Well drafted rental agreements help prevent disputes and protect the owner’s legal interests when disputes do arise – especially in regard to vacation rentals. Thoughtful vacation rental agreements provide owners with important safe guards and protections. For example, without an express vacation rental agreement, many vacation rental relationships will be governed by the state’s Residential Landlord Tenant Act and not the Inn Keeper Statutes. For good reason, owners prefer for the relationship to be governed by the Inn Keeper Statutes. See Vacation Rentals and the Super Bowl, October 15, 2014. Excellent vacation rental agreements also establish appropriate Rules and Regulations to help ensure that the renters are respectful of the neighbors and any CC&Rs.
And so, prudent owners should include a custom vacation rental agreement with any online booking, including online bookings with airbnb. As discussed in the above-referenced October article, any vacation rental agreement should at a minimum expressly state that the parties recognize and agree that the agreement constitutes an “innkeeper relationship” and is exempted from the Landlord Tenant Act. Further, the agreement should expressly state that the owner may perform a non-judicial lockout in the event that the guest breaches the agreement or willfully holds over post conclusion of the rental term. And if the property includes a pool or hot tub, the owner needs to include a separate waiver and release of liability.
Airbnb Allows Owners to Utilize a Custom Vacation Rental Agreement.
Contrary to popular belief, property owners (referred to as “hosts” by airbnb) can require guests to submit to additional terms and conditions prior to booking on the airbnb.com website.
First, as a practical matter, owners should disclose in the “property listing description” that there are additional terms, along with any additional steps needed to execute the contract. Airbnb suggests that hosts simply “copy-and-paste the terms in the message thread” with the guest. Otherwise, owners should consider separately sending a comprehensive agreement that the guest can sign with an electronic signature, via a convenient online service such as DocuSign. This allows owners to strengthen their legal protection while maintaining ease-of-use, which is one hallmark of airbnb.
Owners should utilize a custom vacation rental agreement based upon their particular property, considering that all properties and communities are unique. Avoid stock agreements and one-size-fits-all solutions.
For example: Airbnb does not process taxes. And the municipality in your jurisdiction may impose taxes on certain short-term rentals. For example, the City of Scottsdale assesses a Transient Tax Rate of 5.0%. In that case, in addition to the 1.65% privilege tax on rental of real property, there is a 5.0% transient lodging tax on any hotel, motel, apartment, or individual charging for lodging space to any person for 29 days or less. An owner in that situation should specify in the agreement that such amounts are also included in the rate.
And as another example, airbnb does not collect security deposits. Rather, airbnb has a set of procedures for an owner to make a claim on an airbnb insurance policy if the damage and property is within the scope of the Airbnb Host Guarantee Terms and Conditions. Depending on the nature of your property and the length of the rental, owners should consider collecting a security deposit to minimize the cost of potential property damage — and not exclusively rely on protection through airbnb’s insurance.
Owners can fully address these issues, and many others, in a customized vacation rental agreement. With a bit of planning, a custom agreement will eliminate disagreements before they arise, allowing owners to increase profitability and reduce headaches.
Beware of Property Use Restrictions
Even with the right vacation rental agreement provisions, local ordinances or applicable community covenants, conditions, and restrictions (“CC&Rs”) may restrict short-term rentals. Consequently, before owners market their property for rent to the public on websites like VRBO and airbnb, owners and property managers should consult with a real estate attorney to confirm any legal hurdles in your area.
Websites like VRBO, HomeAway®, onefinestay, TurnKey®, and airbnb are priceless tools for finding interested renters. But owners and property managers who use these websites without requiring renters to submit to additional terms and conditions, unnecessarily expose themselves to risk and liability. With just a few simple steps, owners can incorporate a smart vacation rental agreement into websites like airbnb and prevent disputes from arising, shield owners from liability, and protect their property interests.
If you or someone you know needs help drafting a vacation rental agreement or has questions regarding vacation rentals, please contact us today.
Following the market crash and the Great Recession, Congress enacted the Dodd-Frank Act to effectuate a “sweeping overhaul of the United States financial regulatory system” on a scale not seen since the reforms that followed the Great Depression. Title X of the Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) to supervise and enforce fair lending guidelines regarding real estate mortgages.
Key provisions of the Dodd-Frank Act took effect earlier this year. One consequence of the new compliance guidelines and increased scrutiny is extended closing periods for mortgages. While prior to this year most mortgages closed within 30 days, following Dodd-Frank, some loans now take 45 – 60 days to close.
Due to the longer and less predictable closing periods, buyers and sellers are encountering occupancy challenges and requesting pre or post-possession agreements until their pending transaction can close escrow. Pre-possession agreements are awkwardly named and are better understood as “pre-closing occupancy agreements.” This refers to a written agreement whereby the seller agrees to rent the property to the buyer before the transaction actually closes escrow. The term is typically brief – anywhere from one day to one month.
Pre-possession agreements present unique and interesting legal issues. They also present substantial risk to the seller. In fact, Commissioner’s Rule R4-28-1101(k) warns: “A salesperson or broker shall recommend to a client that the client seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks of pre-possession or post-possession of a property.”
Arizona’s statute of frauds requires that any agreement for the sale or interest in real estate must be in writing. A.R.S. §44-101(6). But one key exception to the rule concerns a lease for less than one year. So technically a verbal pre-possession agreement is legal. Under no circumstance, however, should a seller (or his agent) ever agree to a verbal pre-occupancy agreement.
Although pre-possession agreements can create certain risks for the seller, those risks may be mitigated or eliminated with a thoughtful and thorough pre-closing occupancy agreement. Below is a list of common pitfalls to pre-closing occupancy agreements:
- Risk of Loss – who has the risk of loss during the pre-closing occupancy period? According to the AAR Purchase Contract, the seller is only responsible for any warranties or damage until close of escrow or possession, whichever occurs first.
- Insurance – does the seller have valid insurance coverage during the pre-closing occupancy period?
- Repairs and Maintenance – who is responsible for repairs and maintenance?
- Occupancy Rights – who has the right to occupy the property (the seller should require the buyer to expressly identify the names of everyone who will be occupying the property and consider obtaining background check on all occupants)
- Rental Amount – what is fair rent for the term?
- Security Deposit – what is a fair security deposit? Is the security deposit limited to 1.5 times the monthly rent pursuant to the Arizona Residential Landlord Tenant Act? Probably not (see below).
- Alterations – the seller should resist any request by the buyer to make alterations prior to closing. If, however, the seller elects to allow any alterations, the seller should demand a security deposit or bond to protect the seller if the transaction doesn’t close.
- Buyer’s Contingencies – the seller should request that the buyer waive any contingencies.
- Seller’s Remedies if Buyer Breaches – the seller should expressly identify what remedies are available if the buyer breaches the contract and fails to close escrow, including liquidated damages. Also, the seller should request that the buyer agree to immediately voluntarily surrender possession and that the seller may perform a non-judicial lockout.
Notably, pursuant to A.R.S. §33-1308, the Arizona Residential Landlord Tenant Act does not apply to “occupancy under a contract of sale of a dwelling unit or the property of which it is a part, if the occupant is the purchaser or a person who succeeds to his interest.” That section, however, arguably applies only to land installment contracts (also known as “agreement for sale,” “land contract,” or “contract of sale”). But some real estate experts interpret 33-1308 to apply to pre-possession agreements as well. So to avoid confusion, the best practice is for the parties to expressly agree in the pre-closing occupancy agreement that the agreement is for a license only and the relationship is not governed by the ARLTA.
If you or someone you know has questions regarding pre-possession agreements or any other real estate matter, please call or email today.
If drone manufacturers have it their way, drones will soon be as common place as iPhones. Domino’s wants to use drones to deliver pizzas; Amazon wants to use drones to deliver books; and UPS could use drones to deliver mail.
I recently attended a wedding in Del Mar that included 78 degree weather, ocean-blue skies, fireworks, a U2 cover band, and drones (for the photography). The Apple store sells drones for as little as $99 that can be operated from any smart phone or tablet.
REALTORS® have earned the reputation for being tech savvy and on the cutting edge of integrating the latest and greatest technology to better serve their clients. That’s why it should be no surprise that REALTORS® were among the first to embrace drone technology to improve their services. Many agents are already using drones to capture unique and unmatched images of their listings.
Drones can be useful to REALTORS® and their clients but their use is currently prohibited. The Federal Aviation Administration governs all aircraft within the United States, including unmanned aircraft, regardless of whether the operation is for recreational, hobby, business, or commercial purposes. 49 U.S.C. § 40102(a)(6) and 14 C.F.R. § 1.1. Section 40102(a)(6) defines an aircraft as “any contrivance invented, used, or designed to navigate or fly in the air.” The FAA’s regulations (14 C.F.R. § 1.1.) similarly define an aircraft as “a device that is used or intended to be used for flight in the air.” Because an unmanned aircraft is a contrivance/device that is invented, used, and designed to fly in the air, an unmanned aircraft is an aircraft based on the unambiguous language in the FAA’s statute and regulations. In addition, Public Law 112-95, Section 331(6),(8), and (9) expressly defines the terms “small unmanned aircraft,” “unmanned aircraft,” and “unmanned aircraft system” as aircraft. Model aircraft are also defined as “aircraft” per Public Law 112-95, section 336(c).
Further, the FAA is responsible for air safety from the ground up. Under 49 U.S.C. § 40103(b)(2), the FAA has broad authority to prescribe regulations to protect individuals and property on the ground and to prevent collisions between aircraft, between aircraft and land or water vehicles, and between aircraft and airborne objects. Consistent with its authority, the FAA presently has regulations that apply to the operation of all aircraft, whether manned or unmanned, and irrespective of the altitude at which the aircraft is operating. For example, 14 C.F.R. § 91.13 prohibits any person from operating an aircraft in a careless or reckless manner so as to endanger the life or property of another.
The FAA currently prohibits the use of drones for any commercial purpose. In June, the FAA issued its official statement declaring that “a REALTOR® using a model aircraft to photograph a property that he or she is trying to sell and using the photos in the property’s real estate listing does not constitute hobby or recreational use.” In other words, under current law, REALTORS® can’t use drones to photograph their listings.
And the FAA is actively hunting REALTORS® and sellers who use drones: earlier this year the FAA sent subpoenas to a handful of brokerages in New York. No known fines have been issued yet but hefty fines are possible for anyone who violates the above codes.
The National Association of REALTORS® is actively engaged in the evolving discussion on drones. In fact, the FAA recently invited NAR to participate in its ongoing think tank addressing the use of drones. According to NAR’s website, “NAR will use the opportunity to educate FAA officials on how REALTORS® are interested in utilizing this technology safely and responsibly.”
Proposed regulations would authorize small drones into the national airspace before the end of this year. “NAR supports regulations that would allow its REALTOR® to use drones safely but that are not overly cumbersome or expensive.”
Stay tuned for birds-eye view pictures and videos on the MLS by 2015.
If you or someone you know has a real estate law question or problem, call or email Mr. Charles today.
Step-by-step instructions on how to use custom vacation rental agreements with VRBO and AirBNB
Well drafted rental agreements help prevent disputes and protect the owner’s legal interests when disputes do arise – especially in regard to vacation rentals. Carefully drafted vacation rental agreements provide owners with considerable safe guards and protections. For example, without an express vacation rental agreement, many vacation rental relationships will be governed by the Arizona Residential Landlord Tenant Act and not the Inn Keeper Statute. For good reason, investors prefer the relationship to be governed by the Inn Keeper Statutes. See Vacation Rentals and the Super Bowl, October 15, 2014, here.
And so, prudent vacation rental owners should certainly upload their custom vacation rental agreement to their VRBO or AirBNB account. As discussed in the above-referenced October article, any vacation rental agreement should, at a minimum, expressly state that the parties recognize and agree that the agreement constitutes an “innkeeper relationship” and is exempted from the Arizona Landlord Tenant Act. And further, the agreement should expressly state that the owner may perform non-judicial lockout in the event that the guest willfully holds over post conclusion of the rental term.
Instructions for Uploading Custom Vacation Rental Agreement to VRBO
First, the owner (or property manager) should visit the VBRO website and log on to the owner’s VRBO account. Then click on the rental property that you want to edit; then click on the “Settings” tab; next click “Rental Agreement and Cancellation Policy;” finally, click “Upload Rental Agreement” and then upload your form vacation rental agreement. Note that the rental agreement must be saved as a PDF file.
- Beware of Property Use Restrictions
Even with the right short-term lease provisions, local ordinances or your community’s covenants, conditions, and restrictions (CC&Rs) may restrict short-term rentals. Consequently, before you market your property for rent to the public on websites like VRBO and AirBNB, you should consult with a real estate attorney to confirm any legal prohibitions in your area.
- In Closing
A smart short-term lease minimizes your risk exposure in this new and uncharted Sharing Economy — and will help you share your condo, mansion, Igloo or Yurt with that globetrotting couple with whom you connected on AirBNB.
Enjoy the adventure, along with this new revenue stream you’ve uncovered!
If you or someone you know needs help drafting a vacation rental agreement or wants to position their real estate for short-term vacation rental, please call or email today.
ATTENTION all investors, builders, and anyone planning to build a home: according to the Arizona Court of Appeals’ recent Wild Creek decision and the recently amended anti-deficiency statutes, loans obtained to purchase vacant land are not necessarily protected by Arizona’s anti-deficiency statutes.
Let’s review the basics. Where applicable, Arizona’s anti-deficiency statutes protect borrowers from being sued by their lender following a default on the loan. Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988). In order for the anti-deficiency statutes to apply, the borrower must show that the loan was used to purchase a single or two-family dwelling, situated on 2 ½ acres or less, that was utilized as a dwelling. See A.R.S. §33-729 and A.R.S. §33-814(g).
There is a strong case that public policy should protect to purchasers of such residential property. Specifically, the anti-deficiency statutes were enacted in the 1970s to encourage lenders to make good loans and to not finance transactions where the property is not reasonably appraised to be worth at least as much as the loan. These laws place the burden on the lender to adequately perform its due diligence concerning the property’s fair market value since the lender is typically better situated to judge the financial soundness of the transaction. Logic provides that if the lender correctly performs its due diligence, even if the borrower subsequently defaults on its payment obligations, the lender can still be made whole since the lender can foreclosure and sell the property to satisfy the loan. And there will be no need for the lender to pursue collection from the borrower.
Further, since the market crash in 2007, the Arizona Courts have consistently expanded the scope of Arizona’s anti-deficiency statutes and generally interpret the laws in the favor of the borrower. M&I Bank v. Mueller was the high-water mark of the Court’s expansion of the anti-deficiency statutes. 1 In Mueller, the Arizona Court of Appeals held that the protections apply to even vacant land as long as the owner claims that he intended to build a single-family or duplex on the property at some point. Id.
Now, the Court has issued an opinion that tempers the policy in favor of borrowers. Particularly, in BMO Harris Bank, NA v. Wildwood Creek Ranch, LLC2, however, the Supreme Court of Arizona reversed the Mueller decision. In Wild Creek, the Supreme Court held that the anti-deficiency statute does not bar claims against owners of vacant property. And in order for A.R.S. §33-814(g) to apply, “a dwelling must have been completed.”
Further, the legislature recently amended A.R.S. §33-814 to provide that the protections do not apply to property that was: (1) developed for commercial resale to a third-party; (2) never substantially completed; or (3) never actually utilized as a dwelling. A.R.S. §33-814(h). The revised amendment only applies to loans originated after December 31, 2014.
In light of the Wild Creek decision and the amendments to the anti-deficiency statutes, lenders and borrowers are equally motivated to adequately perform due diligence before completing transactions for residential property. And these changes in the law have practical application in today’s market for vacant land.
Indeed, for the last six years any discussion regarding borrowers’ personal liability for vacant land loans was moot since most lenders stopped underwriting loans for vacant land. But now, according to Jason Fronstin with Foothills Mortgage Group, LLC, we are seeing traditional financing again for vacant land, although not as vast as an opportunity as before. As the market improves, borrowers and lenders will do well to adequately evaluate each transaction to ensure that the purchase price adequately reflects the fair market value of the property.
Please call Mr. Charles today if you or someone you know has questions about deficiency judgments, anti-deficiency statutes, or any other real estate matter.
1 M & I Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (App. 2011).
2 BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, 234 Ariz. 100, 317 P.3d 641 (2015).
It should be no surprise that a short sale or foreclosure negatively impacts a borrower’s credit score. In fact, in many cases, a borrower with a completed short sale or foreclosure may have to wait two to seven years before qualifying for FHA or conventional financing. Due to today’s historic-low interest rates, that waiting period might cost a borrower in excess of $100,000. Fortunately, many borrowers who completed a short sale or foreclosure in Arizona have legal options to quickly restore their credit.
Short Sale and Foreclosure Seasoning Periods
As of the date of this article, a borrower with a short sale must wait anywhere between two to four years before qualifying for a conventional mortgage. On the other hand, a borrower with a completed foreclosure must wait up to seven years before qualifying for conventional financing.
A borrower with a completed short sale can qualify for FHA financing within three years following the date of the completed short sale.
As of May 30, 2013, the fixed rate for a 30-year mortgage is 3.81% ; interest rates are not likely to be this low again in our lifetime. Thus, if a borrower has to endure a two to four year seasoning period before qualifying for conventional financing, the prime rate of interest two to four years from now will certainly far exceed 3.81%. As demonstrated in the footnote below, that waiting period could be costly.
Solution to Quickly Restore Credit
Many Arizona homeowners have options to quickly restore their credit following the completion of a short sale or foreclosure. As most by now are aware, Arizona is an “anti-deficiency” State. This means that Arizona has laws that protect borrowers from defaulting on a mortgage, and then being sued by their lender for any deficiency following a foreclosure or short sale. See A.R.S. §§ 33-729 and 33-814(g). Furthermore, pursuant to the Arizona Supreme Court, if the anti-deficiency statute applies, then a borrower has “no personal liability” regarding the loan. Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988).
Thus, if a borrower is not personally liable for a loan, then it is inaccurate for a lender or the credit reporting agencies to report the short sale or foreclosure to the credit reporting agencies as anything other than “paid as agreed.” Similarly, if the loan is non-recourse and the borrower is not personally liable for the loan, then it is inaccurate to report any late fees to the credit reporting agencies regarding the loan.
Consequently, borrowers should insist (as a term of settlement in any short sale transaction) that the lender agree, prior to the close of escrow on the short sale, to report the loan as “paid as agreed,” and to remove any reference to any late payments.
Step-By-Step Approach to Restore Credit Following Short Sale
However, if a short sale has already closed escrow and a lender reports the loan to the credit reporting agencies as anything other than “paid as agreed,” then the borrower can follow the below step-by-step approach to quickly restore their credit:
- Obtain a current copy of the borrower’s credit report from one of the “Big Three” credit bureaus: Experian, Transunion, or Equifax.
- Identify all derogatory remarks on the credit report regarding the subject loan (e.g., late payments and negative notations such as “account settled for less than agreed”)
- File an online dispute with one of the “Big Three” credit bureaus. The borrower should expressly dispute all late payments and any disputed negative notations.
- Pursuant to the Fair Credit Reporting Act, the borrower must then wait 31 days following the filing of the online dispute. After the expiration of 31 days, the borrower should obtain a new copy of their credit report to confirm if the disputed remarks have been corrected.
- If the disputed remarks are not removed, then the borrower can prosecute a civil lawsuit against their lender for declaratory judgment and violation of the Fair Credit Reporting Act, 15 U.S.C. §§1681 – 1681x.
After filing the lawsuit, pursuant to the Declaratory Judgment Act, the court can issue its order compelling the lender and the credit reporting agencies to correct the derogatory reporting of the loan. In addition, pursuant to the Fair Credit Reporting Act, the court can issue an award of actual damages sustained by the borrower because of the derogatory credit reporting (costs and attorneys’ fees are also recoverable). 15 U.S.C. §1681o(a).
Moreover, if the violation was willful, the borrower is entitled to statutory damages for each separate violation and punitive damages as the court will allow. 15 U.S.C. §1681n(a).
In today’s world, a reputable credit score is a valuable asset worth protecting. For more information on credit scores and the Fair Credit Reporting Act, please call our office today to schedule a consultation with Mr. Charles. For example, the cost of interest for a 30–year, $200,000 mortgage with a fixed rate of 3.81% APR is $135,899.29, over a 30-year term. Conversely, the cost of interest for the same mortgage with a fixed rate of 8.0% APR is $328,310.49, over the same 30-year term. Thus, the borrower will save $192,411.20 by securing the fixed rate of 3.81% APR, now.  See Freddie Mac’s Weekly Primary Mortgage Market Survey at http://www.freddiemac.com/pmms/
The general rule is that the forgiveness of debt is a taxable event. 26 U.S.C. § 61(a)(12). Debt forgiveness is included within the taxpayer’s gross income. For example, if I loan my brother-in-law $100,000 to open a new fast food franchise and then later, I hit the Powerball and subsequently tell my brother-in-law not to worry about repaying the $100,000 loan, the I.R.S. will deem the $100,000 loan as taxable income for my brother-in-law.
The 2007 Mortgage Debt Relief Act
Important exceptions to the general rule, however, apply to mortgage debt forgiveness. Notably, pursuant to the 2007 Mortgage Debt Relief Act (the “Act”), the forgiveness of debt concerning a “qualified principal residence” is excluded from income tax. 26 U.S.C. §108. This essentially means that there is no tax liability on the short sale difference or foreclosure deficiency of a qualified principal residence. In order to qualify as a “qualified principal residence,” the loan must have been used to purchase or “substantially improve” the taxpayer’s principal residence. Principal residence is defined as the residence where the taxpayer has resided for a “period aggregating two of the last five years.”
The Act has three major limitations: (1) it sunsets at the end of 2013; (2) it does not apply to commercial properties; and (3) it only applies to the taxpayer’s primary residence.
Fortunately, many property owners in Arizona can benefit from other exclusions under the tax code without the need to rely on the Act.
The Insolvency Exception
For example, if the taxpayer is insolvent at the time of the mortgage debt forgiveness, the taxpayer can exclude liability for the debt forgiveness up to the amount of the insolvency, even if the property is an investment property or vacation home. 26 U.S.C. §108(a)(1)(B).
The IRS’s definition of insolvency essentially means that the total sum of the taxpayer’s liabilities exceeds the total sum of the fair market value of the taxpayer’s assets, on the date immediately preceding the debt forgiveness.
The Bankruptcy Exception
Also, if the debt is discharged in bankruptcy, then there is no liability for the debt forgiveness, as long as the taxpayer filed the petition for bankruptcy before the debt forgiveness, e.g. before the completion of the short sale or foreclosure.
Capital Loss May Offset Any Debt Forgiveness Income Tax
Further, even if the Act does not apply, and if neither of the above exclusions apply, the taxpayer may be able to claim a capital loss regarding the disposition of the property, which may offset any debt forgiveness in regard to an investment property.
Non-Recourse Debt Exception
Finally – and perhaps most importantly in Arizona – there is no tax liability for mortgage debt forgiveness regarding “non-recourse debt.” Treas. Reg. § 1.1001-2(a)(2) and (c), Ex. 8; see also Rev. Rul. 90-16, 1990-1 C.B. 12. Non-recourse debt means that the creditor can seize only the property that secures the loan, even if the fair market value of the property is not sufficient to cover the loan balance. Non-recourse debt can be the result of express contract or the result of statute, as in the case of Arizona’s anti-deficiency statutes.
Thus, even if the Act expires and none of the above exemptions apply, the taxpayer may still have arguments to avoid tax liability for mortgage debt forgiveness if the loan is non-recourse under Arizona law. The Arizona appellate courts have broadly interpreted Arizona’s anti-deficiency statutes and recently extended their protection to vacant land in some cases. See M & I Marshall and Ilsley Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (App. 2011).
Even if the loan is non-recourse, the lender will still issue the IRS Form 1099-A or 1099-C by February 2nd of the year following the mortgage forgiveness.
Importantly, the issuance of the 1099 is not dispositive on the issue of whether any tax is owed. Instead, the taxpayer can respond to the 1099 with the Form 982 and identify which of the above exceptions apply and identify why no tax is owed.
In sum, although the forgiveness of debt may create tax liability, taxpayers have several options for avoiding liability. Please visit my attorney page at www.davismiles.com to download a free manual regarding mortgage debt forgiveness.
With no sign of short sales going away any time soon and the ongoing need of legal representation to distressed homeowners, Arizona’s legal market is being saturated with more and more attorneys who now “dabble in” real estate law and want to jump on the short sale band wagon.
Some of these attorneys are offering their services on a “flat fee basis.” What these attorneys presumably do not know, however, is that flat fee earned upon receipt billing arrangements are strictly precluded pursuant to the new FTC Mortgage Assistance Relief Services Rule (the “MARS Rule”). 16 CFR Part 332. Moreover, anyone who knowingly assists an attorney, including REALTORS®, who violates the MARS Rule, may also be subject to violation and penalties under the new MARS Rule. Therefore, if you know or have reason to know that an attorney is offering short sale services on a “flat fee” basis, you may be in violation of the MARS Rule for any referrals to the non-compliant attorney.
For more information about the MARS Rule, you may visit the following links: