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Thursday, February 9, 2023

How To Protect Yourself From HELOC Fraud

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If you are not checking your home equity line of credit (HELOC) often, now is the time. Thieves can gain access to these accounts and siphon out thousands of dollars by stealing identities and fooling lenders. However, the risk can be reduced and victims’ credit rebuilt by following a few simple steps.

Key Takeaways

  • Thieves can gain access to your HELOC and take your funds by stealing your identity and tricking lenders.
  • To reduce the risk of fraud, check your HELOC statements regularly, plus examine your credit reports for inaccurate information.
  • If you suspect fraud, call your lender, file a police report, and contact the credit reporting agencies to request that a fraud alert be placed on your credit reports.

How HELOCs Work

A HELOC is a type of revolving credit in which homeowners borrow against the amount of home equity—their ownership stake as a mortgage gets paid down—in a residence. Homeowners are approved for a specific amount, which becomes their credit limit, and it may have some restrictions on its use.

Lenders will typically let you borrow up to 85% of the appraised value of your home, minus the amount you still need to pay on your regular mortgage. Many HELOCs have a fixed period in which to borrow this money, at the end of which the credit can be renewed.

Most people use a HELOC to pay for home improvements, as opposed to day-to-day bills. As a result, they may not review the account, or they may forget they even have one. Unfortunately, criminals are privy to this lack of awareness and find HELOCs an attractive target.

Anyone with equity in their home can become a victim, especially homeowners with good credit and seniors citizens who’ve paid off their mortgages.

How HELOC Fraudsters Operate

Mortgage fraud involves misstatements, misrepresentations, and omissions which is then relied on, unknowingly, by a lender, according to the Federal Bureau of Investigation (FBI). HELOC fraud is a type of mortgage fraud. Criminals have used several methods to rob HELOC accounts, in particular identity theft scams.

Here’s how it happens. Identity thieves get your personal information—such as date of birth, Social Security number, direct deposit account number, and mother’s maiden name—through a variety of ways, such as public records or email phishing. The criminals use this information to pose as customers—specifically, you. 

For example, the thieves may use your personal information to set up a fake online bank account and link it to your HELOC. They pose as you and call the bank to learn more about the accounts, order checks, and increase the daily withdrawal limit. Next, the fraudsters access the accounts online and transfer funds from your HELOC to the account they created and withdraw or transfer the money. 

In other words, they’re using your personal info, credit score, and the worth of your home, to steal money. One reason criminals are able to get away with this crime is that few documents are needed to open a HELOC, especially if the HELOC is being taken out from the lender who holds your mortgage. 

You may only learn about the crime when the financial institution calls you about a late payment or you receive written notification of a missed payment (because the thieves aren’t paying the funds back, of course). Or you check your credit report and spot inaccurate information

When you take out a HELOC, your home is used as collateral for the borrowed money. If a payment is late or can’t be met, you could eventually lose your home.

Reducing HELOC Fraud Risk

You can reduce the chances of being hit with HELOC fraud by checking your HELOC statements regularly, and by examining your credit reports for any inaccurate information.

Obtain access to your credit reports from one of the three major credit bureaus (Equifax, Experian, and TransUnion) and get a copy of these reports every year. Protect your mail, and be conscious of any changes. Create complex passwords for your online accounts. 

As a more extreme measure, you could also get a credit freeze. This prevents the three major credit bureaus from giving out information on your credit report until you provide consent.

The three credit reporting bureaus are offering free weekly credit reports via AnnualCreditReport.com, through April 20, 2021, due to the hardship caused by the COVID-19 pandemic.

What To Do If You Suspect Fraud

If you notice suspicious activity, the first thing to do is to alert your financial institution. Next, you should contact local law enforcement and file a police report. You should also talk to others who may be involved with the account, such as collection agencies, the company that wrote the line of credit, and the credit reporting agencies. 

When talking to the credit bureaus, have the police report in hand and ask that an extended fraud alert be placed on your credit reports. This tells credit grantors that they need to check with you before extending credit in your name. A copy of your identity theft report, whether from federal, state, or local law enforcement, may need to be submitted to the three credit agencies.

You can also seek assistance from identity theft organizations, such as the non-profit Identity Theft Resource Center.

The Bottom Line

Identity thieves are always finding new ways to carry out crimes, but you can stop them from using your home equity line of credit and alleviate headaches by monitoring your line of credit. Act quickly if you find out that your credit has been compromised by contacting all institutions involved.

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