HELOC Fraud: Here's How To Protect Yourself

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A HELOC allows you to borrow against the equity in your home. Equity is the difference between what you owe on your mortgage and what your home is worth. Say your home is worth $400,000 and you owe $200,000 on your mortgage. That means you have $200,000 in equity.

You might then qualify for a HELOC of $170,000. With a HELOC, though, you don't have to borrow the full $170,000. You might borrow $40,000 for a major kitchen remodel. If that's all you borrow, then that's what you pay back, with interest. You'll pay back what you borrow with regular monthly payments.

Homeowners like HELOCs because they come with flexibility: You only borrow what you need. That's how this borrowing vehicle differs from a home equity loan. With a home equity loan, you receive a lump-sum payment that you pay back with regular monthly payments, with interest. If you qualify for a $100,000 home equity loan, you receive the cash all at once and must pay back the full amount.

HELOC scams

HELOC fraud occurs when scammers fraudulently use a homeowner's HELOC to withdraw funds.

How do they do this? Often, they'll trick you into giving them your login and personal information. They might send you an email or text saying that you need to update your information or your lender will be forced to close your HELOC. When you click on a link, you're taken to a new page in which you are required to input information such as your account name, password, birthdate or even your Social Security number.

Once criminals have your information, they'll use it to make illegal withdrawals from your HELOC, often taking the money they receive and disappearing. Others will change your account information to lock you out and then take illegal draws until you notice and alert your lender.

Others might use your personal information — which they scammed you into surrendering — to trick your lender into changing the name, address and bank account tied to your HELOC. They can then effectively take over your HELOC, making fraudulent draws.

How to protect yourself

Fortunately, you can protect yourself from HELOC fraud.

First, never click on links from senders you don't know. And never provide your personal or financial information to someone who asks for it by email or text. Your lender will never request this information. Remember, the provider of your HELOC already knows your information. You provided it when opening your account.

Clicking on a link can also flood your device with malware that allows thieves to spy on your keystrokes and steal your personal information. Again, never click on links in unsolicited emails or text messages.

Monitor your HELOC, too. Make sure you can log in to your HELOC account online. By doing this regularly, you can quickly spot any draws that you didn't make. You can then quickly contact your lender if you spot any suspicious activity.

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