Fleming & Curti, P.L.C. - Identity Theft and Loan Fraud Often Target Vulnerable Elders

DECEMBER 31, 2007 VOLUME 15, NUMBER 27

Identity Theft and Loan Fraud Often Target Vulnerable Elders

Identity theft has received considerable news attention in recent years. See, for instance, this interesting video from Stetson University College of Law, complete with tips on protecting yourself.

Arizona (and especially the Phoenix/Mesa/Scottsdale area) has been identified as having the highest rate of identity theft in the country. Recent growth of a related fraud, involving not only identity theft but also fraudulent home loans, has heightened concerns among law enforcement agencies, advocates and the elderly homeowners who are often victims of the fraud. At the same time, reports of questionable advice given by Arizona bank employees raises questions about the possibility of misguided reactions to the fraudulent schemes.

Prescott, Arizona, resident Lucinda Maxfield appears to have been a victim of this new type of loan fraud/identity theft. A woman wearing a wig and dark sunglasses appeared at a Prescott Title Insurance office in 2004 to pick up a check for the $200,000 loan she had taken out against her home, and claimed to be Ms. Maxfield. The title company did not check her identity; the loan documents had been signed at a local mortgage lender’s office, and so no one at Prescott Title actually confirmed the identity of “Lucinda Maxfield.”

After the checks had been cashed no payments were made on the mortgage itself. The lender began foreclosure proceedings, and the real Ms. Maxfield responded that she had not borrowed the money or had any knowledge of the loan. Once the fraud had been uncovered, the real Ms. Maxfield sued Prescott Title and the mortgage company.

Although the trial court dismissed Ms. Maxfield’s complaint against Prescott Title, the Arizona Court of Appeals reversed and reinstated her lawsuit. In an ironic twist, the title company had argued that it owed no fiduciary duty to Ms. Maxfield because, as it turned out, she was not a party to the fraudulent transaction. The appellate court rejected that argument. Maxfield v. Martin, December 27, 2007.

Note that, though Ms. Maxfield prevailed, she suffered three years of anxiety and unknown legal fees in her (ultimately successful) effort to clear the title to her home. That opens the door for the next level of exploitation. We have heard reports recently of a questionable practice arising in mainstream Arizona banks.

According to more than one person, elderly depositors have been cautioned by bank tellers about the possibility of identity theft and loan fraud. Relating stories of fraud conducted by prison inmates encumbering homes of unsuspecting victims, the tellers have apparently suggested that securing a line of credit against one’s home would be a good way of protecting against such fraud. It isn’t, and if the reports are accurate consumers need to beware of this bad advice.

It should be noted that the risk is real, as Lucinda Maxfield could certainly attest. Sensationalized reports of inmates borrowing money based on forged documents encumbering innocent victims' homes may be overblown, but that does not mean the practice does not exist. The suggested "solution" to this problem, however, does not prevent a determined forger from simply signing additional documents; meanwhile, signing up for a secured line of credit can cost money, incur unnecessary interest and other charges, create a new source of funds available for fraudulent schemes of other abusers, and benefit the bank (and the teller signing up a new credit customer) far more than the hapless homeowner.

What can one do to protect against identity theft and loan fraud? The Arizona Attorney General's office suggests several steps that might be taken. Notably absent from his list is any suggestion that taking out a line of credit secured by one's home might be a good idea. One new idea with promise: contact the three major national credit bureaus and request a "credit freeze", at least if there is no likely need for future extensions of credit.

If loan fraud has already occurred, there are other programs and agencies available to help. The Mortgage News Daily, a national online trade publication, has collected a list of available resources for Arizonans. And if you or someone you know have been told that signing up for a credit line would be a good means of preventing loan fraud, we'd love to hear about your experience.