Home equity fraud — where a thief takes out a HELOC or refinances your mortgage without your knowledge — is rare but devastating. Here's how it works and the steps that can prevent it.
Home equity fraud — sometimes called deed fraud or title fraud — is one of the most financially devastating forms of identity theft. It happens when a criminal uses forged documents or stolen identity information to take out a home equity line of credit (HELOC), refinance your mortgage, or in extreme cases, transfer the deed to your property. The FBI has identified it as one of the fastest-growing white-collar crimes in the United States.
The mechanics vary. In HELOC fraud, a thief uses your personal information and forged documents to apply for a home equity line of credit secured by your property. Because lenders often process HELOCs with less scrutiny than purchase mortgages, and because the thief has your real SSN and property information, the fraud can succeed. The thief draws down the credit line and disappears; you discover the debt when the lender contacts you for payment.
Deed fraud is more extreme: a criminal forges a deed transferring your property to themselves or an accomplice, then takes out loans against it or sells it. This is more common with properties that are paid off (no mortgage lender to notice the transfer) and with vacation homes or rental properties that owners don't monitor closely. By the time the owner discovers the fraud, the property may have been sold to an innocent third party.
Signs of home equity fraud: receiving loan statements or payment notices for accounts you didn't open; notices from a title company or attorney about a real estate transaction involving your property; changes to your property tax records showing a new owner; or a credit inquiry from a mortgage lender you've never contacted. Check your county recorder's office records periodically — property records are public and show all recorded deeds and liens.
Prevention: many counties offer free property alert services that notify you by email when any document is recorded against your property. Sign up at your county recorder's website. Consider title monitoring services offered by title insurance companies — some provide ongoing monitoring for a small annual fee. Place a credit freeze to prevent fraudulent HELOC applications. If you own rental or vacation properties, monitor them more closely — they're higher-risk targets.
If you discover home equity fraud: contact your lender's fraud department immediately and provide documentation that you didn't authorize the transaction. File a police report and an FTC Identity Theft Report. Consult a real estate attorney — deed fraud in particular requires legal action to correct title, and the process can be lengthy. Title insurance may cover some losses if you have an owner's policy. The sooner you act, the better your chances of recovery before the fraudulent debt is sold to a collections agency.
Safety 1st Editorial Team
This article is credited to Safety 1st Editorial Team. Safety 1st Consumer Protection has republished this content with attribution.