Wednesday, December 29, 2010

Stopping Foreclosure Scams: New FTC Rules Take Effect Today

Beginning today, homeowners in Minnesota and nationwide are benefiting from the Federal Trade Commission (FTC)'s new consumer protection rules aimed at stopping foreclosure rescue scams. The Mortgage Assistance Relief Services Rule (MARS) bans companies from making false promises in their marketing and, beginning Jan. 31, prohibiting them from charging any up-front fees for their services.

We are all well aware that these terrible scams are robbing homeowners of their savings, their home, or sometimes both. This new Rule will further our fight to end foreclosure rescue scams in Minnesota by giving the FTC the tools needed to crack down on scamming companies across the country - companies that are targeting homeowners in our state.

In addition, MARS requires mortgage modification companies to disclose key information to consumers, including:
  • They must explicitly state that they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
  • The lender may not agree to change the consumer’s loan; and
  • If companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating as a result of this action.
For additional information about the new rules, and what it means for Minnesota homeowners, see our full press release, here.

While the new FTC Rule is an enormous consumer protection victory, homeowners still must be armed with information to recognize these scams and to protect their homes. That's why the Minnesota Home Ownership Center has created a brochure-size, two-sided consumer education piece for you to share with your networks and consumers. It equips homeowners with simple questions to ask themselves when considering outside help for a mortgage modification, and it directs them to to connect with a counselor in their community.

Order Look Before You Leap Consumer Handouts Today!

Help us help Minnesota homeowners - commit to displaying this piece today! The consumer handout is the perfect size for brochure and information racks, tabling events, or including in utility bills or other mailings. We have produced materials in both English and Spanish. And, we'll provide you copies free of charge!  Visit the campaign website: to download and submit an order form.


  1. Hello,

    First of all, thanks for your service. I have found it very helpful.

    I own a town home, which is financed by one mortgage (FHA). I had to move out of the town home to take care of my mother, who was very, very ill. I rented the town home out to pay the ills. The current tenants are in a 1-year lease through June '11. My first missed payment was in November '10. I will not renew the lease with the current tenets so they will be out of the property about four months before the 6 month redemption period.

    I owe ~$119,000 on the home and it is worth ~$65,000. Evidently, both the bank's appraiser and myself miscalculated the value of the home at the time of purchase.

    I am wondering if I will have to pay taxes on my debt cancellation, once the foreclosure goes through? It is not my personal residence. I am thinking I may be insolvent, but am not sure. Do people generally have to pay taxes on canceled debt for foreclosures which are rental properties?

  2. Sorry about my comment being off-topic, I just did not know the best place to post it.

  3. Just Curious:

    I know this isn't the answer you were hoping for but... It’s kind of a grey area. - - and please don't take this as legal advice :-).

    That said, whether lenders are considering the amount lost on a loan through foreclosure as debt forgiveness, many times depends on the lender.

    It also depends on whether the loan is non-recourse (generally if the loan is being foreclosed by advertisement it’s non-recourse).

    It seems though that IF the lender does issue a 1099 for debt cancellation, you would NOT be able to apply for the mortgage debt forgiveness relief (that applies to principal residences only). You'll have to speak with a tax accountant who could look further into the Act and IRS rules about debt cancellation.

    We have a fact sheet on our website ( titled "Tax Issues with Foreclosures and Workouts" that may be of some assistance as well.

    Also, below is a portion of the text from the IRS website:

    Is Cancellation of Debt income always taxable?

    Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
    • Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
    • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
    • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
    • Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
    • Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

    Hope this helps! And thanks for reading our blog!


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