Consider this scenario: you’ve finally retired, and are trying to live within your means. You suddenly experience a series of unexpected medical bills and can no longer afford to pay rent. A real estate agent approaches you with a compelling offer: You can buy a property from him or her and take out a reverse mortgage on it. That way, you receive a steady stream of income and a place to live without having to worry about finding a new place to live.
Of course, this offer is too good to be true. The real estate agent obtains an inflated appraisal for a distressed property that he or she already owns and convinces you to buy the house at the inflated valuation without actually executing a sale contract. The agent then encourages you to take out a reverse mortgage on the overstated appraisal, despite the fact that you don’t own the house, and they pocket the false equity created by the overstated valuation.
This is a textbook example of a scam known as equity theft property flipping, which was a common form of elder fraud before lenders took action to stop it. If you had trouble following this sequence of events, just imagine how confused an 80-year-old would be following the process! And this is just one type of elder fraud amid hundreds of scams that are actively running and becoming more complex every day. Not every example of fraud is so clearly wrong.
In fact, we had one very real story of someone taking advantage of one of our elderly clients not too long ago. Aaron talked to an 89-year-old woman who wanted to withdraw a fairly large sum of money. Of course, all the money we manage belongs to our clients, so they can take money out whenever they want, but when an elderly client wants to take out a lot of money at a time, we always try to ask a few more questions as we’ve seen elder fraud too many times.
So Aaron asked her, half-joking, “Are you going on a cruise or something?” She didn’t want to talk about it, but a couple days later she came in with her check register out to go over all her expenses with Aaron.
“You don’t have to do that,” Aaron told her. “We’re just trying to watch out for people who could be taken advantage of.” Still, they went through her expenses one by one.
Not too far down the list, Aaron noticed that she’d bought an expensive extended warranty on her car recently. This raised a red flag because it was on an older vehicle – 2006. After discussing this with the client, Aaron asked if he could see the warranty. She had bought it under the impression that it covered anything that could possibly go wrong with the car, but after looking at it, Aaron saw about three pages of what it did cover and fifteen or so of what it didn’t!
So that raised two red flags:
- Someone had sold an extended warranty to an 89-year-old woman, and
- That person had also left her with the false impression that any problems she had would be covered.
Aaron called the dealership on the spot and spoke to the salesperson she had bought from.
“Do you realize you sold an extended warranty to a 90-year-old woman?!?” Aaron asked.
The salesperson was very apologetic and ended up refunding her the $4,000 she had spent on the warranty. After hanging up the phone, Aaron turned to the woman and asked if it was okay that he had spoken about her that way.
She said, “Yes, but I’m only 89!”
While that story had a happy ending, that’s not always the case. The good news is that there are many ways that you can protect yourself and your loved ones or clients from elder fraud.
What Is Elder Fraud?
Elder fraud is a type of elder abuse that involves the misappropriation of financial resources or abusive use of financial control by someone they trust. In 2017, the FBI opened more than 200 financial crime cases involving elderly victims, ranging from investment frauds to reverse mortgage scams. These crimes cost older Americans upwards of $36.5 billion per year, which was 12 times higher than previously reported.
Some of the most common examples of elder fraud include:
- Advance-fee Fraud – Scammers call to tell you that you’ve won a large sum of money, but there’s a mix-up and you need to contact an agent to take possession of the money. The “agent” then asks for a “processing fee” or “transfer charge” for the winnings to be distributed, but you never receive any lottery winnings.
- Grandparent Scam – Scammers call you pretending to be your grandchild and ask for money for various reasons. For instance, they may say that they’ve been arrested (through no fault of their own, of course!) and need money to post bail. You might even talk to another scammer on the same line posing as a lawyer or police officer.
- Imposter Schemes – Scammers contact you pretending to be from the IRS and demand money for various reasons. For instance, they may tell you that you’ve received a tax refund in error and need to return it by wire transfer. They may even threaten you with arrest, deportation, or fines if you don’t comply. One thing to keep in mind with this one is the IRS will never call you and ask for financial information over the phone.
Elder fraud cases are on the rise across the United States, but 97 percent of cases go undetected until it’s too late. Most people are understandably too embarrassed to talk about the problem, which results in many cases going unreported to the authorities. While declining cognition results in a 33 percent increase in scam susceptibility, researchers have also found that 1 in 18 healthy adults fall victim to these crimes – no one is immune.
Strategies to Prevent It
The best way to prevent elder fraud is awareness. If you or a loved one is approaching retirement or retired, it’s important to be aware that these types of fraud occur and that you may be targeted. Planting the seed of doubt early on can make all the difference when the situation arises by triggering an intuition that an “opportunity” might be a scam. Often times, that intuition is the difference between becoming a victim and asking for a second opinion.
Some tips for elderly individuals include:
- Trust but Verify – Ask financial professionals to identify the organizations that license or supervise them and conduct a background check on them. For example, you can check the background of advisors on FINRA’s BrokerCheck and the SEC’s Investment Advisor Public Disclosure Directory.
- Protect Your Identity – Shred old receipts, bank statements, and unused credit card offers before throwing them away. When you’re away from home, lock up your checkbook, account statements, and other sensitive information.
- Never Rush a Decision – Ask for details in writing and get a second opinion on any investment opportunities or other financial offers. Never sign anything without completely understanding it and never leave any blanks that aren’t filled in.
- Never Pay Directly – Never make out a check to a financial professional directly or hand over a blank check to be filled in later. If a financial professional requests a power of attorney, consult with an independent trusted expert and exercise caution.
- Understand the Risks – Always ask for the pros and cons of an investment or opportunity, especially if you’re only hearing about the benefits. Ask for a description of the investment in writing and consult a trusted third party for a second opinion.
- Follow the Money – Understand how financial professionals get paid – especially if it’s by commission – and consider whether the timing of the deal is motivating the recommendation to purchase or make a decision.
- Get Your Family Involved – Involve trusted family members who know your history and can provide insight into the situation.
If you’re taking care of your aging parents or other older individuals, here are some big red flags to be watching out for:
- Unusual Activity – Watch for unusual activity in bank accounts, brokerage accounts, or other financial accounts, including large withdrawals and/or suspicious signatures. In some cases, criminals may resort to outright forgery.
- Needless Upgrades – Watch for changes from basic accounts to complex accounts with services that they may not need or understand. While these may not be outright fraud, financial professionals may be taking advantage of their lack of understanding.
- New Friends – Watch out for new “best friends” that accompany loved ones to the bank, as well as large checks being made out for “loans” or “gifts.”
- Altered Wills or Trusts – Watch for any changes to wills or trusts that might be malicious in nature. If a loved one becomes unable to make decisions, it may be time to appoint a trusted power of attorney to avoid these issues.
- Loss of Property – Watch for any changes in real estate or other property that might suggest foul play. For example, reverse mortgages, new mortgages, or other sudden large financial arrangements may be red flags.
- Redirected Mail – Watch for bank statements and other account statements that are no longer being sent to their house.
It’s always a good idea to have a trusted financial advisor or an accountant in your corner to keep an eye on your accounts and provide a second opinion for any questionable investments or offers. Advisors and accountants are often the first to spot red flags, like large withdrawals or unexpected financial stress. With financial fraud growing increasingly complex, it can take a financial professional to decipher the true risks and avoid a devastating loss.
What To Do If You’re a Victim
You can report elder fraud to the local police department or by visiting your local FBI office, calling 1-800-CALL-FBI, or filing a complaint online at the FBI’s Internet Crime Complaint Center. These complaints may or may not result in the recovery of funds, but they can help prevent future instances of fraud and contribute to criminal cases being developed against those responsible for perpetrating crimes.
If you believe an elderly family member may have been victimized, talk to them and try to determine if someone else is involved or if someone is using their information without their permission. Contact Adult Protective Services or the local police department to assist in the investigation. Recovering lost funds can be difficult, but these resources can help bring those responsible to justice.