Does a home equity line of credit prevent mortgage fraud?

Thanks for the explanation.

JoAnn, I'm not sure but I think the bank officer was thinking that a HELOC mortgage, assuming the property is still encumbered by a first mortgage, would mean that fraudsters couldn't sell the home w/o paying off the first mortgage, which would require out of pocket expenditures for them.

If I recall correctly, that was something fraudsters looked for - unencumbered property owned by elders, free and clear.

This doesn't sound right to me. I think it should be questioned by someone higher up than this employee. An equity line of creedit is usually used for remodeling, new roof etc. Let's say you take 10k to do a roof. You pay off 5k you have a balance of 5k you can borrow on. It's a constant thing. How does this effect their credit? I just don't see how taking a line of credit would protect them from fraud.

BOK, do a computer search on HELOC + mortgage fraud. LOTs of items appear. Not a positive situation. My question is it a reputable institution? I would call their Ombudsman (main/head office) and pose your question. This could be anything from an employee getting bonus money for opening new HELOCs to a bad employee --- or a good employee that has misinterpreted the concept.
BUT I would truly make that call --- tomorrow. And make sure the documents are locked up. Keep us posted.

Bok, what I did for myself was go into all 3 major credit bureaus and froze my credit. There will be a minimal charge at each site, or it will be free depending on what State you live in.

Google "Clark Howard" and go to his website. At the search mode at the top of his website type in "freeze your credit". Scroll down to Credit Freeze Guide.

Clark Howard use to have a TV show on one of the cable news stations years ago, now he does podcast. He has a lot of really good information on his website regarding anything financial. One interesting section is "scams and ripoffs".

I hadn't heard of this method to prevent fraud and initially was suspicious. But after reading your post, I'm thinking this manager might have been thoughtfully and carefully thinking ahead to protect your parents.

I've read of and watched documentaries on the massive dishonesty and fraud committed by those who create false documents and forge other people's names. And it doesn't just happen to elderly people.

For someone to fraudulently use the HELOC, they'd have to have specific data on the loan number, to forge checks for drawdowns. They'd also have to have copies of your parents' signatures for the checks.

But any drawdowns would be reflected in the statements, unless the fraudsters changed the address with the bank. Check the HELOC documents and see what's required to change the address from that on the documents.

It's my understanding that this is one way fraudsters operate: change the address so the individuals don't get statements, then hack away at the available funds.

If the bank is hacked, that information could be stolen. But that could happen to anyone, with or without a HELOC.

Another thing you can do is put 90 day fraud alerts on their credit files. It won't necessarily stop fraudsters though.

I think the GOOD banks are more careful now; in fact several years ago a Chase banker told me they're not even granting HELOCs any more. As to the documentation, I believe that the shysters are dealing with other shysters in title companies, who can easily check county real estate records to get copies of deeds, legal descriptions of property, and possibly even signatures of owners. But that does raise another issue - your parents' signatures would be on the HELOC, so that's a possible element of fraud if someone got a copy of the recorded HELOC and practiced forging their signatures.

The issue with that though is that typically a HELOC is a second, subordinate mortgage. No sale can be done without paying off the superior, or first mortgage.

If there's no superior mortgage and a fraudster tries to sell the house, the HELOC would still have to be discharged. If there's no outstanding balance, a fake discharge of mortgage would be easier than if there is an outstanding balance, since the HELOC granting bank would have to be paid off, diminishing the fraudster's sale proceeds.

So I think the vulnerability with a HELOC is more of checks to draw down on the funds as a primary threat, with a forged sale as a secondary threat.

But this is a complex issue and I know that after I post I'll begin to think and rethink and possibly have a different perspective.

I'll be interested in what others write, especially if anyone has actually been a victim of this type of real estate fraud.

You might ask the bank officer if there's a way to tighten security, perhaps adding your signature to any cash withdrawal checks. Typically though this would require you to be a signatory to the loan, and a bank might not look favorably upon granting you authority unless you assume liability for the HELOC as well.

I think I would visit the bank officer and have a discussion with him or her, asking what methods could be used by someone to hack a HELOC, and if there are any specific methods of ensuring that if your parents do draw down on it, that a tight verification process is in place.

When I've drawn down on a HELOC, I used the checks provided by the bank. I kept them in a locked container.

I hope others offer opinions on this issue.