When fire roared through a family's Houston home, it seemed to be an obvious case of gasoline-started arson — and an ugly hate crime. Investigators found racial slurs and swastikas spray-painted on 14 walls. But prosecutors alleged that Samuel White torched the home himself in order to reap an insurance windfall and escape large mortgage payments that were no longer affordable.
This kind of home fire has insurance fraud fighters increasingly on high alert. With untold thousands of homeowners struggling with ballooning sub-prime mortgage payments, investigators are watching for a spike in arsons by those who can no longer afford their payments.
The arson clues were everywhere in White's case. Racial slurs were spelled wrong and the swastikas were painted backward, officials said. The house was virtually empty of furniture, appliances, and even window blinds. Neighbors told investigators that they saw White moving the items out the day before the fire. And the power had been shut off, as well.
"The painted slurs seemed to come from four different hate groups, as if White just picked stuff out and spray-painted it," said Dustin Deutsch, senior fire investigator for Houston's Harris County.
White allegedly was behind on his mortgage payments, taxes, and other home costs, and he was facing foreclosure. After the claim was submitted, White's insurer paid off the mortgage and gave the owner $10,000 in equity, though the insurer now is trying to recoup the money from White, Deutsch said.
Fake Crimes
Arsons by mortgage-burdened homeowners are hardly new, but is a new and virulent spike looming? So far, only a few such home-arson cases dot the fraud landscape. But they could spread in the months ahead. The sub-prime mortgage crisis is crushing untold thousands of homeowners under payments they cannot afford — especially as many monthly payments adjust and shoot up sharply after short-term, introductory low-interest rates expire.
Foreclosures are projected to increase 65 percent from 2006, which equates to 2 million homes, according to RealtyTrac. Nevada, Colorado, California, Michigan, Florida, Ohio, Georgia, Arizona, Connecticut, and Indiana had the highest foreclosure rates in 2007.
Meanwhile, the falling home values in many markets, tightened lending standards, and the mortgage-liquidity crisis make it impossible for many people to refinance their ways out of trouble. And more mortgage lenders may raise rates in the coming months. This will only increase the number of homeowners affected — and desperate for a quick way out.
In October, more than $50 billion in adjustable-rate mortgages will be reset. A lot of those borrowers will be in for a shock when they find that they can no longer afford their homes. Some will be foreclosed upon, and still others will take the desperate option of attempting to transfer their financial problems to their insurance companies. Are insurers ready for the potential increase in arsons? Are fire investigators on alert?
Suspected mortgage-related home arsons have jumped 50 percent above the 2006 rate in California. It's still a small percentage of arson cases, but investigators are closely watching for more arson spikes, said Molly DeFrank, a California insurance department spokeswoman.
Spreading Like Wildfire
Another big concern for some states is that home arsons could touch off more wildfires. "This has been a horrible fire season for California, one of the worst, and commissioner [Steve] Poizner's…fraud units and investigators are staying on top of these cases," said DeFrank.
Fire and insurance investigators are also watching for home arsons in other states, especially where the mortgage bubble is bursting. "We have had some isolated cases so far," said Carole Walker, executive director of the Rocky Mountain Insurance Association. "Certainly Colorado is in the same boat as a lot of states, where at one point we were leading the nation in foreclosures. Any time there are economic pressures, that is sometimes going to force people's hands to commit criminal acts."
In fact, Karl Patrick Mann allegedly torched his Woodland Park, Colo., home the same day he was to be evicted. The fire's suspicious timing drew the attention of investigators. "When someone is in dire financial straits, desperation sets in. And they are going to look for an extra pocketbook to reach into besides their own," said Walker. "But they do not always realize that by doing so, they just made a bad situation much worse."
Ohio has one of the nation's highest home foreclosure rates, and could become a hot spot. "Yes, people who have trouble meeting their mortgage payments will sometimes commit arson," said Robert Denhart, spokesman for Ohio's insurance department.
No one knows how long the mortgage crisis will last, or how many owners will try to burn their mortgage troubles away. But the future does not look positive.
"I don't believe that it has had time to ripple through the market yet to the point that many people have reached that point of desperation," said Alex Ahart, a fire investigator with EFI Global. "But I absolutely think that it is coming."
Editorial Note: This article was reprinted with permission from the Coalition Against Insurance Fraud.
Dennis Jay is the executive director of the Coalition Against Insurance Fraud. He may be reached at dennisjay@InsuranceFraud.org, www.insurancefraud.org.
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