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 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 was 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 overall 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."
Insurance companies are usually obligated under state law to report suspicious claims from customers. "We can prove the property burned, but to prove it's fraud is tough," said Bales, who said Mercury last year investigated 64 suspicious car fires or thefts; in 15 of those cases, the owner was behind on payments. Burning a vehicle negates the chance of recovery, making for a total loss.
In California's San Joaquin Valley, home to the nation's highest foreclosure rate in March, auto arson has more than doubled in the past three years, and Assistant District Attorney J.C. Weydert said he's working on more than 15 such cases. He estimated that half were financially motivated. Two cases involved leased vehicles in which the owner had exceeded the mileage allowance and faced a hefty penalty.
Weydert said his office recently assigned a third person to work on insurance fraud. "The honest fact is that there are more cases than resources to handle them," he said.
Indebted owners sometimes seek out help. Last year, the Fresno County, Calif., district attorney charged 12 people with running a ring that burned cars for clients; late last month a Department of Insurance investigation led to the arrest of three suspects who allegedly arranged for the transport of a woman's Nissan Armada to Mexico, where it was disassembled and sold for parts. The owner was behind on payments.
The more serious problem, because of the costs involved, are home fires. Classic signs of an owner-involved arson include removing expensive electronics and pets before the blaze. But lately, investigators say their first step is a call to the bank to ask about the status of the mortgage.
Finances were a clue in the case of Texas Supreme Court Judge David Medina, who had refinanced his home three times over five years and was served a foreclosure notice in mid-2006. Last June, the house burned, igniting two neighboring homes. Investigators discovered accelerants on-site.
In January, a grand jury indicted Medina on charges of tampering with evidence and his wife on charges of arson. The following day, however, the Harris County district attorney dismissed the case, citing a lack of evidence.
"We are innocent. We had nothing to do with this fire," the judge told reporters at the time of the dismissal.
In February, members of the grand jury sued to have the evidence they heard made public.