Shikha Parikh, managing attorney of Paradigm Law, P.L.C., contributed the following article to explain the Maryland Mortgage Assistance Relief Services (MARS) Act:
The Maryland Mortgage Assistance Relief Services (MARS) Act, provisions of which are compiled in Md. Code, Real Prop. Section 7-501 et seq. and Comm. Law Section 14-1901 et seq., is a law enacted last year that regulates services that are provided for short sale transactions.
Short sales are transactions where a property is sold for less than the amount due on the lien(s) securing the property. Due to the decline of the real estate market, many homes are now “underwater,” meaning that the amount owed on the liens securing the property exceeds the property’s market value. In a short sale, the homeowner has the option of selling the property for less than the amount owed, subject to the approval of the lienholder(s). The amount that is left unpaid by the sale is known as the “deficiency.”
As is expected, obtaining a lender’s approval to sell a home for an amount less than the debt owed and forgiving the deficiency is a complicated process. To assist homeowners through this process, various players in the real estate industry began offering services to “negotiate” a short sale on the homeowner’s behalf. Because of the high number of underwater properties, the homeowner’s vulnerable position, and the absence of guidance, some of these players began using unfair or deceptive practices during the transactions.
The Maryland MARS Act, which went into effect on July 1, 2013, was enacted to provide guidance and define the roles of one major participant in the short sale transaction – the real estate agent. Prior to July 1, 2013, a real estate agent was required to obtain a separate credit services license for negotiating short sales on behalf of homeowners. After the MARS Act, a real estate agents is no longer required to hold a separate license to conduct a short sale, but may not go beyond the purchase, sale, or lease of real property. The MARS Act specifically prohibits real estate agents from negotiating a short sale. The only permissible short sale negotiators are the sellers themselves, a certified Mortgage Assistance Relief Service provider, or an attorney.
To comply with this new law, it is strongly recommended that real estate agents work with Maryland attorneys who understand the short sale process. Working as a team, attorneys and agents can protect the seller’s interests to the fullest, and the goal of negotiating a reduction or forgiveness of the deficient balance can be achieved.
Since this new law came into effect, agents and attorneys have started working together to define roles throughout the short sale process to ensure the process is efficient and effective. The short sale process generally requires regular follow-up with the lender, and the regular submission of updated documents. One method of achieving the process is to have agents collect the relevant documents from the seller and submit them to the lender directly, or submit them through the attorney to submit to the lender (though in both cases, only the attorney could negotiate the terms of the short sale with the lender). In the latter scenario, a higher rate of efficacy is possible, as the attorney remains the central point of contact for the lender during the process from start to finish.
It is important to understand these laws and how they affect real estate agents and attorneys, and what agents and attorneys may or may not do. While the Maryland MARS act does change how real estate agents must handle short sales, it does not significantly affect how attorneys may practice.