How to Protect Yourself From HELOC Fraud

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Reviewed byTimothy Manni
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Updated: March 29, 2024

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A home equity line of credit (HELOC) enables homeowners to borrow money using their home's equity as collateral. It offers flexibility and can be a great financial tool for those looking to finance renovations, consolidate debt or cover unexpected expenses.

However, the rise of HELOC fraud is a growing concern, impacting many unsuspecting people and leading to significant financial loss and stress. Understanding HELOC fraud tactics, recognizing the signs early and knowing how to protect yourself are key to keeping your finances secure.

KEY TAKEAWAYS
  • HELOC fraud involves unauthorized access and use of your home equity line of credit, leading to potential financial loss and damage to your credit.
  • Recognizing and acting upon the early signs of HELOC fraud, like unexpected account changes or unsolicited financial communications, will help safeguard your money.
  • Implementing good digital security practices, such as multi-factor authentication and using complex passwords, significantly reduces the risk of unauthorized access to your HELOC account.

Understanding Mortgage Fraud

Mortgage fraud involves misleading a lender to secure a loan or to modify a loan's terms under false pretenses. It can take many shapes, from inflating income on a loan application to identity theft. Both lenders and borrowers feel the sting of mortgage fraud. Lenders face financial losses, while borrowers might endure higher interest rates and stricter lending conditions.

There are two main types of mortgage fraud: fraud for property, which aims to obtain a home, and fraud for profit, which involves illicit gains from mortgage transactions. Technological advances have made it easier for fraudsters to forge documents and steal identities, leading to a spike in mortgage fraud cases. For instance, digital document forgery allows criminals to alter financial records or identity documents, while online application processes can be exploited using stolen or fabricated information. This trend directly affects borrowers by making it harder to secure loans and potentially jeopardizing their financial stability.

Borrowers must stay alert and proactive in safeguarding their real estate investments against mortgage fraud. Knowing the signs and how to protect yourself can help secure your financial future and keep your property safe.

What Is HELOC Fraud?

From the broader spectrum of mortgage fraud, HELOC fraud represents a specific threat targeting homeowners utilizing their home equity for financial flexibility. Unlike general mortgage fraud, which can involve various deceptive practices around obtaining loans, HELOC fraud specifically exploits homeowners' open credit lines against their home equity. This type of fraud can vary from identity theft to manipulating access to funds to schemes that deceive homeowners into disadvantageous financial agreements.

Common tactics include phishing to steal personal information or forging identity and HELOC documents to access or increase the credit line, leaving homeowners facing substantial financial and legal challenges. For example, Stephanie, a homeowner, received an official-looking email requesting updated personal details for her home equity line of credit (HELOC) account. Without realizing it, Stephanie shares sensitive information, enabling fraudsters to siphon off her funds, plunging her into unexpected debt and legal battles to reclaim her financial standing.

While HELOCs offer a valuable resource for managing personal finances, recognizing the potential for HELOC fraud is important to your financial health. Awareness is key — not every homeowner will encounter fraud, but understanding its mechanisms enhances your ability to protect your financial interests effectively.

MONEYGEEK EXPERT TIP

You can protect yourself from HELOC fraud in several ways, such as regularly monitoring your statements, setting up alerts for transactions, using strong and unique passwords for online banking, enabling multi-factor authentication and safeguarding personal information from phishing attempts.

Why Is HELOC Fraud Becoming More Common?

HELOCs have become increasingly popular as a flexible financial tool, allowing homeowners to access their equity without selling their homes. TransUnion's Q3 2023 Credit Industry Insight Report states that lenders originated almost 300,000 HELOCs last year, demonstrating their appeal. Additionally, Experian's 2023 Consumer Credit Review shows the average HELOC debt stood at $42,139, indicating significant reliance on this form of credit.

While there are many pros and cons of a HELOC, including its flexibility and potential impact on personal finances, it's important to understand both sides. For example, the shift towards digital banking and online financial management has opened new doors for HELOC fraud.

Economic downturns and crises further amplify these risks as people seek financial relief, making them more susceptible to fraud attempts. Fraudsters exploit these moments of vulnerability, taking advantage of security gaps and the general public's lack of awareness.

A specific challenge with HELOCs lies in the less stringent regulations compared to traditional mortgages. That offers scammers easier access to exploit them. This situation underscores the importance of heightened security measures and increased vigilance among homeowners to protect against potential fraud.

MONEYGEEK EXPERT TIP

One of the advantages of a HELOC is the ability to secure the line of credit without needing to draw from it until necessary. That said, even when you're not actively drawing money or repaying borrowed funds, you should monitor your account for any suspicious activity. If you do notice something unusual, reach out to your HELOC lender immediately. — Timothy Manni, Mortgage and Real Estate Consultant

HELOC Fraudsters Do

HELOC fraudsters use various scams to separate you from your money, using tactics that range from sophisticated to startlingly simple. They might impersonate your lender to steal personal information or hack into your digital banking to drain your HELOC funds directly.

Recognizing these is the first step towards financial protection. Awareness can considerably reduce your risk of falling victim to such scams. By understanding how fraudsters operate, you're better equipped to spot red flags and safeguard your assets.

Reset Scam

A HELOC reset scam preys on homeowners as they approach the end of their draw period. Scammers offer misleading "assistance" to modify loan terms, which can trap homeowners in adverse conditions or even result in theft.

To shield yourself from such schemes, initiate contact with your lender directly for any discussions about HELOC repayment or term adjustments. Be familiar with the process and terms for transitioning from the draw period to the repayment phase. Seeking advice or offers from unauthorized or unknown sources can lead to compromising situations. Prioritize transparent communication with your lender and rely on verified information to navigate your HELOC repayment safely and securely, avoiding the pitfalls of fraudulent reset offers.

Check Fraud

Fraudsters can trick your lender into sending them checks linked to your HELOC or create fake ones themselves. Once they have these checks, they forge your signature — a detail sometimes found in public records — and deposit the money into their own accounts.

Get ahead of this type of fraud by proactively working with your lender to implement security measures. Request that your lender needs your direct approval before issuing any checks, and consider opting out of receiving HELOC checks if they're not essential to you. Monitoring your HELOC statements and immediately reporting any unauthorized transactions can also mitigate the impact on your credit score and prevent potential debt.

Funds Shuffling

Funds shuffling scams involve unauthorized transfers from your HELOC, potentially moving money to accounts fraudsters control. It can deplete your available HELOC funds, leading to debt and harming your credit score.

To avoid it, set up transaction alerts with your bank for any HELOC activity and engage in regular reviews of your account and credit report. If you notice any unauthorized transactions, report them immediately to stop further misuse and begin the recovery process.

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SAFEGUARDING YOUR HELOC’S DIGITAL DOORSTEP

With many HELOC lenders operating exclusively online, borrowers face increased exposure to digital scams, such as identity theft, login information theft and deceptive online profiles. To counteract these risks, enhance your digital defense.

Ensure your HELOC account and personal devices are secured with strong, regularly updated passwords and reputable anti-malware software. Regularly review your account for any irregularities, even if you're not actively using online banking, as fraudsters often target online platforms for their schemes.

Watch Out for These Warning Signs

Being vigilant can often be the key to safeguarding your financial well-being, especially when managing a HELOC. Take Sarah, a homeowner, for example. One day, she notices her monthly bank statement showing a lower HELOC balance than expected. Initially, she brushes it off as a clerical error. However, as days pass, Sarah receives a credit denial notice for a loan she never applied for.

The chain of events leads her to discover she's fallen victim to identity theft, impacting her HELOC, with the primary indication being the unexpected change in her account balance — a warning she wishes she had acted upon sooner.

Recognizing the early signs of HELOC scams can significantly help in preventing financial damage:

  • Mysterious account movements: Any sudden drop in your HELOC balance or transactions that you don't recognize should be a cause for concern. It could mean someone has gained unauthorized access to your account and is withdrawing funds without your knowledge.

  • Unexpected financial mail: If you start receiving financial documents in the mail, such as HELOC checks you did not request, it's a sign that someone may have applied for a HELOC in your name or is trying to access your existing line of credit.

  • Credit surprises: Fraudsters attempting a reset scam might apply for new lines of credit in your name to gain control of your finances or create a facade of legitimacy while modifying your HELOC terms. Credit surprises alert you to potential fraud and may indicate that your personal information might be compromised.

  • Unsolicited loan offers: Beware of unexpected offers to change your HELOC terms. Scammers might present fraudulent "assistance" with loan modifications. Always confirm such proposals directly with your lender through verified contact methods.

  • Phishing attempts: Be extremely cautious of emails, phone calls or text messages asking for your HELOC account details, personal information or passwords. These are typical phishing attempts designed to trick you into giving away information that fraudsters can use to access your account. Most reputable lenders will never ask for your password or sensitive details in an email.

Keeping an eye out for these signs and responding swiftly to investigate and address any anomalies helps reduce the risk of falling victim to HELOC fraud.

Strategies to Reduce the Risk of HELOC Fraud

The rise in HELOC fraud shouldn't deter you from considering this financial tool. Implementing proactive measures can safeguard your HELOC and finances from fraudulent activities. Let's dive into strategies that fortify your defense against scams.

  • Phishing guard: Stay alert for emails or calls asking for personal information or HELOC account details. Fraudsters often disguise themselves as your financial institution. Always initiate contact through official channels rather than responding to communications you didn’t initiate.

  • Check control: Disabling HELOC checks can prevent thieves from forging your signature on checks drawn against your credit line. Contact your bank to discuss opting out of receiving HELOC checks or limiting this feature.

  • Account watch: Keeping a close eye on your HELOC account online, even when you aren’t using it, allows you to spot unauthorized access or transactions quickly. Enable email or text alerts for new transactions or withdrawals to stay informed in real time.

  • Password strength: Using strong, unique passwords for each of your financial accounts makes it harder for hackers to gain access. Consider using a password manager to generate and store complex passwords securely.

  • Authentication boost: Multi-factor authentication requires a second form of verification beyond your password, such as a code sent to your phone or a fingerprint scan. Activate this feature on all accounts, especially financial ones, for an added security layer.

  • Credit vigilance: Monitoring your credit report helps detect unauthorized activities, like new accounts opened in your name. Sign up for credit monitoring services or regularly check your credit reports through the major credit bureaus.

  • Freeze option: Placing a freeze on your credit reports prevents fraudsters from opening new accounts using your identity. You can easily add or lift a freeze via the credit bureaus’ websites, usually for free.

  • Document safety: Secure storage of financial documents reduces the risk of sensitive information falling into the wrong hands. Use a fireproof safe or a locked drawer for important documents, and consider digital encryption for electronic files. Always keep a backup copy of important documents.

What to Do If You’ve Been a Victim of HELOC Fraud

Discovering you're a victim of a HELOC scam can be both frustrating and stressful. It's a violation of your financial trust and can leave you feeling vulnerable. Taking immediate action to mitigate the damage and protect your financial future is essential. Here's what you can do if you find yourself in this situation:

1

Contact your lender immediately

Call your lender about the suspicious activity as soon as you notice it. You want to speak to someone directly rather than sending an email.

2

Change your online account passwords

Update the passwords for all your financial accounts, especially your HELOC and related bank accounts. Changing your passwords can prevent further unauthorized access to your accounts.

3

Alert the credit bureaus

Notify the major credit bureaus (Experian, TransUnion and Equifax) and request a fraud alert on your credit report. A fraud alert warns creditors to verify identity before opening new accounts, protecting you from further fraudulent activities.

4

File a report with the Federal Trade Commission (FTC)

Reporting the fraud to the FTC helps law enforcement track down scammers and can also provide you with a recovery plan. The FTC's report is a vital document proving to lenders and credit bureaus that you've been a victim of fraud.

5

File a police report

A police report legitimizes your claim, which can be helpful when dealing with creditors or disputing fraudulent charges. It adds an official layer of documentation and can be critical for insurance claims or legal actions.

6

Monitor your accounts and credit reports

Monitor your financial statements and credit reports for any unusual activities following the incident. Continuous monitoring helps you catch new fraudulent activities early.

7

Consult with a legal or financial advisor

They can offer personalized advice and help you navigate recovery. Professional guidance can ensure you take the proper steps to protect your finances and legal rights.

Recovering from a HELOC scam requires immediate and informed action. While the experience can be unsettling, taking these steps can help secure your finances and prevent future fraud. Remaining attentive and regularly monitoring your financial accounts and credit reports are important, even after the incident, as scammers may attempt multiple attacks.

FAQ on HELOC Fraud and Scams

Understanding and preventing HELOC fraud can lead to many questions. To help you secure your financial well-being, we've compiled a list of those borrowers usually ask. Through these, you can gain deeper insights into HELOC fraud, learn how to spot potential risks and discover strategies to protect your accounts.

Equity fraud involves illegally manipulating property equity, property ownership or homeowner's financial information to steal funds or property. It can take various forms, including fraudulently forging documents to obtain a mortgage or loan.

HELOC fraud is on the rise due to the increasing value of real estate and the growing popularity of HELOCs as flexible financial tools. Advances in technology also make it easier for fraudsters to execute sophisticated scams, exploiting online and digital banking vulnerabilities.

Fraudsters can access HELOC accounts by phishing personal information, hacking into online banking profiles, forging documents or even intercepting mail to obtain account details and checks.

Signs include unexpected withdrawals or transactions, receipt of unfamiliar financial documents, sudden changes in account balances and alerts from your bank about access or changes to your account.

Yes, specific signs include unauthorized loans or lines of credit opened in your name, HELOC checks cashed without your knowledge and changes in account details or contact information that you did not initiate.

Ensure your security by activating transaction alerts, frequently checking your HELOC statements, enabling multi-factor authentication, employing robust and distinct passwords for online banking and guarding personal information against phishing attempts.

Adjusting your account settings to require multi-factor authentication for access, setting transaction limits and opting for electronic statements can enhance security and reduce fraud risk.

Check your HELOC statements monthly or even more frequently if possible. Many online banking platforms allow for real-time monitoring of transactions, which can help in quickly identifying any unauthorized activity.

Monitoring your credit report is crucial because it can reveal unauthorized inquiries or new accounts opened in your name, indicating potential identity theft or HELOC fraud.

A HELOC reset scam occurs when fraudsters target homeowners nearing the end of their draw period, offering to "help" by resetting the loan terms. It often leads to unfavorable conditions or outright theft. You can avoid it by contacting your lender directly for any HELOC adjustments and thoroughly researching offers or advice.

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