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Home Equity Loans, HELOCs Becoming Targets of Clever Identity Thieves

Beth Orenstein
LoanBiz Columnist

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Home Equity Loans: A New Target for Identity Theft

Clever identity thieves have found a new source of income: untapped home equity loans and home equity lines of credit. According to a survey by Gartner, Inc., some 15 million people were victims of identity theft last year with an average loss of about $3,500. "Most of them involved simple cases of credit card theft," says Scott Mitic, CEO of TrustedID, a provider of identity protection solutions based in Redwood City, California. However, Mitic says, about a third were the "dangerous kind," including tapping into homeowners' home equity.

Last year, the FBI reported 1,204 pending real estate and mortgage fraud cases, resulting in 321 indictments, 206 convictions, $595.9 million in restitution orders, and $21.8 million in recoveries. "And the number of cases continues to climb," Mitic says.

Thieves Pretend to be Account Holders to Gain Access to Home Equity

Home equity lines of credit are vulnerable because borrowers don't realize how easy it is for clever thieves to get access to them, says Anne Wallace, president of the Identity Theft Assistance Center, a nonprofit coalition of financial services companies committed to protecting consumers from identity theft. "All the thief has to do is pretend to be me and contact my financial institution. He requests that an advance from my HELOC be transferred to another account, one to which he has access, and it's his," Wallace says. "We're talking big amounts here, $20,000, $30,000."

The financial institution might try to verify the transfer, but the thief has been clever, Wallace says. He likely changed the address and phone numbers on the home equity account before making the transfer request so that when the institution calls to verify, he answers. HELOCs often come with checks the account holder can use to pay large bills. Another way that thieves steal money from home equity accounts is to steal the checks, Wallace says.

Homeowners Must Check Their Home Equity Accounts Regularly

The best thing homeowners can do to protect their home equity is to continually monitor their account balances and check to make sure there have been no unexplained withdrawals. "It isn't really something most people would think about," Wallace says. "I know when I had a home equity line of credit against my house to use for home improvements, I didn't look at the statements that often."  

Another effective safety measure, Mitic says, is to request a credit freeze, which will lock access to the homeowner's credit files. With a credit freeze on, no one will be able to open new credit in the homeowner's name. "There is no safer way to protect against a home equity loan being opened in your name," he says. Should the homeowner want a home equity loan or to open a home equity line of credit, he could call and unlock the freeze for a week to 10 days.

Victims of Home Equity Theft Face Challenge Proving It

The good news is that if, even with safety measures in place, the identity thief is still able to access a homeowner's equity, the homeowner would not be responsible for the loss. "I have never heard of a case where the lender did not make good on the money," Mitic says. However, he says, the homeowner still has to prove that it was identity theft, "and proving it was not you that opened that home equity account or authorized a transfer can be rather difficult."

Homeowners Must Learn They Are Vulnerable to Home Equity Theft

Few realize that their hard earned home equity could be subject to theft. However, "It is important not to underestimate the power of the criminal mind," Mitic says. "This is definitely happening and there are lots of people out there figuring out where the vulnerabilities are and exploiting them."

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About the Author
Beth W. Orenstein, of Northampton, Pennsylvania, is a freelance real estate writer. A graduate of Tufts University, she majored in English.

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