as part of the practice of law is exempt from Maryland MARS, as provided under federal regulations set forth at 12 C.F.R. Section 1015.7.
Administrative remedies available under Maryland MARS include violators possibly being charged as engaging in an unfair or deceptive trade practice and subject to the penalties under the Maryland Consumer Protection Act. However, Maryland MARS does not require that an aggrieved person first exhaust all administrative remedies. The statute specifically permits a private civil action to be brought in the county in which the real property is located, and a monetary recovery may award up to triple damages and reasonable attorney’s fees. In addition, violations may be criminally prosecuted by the Maryland Attorney General as a misdemeanor, punishable by up to three years’ incarceration and/or a fine of up to $10,000, or both.