Homeowners who wish to borrow money without refinancing their mortgage may consider a home equity line of credit or HELOC. The alternative may be especially appealing if you have a low-interest mortgage yet want to access the equity you’ve accumulated in your home. However, you must also be wary of fraudsters who may attempt to steal money using your HELOC.
What Is HELOC Fraud?
HELOC fraud is when a criminal takes a fraudulent draw from someone else’s HELOC, or when they open a HELOC using a home they don’t own as collateral. There are various ways that fraudsters commit HELOC fraud, including:
- Create or write counterfeit HELOC checks: The fraudster might convince your lender to send them checks tied to your account or simply write fraudulent checks. They then forge your signature, which may be available in your public mortgage records, and deposit the check into their account.
- Trick your lender into changing your account information: The fraudster might buy or research your personal information. They’ll then try to impersonate you and persuade your lender to change the name, address and other information tied to your account. After that, they might change your online account’s login information and request a draw to their bank account.
- Steal your account’s login information: Alternatively, fraudsters might trick you into installing malware that records the activity on your phone or computer. They can then try to take over your online account and use it to request fraudulent HELOC draws.
- Move money between your accounts before stealing it: A more complex scheme involves fraudsters taking a draw from your HELOC to your checking account, or an account they opened in your name. Then they write themselves a check or wire the money to their account.
- Create an online profile to hide their tracks: You have to be worried even if you don’t use online banking. In at least one case, fraudsters created an online profile and enrolled in electronic statements to hide their activity from the homeowner. They then use other tactics to steal money from the HELOC.
Once the fraudster has the money in their account, they can take it and disappear. However, fraudsters may repeatedly target your HELOC account to steal more money.
Ultimately, you won’t necessarily be liable for any stolen funds unless you were tricked into sending money directly to a scammer. However, HELOC fraud could still pose a problem. If you discover fraudulent activity when you go to take a draw, the lender might freeze your account while it investigates the fraud.
How to Protect Yourself From HELOC Fraud
Part of the reason for HELOC fraud is that your mortgage and HELOC may be public documents, giving scammers a starting point when looking for victims. Additionally, check verification may be challenging. Furthermore, the application review and verification process for HELOCs is generally less demanding than that for mortgages.
However, you can take action to protect yourself from HELOC fraud. Many of these can also help you avoid other forms of identity theft and fraud.
Beware of Phishing
Phishing emails and texts (called smishing texts) might look like they’re coming from a trusted company, government agency or someone you know. But they’re an attempt by fraudsters to earn your trust or scare you into responding. Clicking on a link might infect your device with malware that the fraudster can use to steal your personal and login information.
Opt Out of HELOC Checks
You could ask your lender if you can opt out of HELOC checks altogether. Instead, you can take draws by electronically transferring funds to your bank account. Or, some HELOCs offer debit cards that you can use to access the line of credit.
Keep an Eye on Your HELOC With an Online Account
If you don’t already have one, you may want to create an online account with your lender to keep someone else from setting up an account first. Also, regularly monitor your HELOC’s statements from your computer, the mobile app or the physical statements you receive in the mail. You may also be able to sign up for alerts and get an email, text or app notification when there’s a draw request or disbursement.
Use Unique Passwords
Creating unique passwords is important for protecting your accounts from fraudsters who purchase stolen login information. The passwords should be completely unique, so reusing your email or social media account passwords is a bad idea. If they follow a theme, such as the company’s name followed by a number, they could still be easy to figure out. A password manager might be an easy way to create and store these passwords.
Enable Multifactor Authentication
Try to enable multifactor authentication (MFA) on your account. The security feature can require someone to enter a second type of verification—such as a code sent to your email or phone—when logging in. This can help keep fraudsters out of your account even if they know your login information. Using an authentication app or device may be safer than requesting a text message, but that’s not always an option.
Monitor Your Credit
You could use paid or free credit monitoring programs to keep an eye on your HELOC’s balance. Creditors generally update the credit bureaus monthly so you won’t necessarily see the changed balance immediately. However, you could receive real-time alerts if someone tries to use your information to apply for a new account, and the resulting hard inquiry shows up in your credit report.
Add a Security Freeze to Your Credit Reports
You have the right to add a security freeze to your credit reports, which can limit other people’s access to the reports. Also called a credit freeze, this can help stop someone from opening a HELOC—and other types of credit accounts—in your name. Adding and removing freezes is free, but you need to freeze each of your credit reports separately.
Read Also: Using a HELOC for Home Renovations: A Smart Move?
If you notice unusual activity in your HELOC account, such as changed contact information or an unexpected balance, contact your lender immediately. You might not be liable for debt that’s the result of fraudulent activity, but you still want to make sure the lender can stop the fraudster and that you’ll have access to your account when you need it.
In addition, consider taking the following steps to report the fraud and protect yourself:
- File a fraud report with the Federal Trade Commission (FTC), which will give you information on the next steps you can take.
- File a police report, especially if you suspect you’re the victim of identity theft.
- Run an antivirus scan on your devices.
- Change your account’s password.
You also have the right to add fraud alerts to your credit reports, which let creditors know that they should take extra steps to verify your identity before opening a new credit account.
Securing and regularly monitoring your HELOC account is the best way to stop and detect HELOC fraud. However, monitoring your credit can be important for detecting and stopping multiple types of credit fraud.
Experian members can use their free account to check and monitor their Experian credit report and FICO® Score☉, and you’ll receive real-time alerts when there are important changes in your credit file. You can also use your Experian account to quickly freeze and unfreeze your credit file and to dispute errors that may result from fraudulent activity.
HELOC Fraudsters Do
HELOC scammers utilize a variety of tricks to steal your money, ranging from complicated to stunningly basic. They could spoof your lender to acquire personal information or break into your digital banking to drain your HELOC funds directly.
Recognizing these is the first step toward financial protection. Awareness can greatly lower your chances of falling prey to such schemes. Understanding how fraudsters work allows you to better identify red flags and protect your valuables.
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.
Being alert is often the key to protecting your financial well-being, particularly while handling a HELOC. Take Sarah, a homeowner, for example. One day, she saw that her monthly bank statement showed a lower HELOC balance than anticipated. She initially dismisses it as a clerical error. However, after a few days, Sarah receives a credit denial notice for a loan she never applied for.
The series of events leads her to learn she has been a victim of identity theft, which has had an impact on her HELOC, with the key indicator being an unexpected shift in her account balance – a warning she wishes she had acted on sooner.
Recognizing the early indicators of HELOC scams can considerably aid in avoiding financial disaster:
- 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.
What to Do If You’ve Been a Victim of HELOC Fraud
Finding out you’re a victim of a HELOC fraud can be upsetting and stressful. It violates your financial trust and can make you feel insecure. Immediate action is required to reduce the harm and protect your financial future. Here’s what you can do if you’re in this situation:
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.
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.
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.
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.
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.
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.
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.