Now that anti-fraud software has shored up credit card accounts, HELOCs have become the next tempting target for theft. Thieves gain access to your home equity pool either through an existing HELOC or by opening one in your name at the bank of their choice. Ironically, you may have more trouble opening a HELOC than identity thieves, who can manipulate the loan documents to suit their purpose.
Once accessed, a line of credit can be tapped as easily and directly as a debit card account. And don't expect the thief to stay under the limit on your account.
"The HELOC thief won't stop at your line of credit; they'll go into overdraft big time, and each one of those overdrafts is going to bean you for a few dozen dollars and launch your interest rate sky-high," Foley says.
Seniors most vulnerable
Foley says seniors may be particularly at risk of HELOC fraud for four reasons:
- They often own their home outright (translation: 100-percent equity).
- They may not be as vigilant of their finances.
- They may not be living in their home.
- They may be more trusting and forthcoming with personal information when approached by a friendly official-sounding caller.
"If your place is worth $300,000, I'm sure I could tempt a bank into loaning me $100,000 against it without any problem," Foley says.
In extreme cases, con artists could even sell your home out from under you. Here's how: One poses as the buyer, obtains a mortgage to purchase your home from a partner posing as you, the seller. Upon closing, they split the mortgage money and disappear.
Foley recalls one such victim who learned that her home had been sold out from under her when she received a most unwelcome visit from the Welcome Wagon.
Victims of HELOC theft and mortgage-jacking typically are reimbursed by the lender when fraud is proven. However, the process can be lengthy, and often the identity theft doesn't stop there.
Still, the current crisis in American mortgage lending is making it more difficult for identity thieves to steal your home equity, Foley says.
"With the collapse of no-doc loans, most banks and reputable lenders are doing a lot more due diligence than before," he says. "You have to put a lot more documents in front of them before they'll even consider a loan."
That said, keeping tabs on your credit report remains the best way to detect financial finagling. Contact the credit reporting agencies and have them activate their "extended fraud alert" feature that requires lenders to notify you before extending credit.
While you can arrange for credit monitoring from the three credit bureaus and various vendors, it's often too little too late, Foley says.
"Between the time that line of credit is opened and you get the notice that it's open, it is entirely possible that that entire line of credit would be spent," he says.
Need additional reassurance? Freeze your credit with each of the three credit reporting bureaus. This prevents them from releasing your credit report for anything (credit cards, auto loans, HELOCs, etc.) until you "thaw" your credit, thereby stopping mortgage fraud at its source. It's a somewhat lengthy process but can be well worth it if you have no plans to obtain credit in the near future.
"If I were a senior living in a care facility, I would freeze my credit in a nanosecond," Foley says. "Then I don't have to worry about it. If a bank goes to check my credit reports, they're going to come up against a credit freeze. That's going to stop them dead in their tracks, even if I own my home outright."
Finally, pay a visit to your local county courthouse to make sure tax notices are mailed to you, and not to your tenant.
"If I no longer live in my home, I'm going to make darn sure the county recorder knows where the paperwork has to go," Foley said. "I'm going to make sure they're going where I'm living or to whomever my agent is, ideally a family member."
Jay MacDonald is a contributing editor based in Texas.