A rule taking effect March 1 could hit you if you recruit salespeople to join your brokerage. The key is what you offer your recruits as part of your offer.

The Federal Trade Commission’s “Business Opportunity Rule” is about making sure that companies that offer a business opportunity in exchange for a fee are offering something legitimate and not just trying to separate you from your money. The FTC has a separate rule for franchise opportunities.

The typical target of the rule isn’t a company like a real estate brokerage; it’s a company like one that offers work-at-home opportunities or vending machine routes. In these cases, the people being recruited are offered a business opportunity  in exchange for a payment to the company. The vending machine company, for example, solicits people to place, service, and collect the income from vending machines in exchange for paying the company for the machines or a split of the income or both.

Overall, there’s a three-part test: 1) a solicitation by the company, 2) the offer of some type of business assistance, and 3) a required payment.

Although not the targets of the rule, real estate brokerages can get snagged in its disclosure requirements if the broker or recruiter reaches out to salespeople to join the brokerage, offers some type of assistance like a list of leads, and charges money, in this case the commission split.

The key part of the test for brokerages is the business assistance they provide. Assuming other parts of the rule apply, the rule is triggered when the solicitation promises “assistance” to the salesperson. What type of assistance? It could be offering the salesperson an Internet account, a list of customers or prospective home buyers, or otherwise promising to provide the salesperson all the “tools” needed to succeed in sales with the brokerage.

To be on the safe side, you want to  be sensitive to the tangible assistance you offer to salespeople in exchange for joining the brokerage. The rule is intended to cover companies that offer all the tools necessary to enter the business. That’s not the typical real estate brokerage approach, since salespeople tend to develop their own tools to enter real estate. But since the brokerage recruitment could be interpreted to meet the rule’s requirements, you want to look at what you’re offering recruits so you can decide, with your lawyer, whether you need to disclose your practices.

NAR Legal Affairs has developed a summary of the rule and its potential impact on your business. Access the Business Opportunity Rule summary.

Speaking of Real Estate

One of the most helpful laws on the books for underwater home owners is set to expire at the end of this year. At this point, NAR expects to make a strong push to get it extended because the law will likely be needed in the years ahead as lenders continue to make loan modifications for hard-hit home owners.

The law is mortgage cancellation relief and it was first passed in 2007 with NAR taking a prominent role as industry supporter. It relieves home owners who get part of their mortgage loan forgiven from having to pay tax on the forgiven portion of the loan.

Ordinarily, the IRS would count that forgiven loan amount as income. But in light of how hard home owners were hit in the market downturn, it was unrealistic to expect households to pay tax on tens of thousands of dollars on forgiven debt when they lack money to pay their mortgage without a modification.

It’s safe to say many members of Congress want to extend the relief. It has already been extended once, in 2009. And given its strong bipartisan support in both houses, many members can be expected to support extending it further, especially with its need poised to grow.

But in talking with NAR Director of Tax Policy Linda Goold about the issue, the challenge could be in finding a legislative vehicle that can make it through Congress. Goold says trillions of dollars in tax provisions are expiring at the end of this year. Bills for extending expiring tax provisions in the past have tended to be the last pieces of legislation Congress considers before the end of its session, leaving little room for alternative approaches.

What’s more, all of these expiring provisions tend to get considered as a big package. That means mortgage cancellation relief, as popular as it is, could get snagged if this larger tax package gets held up.

In the 6-minute video above, Goold talks about the hurdles facing extension of the popular law.

More about mortgage cancellation relief.

Speaking of Real Estate

The secondary mortage market company Freddie Mac has updated its bulletin to servicers of Freddie Mac mortgage loans to make clear that they aren’t to pursue a deficiency judgment against a borrower after a short sale or deed-in-lieu of foreclosure if the transaction was processed in accordance with Freddie Mac’s guidelines.

In a deficiency judgment, a lender goes after the borrower to collect the amount of loan that was “shorted” in a short sale or deed-in-lieu of foreclosure, even after the lender approved the short-pay agreement. State laws apply differently to the practice, but in some states a lender can go after a borrower several years after a transaction closes–sometimes to the surprise of the borrower.

The new language, says the company, reinforces “the requirement that the Servicer, for itself and on behalf of Freddie Mac, must waive all rights to seek deficiencies for short payoffs and deed-in-lieu of foreclosure transactions on Freddie Mac Mortgages that have closed in accordance with the Guide.”

You can find the updated language in Freddie Mac Bulletin 2012-5, dated February 15, 2012.

If you have any questions about the language, the company asks you to contact your Freddie Mac representative, if you have one, or call 800/FREDDIE and select “Servicing.”

Speaking of Real Estate