Desperate borrowers turning to arson
Some folks celebrate their last home mortgage payment by setting fire to their loan agreement. Lately, people behind on their mortgages are simply setting fire to their homes.
In what appears to be the latest symptom of the U.S. mortgage meltdown and credit crisis, insurers, law enforcement and state agencies nationwide have reported a jump in home and automobile fires in the past year set by owners unable to pay their debts. The numbers are small, but they’re leading the insurance industry to scrutinize more closely what seem to be routine blazes.
“We’ve seen a dramatic increase in this kind of fraud,” said Dan Bales, director of fraud investigations at Mercury Insurance. “People upside down on their house with variable interest-rate loans, or upside down on their cars, are pretty quick to burn their property right now.”
Last week, a Sacramento, Calif.-area couple were arrested on charges that they burned their Jeep and drove their Nissan pickup into a river, then filed fraudulent insurance claims. According to investigators, the wife admitted she was trying to escape her $600 monthly car payment.
Three weeks ago, police arrested a woman in Easley, S.C., and accused her of deliberately setting fire to her home just three days after the bank hung a foreclosure notice on her door.
In January, an Omaha, Neb., man was charged with arranging to have his three-bedroom house burned down to avoid losing it to the bank.
The fires are keeping fraud investigators such as Anne Luce occupied. “I’m busier now than a one-armed paper hanger,” said Luce, who works on auto cases for Bristol West Insurance’s special-investigations unit. “What is happening is terrifically economically driven.”
These financially motivated fires are surprising some officials, because they come after a decadelong decline in arson rates nationwide. Few state or federal agencies categorize arson in terms of the financial status of liens on the property, making nationwide figures elusive. Still, areas of the country are showing a significant increase.
Insurers referred 14 cases of questionable home fires with foreclosure avoidance as a possible motive to the California Department of Insurance last year, up from seven in 2006 and two in 2005. In the same three-year period, reports of auto arson increased by one-third, to 343 cases last year. Friday, the Department of Insurance announced the arrests of seven people in two investigations for automobile arson and insurance fraud.
In Ohio, the total number of reported “auto owner give-ups” – insurance jargon for fraudulent car fires and staged car thefts – rose 150 percent between 2005 and 2007, to 245 cases last year.
This month, insurers say they are meeting with California investigators to discuss potential fraud during last fall’s wildfires – including the prospect that some of the 2,000 burned homes were in fact cases of opportune arson by owners looking to escape their mortgages. Insurance Commissioner Steve Poizner acknowledged his agency was investigating a number of such cases but would not provide further details.
One recent fire of note was set in September in Gaines Township, Mich., by Sheryl Christman, who hoped to use the insurance money to get out of a troubled marriage, not to mention a house that was four days from foreclosure.
The 38-year-old mother ignited a mattress in the garage of her two-bedroom home, for which she had paid $150,000 in 2006, then sat outside as the house burned. She was ultimately arrested, convicted and sentenced to 1,000 hours of community service and five years of probation. In interviews afterward, Christman called her actions “rash and stupid” and said she was “very ashamed.” The gutted house eventually sold for $40,000.
Arson of all kinds has been on the decline for years. According to the FBI, total cases of arson fell 9.7 percent in the first six months of 2007 compared with the same period in 2006, while U.S. Fire Administration statistics show that arson declined by 60 percent between 1997 and 2007.
But in areas with falling property values, arson can be tempting, because fire coverage is usually tied to the value of the mortgage rather than the home’s appraised value – offering an alluring escape hatch as more consumers face financial stresses. There were 2.2 million foreclosures last year, up 75 percent from the previous year; 5.8 percent of all mortgages were delinquent in the first quarter of 2008; and auto loan delinquencies hit a 10-year high in January.
Frank Scafidi, of the National Insurance Crime Bureau, a membership organization that tracks insurance fraud, says his group has not identified a rise in financially motivated arsons. “Everything we’ve found does not support that,” he said.
But some observers say state authorities and insurance companies play down the issue – perhaps out of fear of copycat crimes.
“The subprime crisis began to hit in late 2006. There’s been an increasing number of cases since then,” said James Quiggle of the nonprofit Coalition Against Insurance Fraud, adding that he has about 20 such cases currently on file. “Will it explode as more mortgages are reset? That’s the question.”