Insurers of Foreclosed Homes Brace For Arson Epidemic

The real estate market could be going up in smoke – literally.

Insurance fraud investigators are bracing for an epidemic of arsons as desperate borrowers torch their homes for insurance money.

Recent arson incidents could be the start of an alarming trend. A Houston man allegedly burned down his home for insurance money to dodge foreclosure, the fraud group reports.

Authorities became suspicious, in part, because the house was virtually empty of furniture and appliances and the power had been shut off. The insurer paid off the mortgage and gave the owner $10,000 in equity but is now is trying to recoup its money.

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In Grand Rapids, Mich., a woman facing foreclosure was arrested for torching it for insurance money, and in Woodland Park, Colo., a homeowner was charged setting fire to his home on the same day he was to be evicted for foreclosure.

"Certainly Colorado is in the same boat as a lot of states, where at one point we were leading the nation in foreclosures,” said Carole Walker, executive director of the Rocky Mountain Insurance Association. "Any time there are economic pressures, that is sometimes going to force people’s hands to do criminal acts.”

Like clockwork, a rise in arsons follows falling home price values. Insurance veterans who remember the recession of the 1970s and the real estate collapse of the early 1990s expect a repeat.

Suspected residential arsons in California last year already increased 50 percent over 2006. Although a relatively small percentage of overall cases, investigators are preparing for an arson spike, according to the state’s insurance department.

A big worry in California is that home arsons could set off more wildfires, now a recurring problem in a dry state. Florida and Nevada, even drought-stricken Atlanta, face similar risks.

The underlying problem, of course, is borrowers who hold mortgages whose cost exceed the value of the property itself. Unable to refinance or sell, and in the case of resetting adjustable rates, even continue to make house payments, it can seem that the only option is to send the house up in flames.

Home arsons for insurance money by mortgage-burdened owners are hardly new. The question is whether a new and virulent spike looms, warned the insurance trade group, the Coalition Against Insurance Fraud in its newsletter, Fraud Focus.

"I don’t believe that it’s had time to ripple through the market yet to the point that many people have reached that point of desperation,” notes EFI Global fire investigator Alex Ahart in the coalition newsletter. "But I absolutely think that it’s coming.”

The insurance group is urging a public awareness campaign to head off a crime wave.

"Many will back off if they’re convinced fraud fighters are watching and there’s a good chance they’ll get caught,” said Dennis Jay, the coalition’s executive director.

Indeed, a foreclosure filling is a red flag for investigators. And too many in fact get away with it: Just 2 percent of arson or suspected arson cases result in convictions, according to a National Fire Protection Association.

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