How Homeowners Can Protect Themselves From HELOC Fraud

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 the 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

In part, HELOC fraud can happen because your mortgage and HELOC may be part of public records, which gives fraudsters a starting point when looking for victims. Additionally, check verification might be difficult. And the application review and verification process for HELOCs often isn't as stringent as it is for mortgages.

However, there are steps that you can take to help protect yourself from HELOC fraud. Many of these can also protect you from other types 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 actually 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. And 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.

What to Do if You've Already Been a Victim of HELOC Fraud

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.

Manage and Monitor Your Credit

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.