For a variety of reasons, older people can be at increased risk of losing their money or property to family, friends, and strangers, including dishonest contractors and predatory lenders. Here is a list of some common scams – and practical advice on how to avoid them.
• Telemarketing or mail fraud
The perpetrator convinces an elder to buy a valueless or nonexistent product, donate to a bogus charity, or invest in a fictitious enterprise.
• You’ve just won a prize!
The perpetrator tells an elder that he or she has won a nonexistent prize and obtains the elder’s credit card or checking account number to pay for “shipping and handling charges” or to “verify you are the real winner.” They may claim that obtaining this information is “just for your protection.”
• Bank Examiner scams
Perpetrator claims to be a bank examiner and convinces an elder to make a withdrawal to “help catch a dishonest bank employee.” This is only a ruse to gain access to your money -- banks never do this!
• Home improvement scams
A fraudulent vendor requests large down payments or financing agreements for work that is never begun or never completed.
• Sweetheart scams
These scams involve taking advantage of an elder’s loneliness after the loss of a spouse. The perpetrator, frequently an individual many years younger, befriends the elder for the purpose of defrauding them of money or property.
• Caregiver scams
The perpetrator gains employment as the elder’s personal caregiver, attendant, counselor, etc., in order to gain access to their finances.
• Fraud by relatives
Children or other relatives sometimes try to pressure or trick elders into giving them money. For example, a child might say “You’re going to leave the house to me in your will anyway, so why not borrow against the equity and give me the money now?” However, borrowing against the equity in your home means taking a risk. If you’re unable to repay the loan, you may lose ownership of your home.
• Loan bait and switch
This fraud occurs when a lender describes the terms of a loan verbally or in writing but then changes the figures on the actual loan documents. They’re hoping you won’t notice that the interest rate has been increased.
• Loan insurance and fees
Just as you’re ready to sign loan documents, the lender surprises you with a request to purchase insurance or pay additional fees. They may tell you the insurance “comes with the loan” (making it sound free) or pressure you by threatening to cancel the loan if you don’t sign. This is illegal!
• Balloon payments
Before you sign loan papers, check to see if your loan has a large lump-sum payment due within a few years. This is called a balloon payment – and it may be too much for you to afford.
• Loan flipping
After you’ve made a few payments, the lender calls to offer you a larger loan for, say, a vacation. You agree without knowing that each time you refinance the original loan, you must pay higher points, fees, and interest rates. If there was an original pre-payment penalty, you must pay that also.
• Predatory home improvement loans
A dishonest contractor may call offering a home remodel or repair project at a price you can’t afford. You are told he can arrange the financing. After the project starts, the contractor asks you to sign papers that may be blank or that you are rushed into signing. You’re told that if you don’t sign the project will stop with the work left unfinished. Only later do you discover that the new loan papers require you to pay very high interest rates and fees.
• Bi-weekly payment scam
Legitimate lenders sometimes offer borrowers the option of making loan payments every other week instead of monthly. This can help you to reduce finance charges and the length of the loan. Typically, this arrangement is set-up for free, or for a fee of a few hundred dollars at most. However, a predatory lender may attempt to charge you thousands of dollars for this privilege.
• Deed signing
If you’re behind on your mortgage, a predatory lender may offer to help you to find new financing – but first asks you to sign over the deed as a “temporary” measure to prevent foreclosure. The promised loan never comes through and you no longer own your home.
Some common investment scams
• Ponzi/pyramid schemes
Always in style, these swindles promise high returns to investors, but the only people who consistently make money are the promoters who set them in motion, using money from previous investors to pay new investors. Inevitably, the schemes collapse. Ponzi schemes are the legacy of Italian immigrant Charles Ponzi. In the early 1900s, he took investors for $10 million by promising 40 percent returns from arbitrage profits on International Postal Reply Coupons.
• Equipment leasing
While the majority of equipment leasing deals are legitimate, thousands of investors have been scammed by individuals selling interests in payphones, ATMs or Internet kiosks. In a typical equipment leasing scam, a company sells a piece of equipment through a middleman. As part of the sale, the company agrees to lease back and service the equipment for a fee. Investors are promised high returns with little or no risk. But state regulators say high commissions paid to salesmen and promised returns that are unrealistically high doom many projects.
• Investment seminars
Often the people getting rich are those running the seminar, making money from admission fees and the sale of books and audiotapes. These seminars are marketed through newspaper, radio and TV ads and "infomercials" on cable television. Regulators urge investors to be extremely skeptical about any get-rich-quick scheme.
• Viatical settlements
Originated as a way to help the gravely ill pay their bills, these interests in the death benefits of terminally ill patients are always risky and sometimes fraudulent. The insured gets a percentage of the death benefit in cash, investors get a share of the death benefit when the insured dies. Because of uncertainties in predicting when someone will die, these investments are extremely speculative. In a growing trend, investments in "senior settlements" - interests in the death benefits of healthy older people - represented a $2 billion dollar industry last year.
• Charitable gift annuities
These annuities are transfers of cash or property to a charitable organization. A charitable gift annuity works much like a regular fixed annuity - except the charity, rather than an insurance company, benefits from your investment. While most annuities offered by charitable organizations are legitimate investments, investors should be cautious of little-known organizations or those that provide only sketchy information.
• “Reload” Scams
If you are already the victim of an investment scam, don't compound the damage by letting con artists "reload" and take a "second bite" of your assets. Con artists know you have a finite amount of money. Faced with a loss of funds, some seniors who have been victimized once will go along with another scheme in which the con artists promise to make good on the original funds lost, and possibly even generate new returns beyond those originally promised. Though the desire to make up lost financial ground is understandable, all too often the result is that you lose whatever savings you had left in the wake of the initial scam.
Tips for reducing your risk
• Don’t trust TV or newspaper ads promising “No credit? No problem!” or something similar. If an offer sounds too good to be true, it probably is. Trust your instincts.
• Carefully consider your selection of lenders, home improvement contractors, personal caregivers and other vendors. Be sure to check references. Trust only people you know or who have been recommended by those you know. Don’t trust someone just because they appear to be in a position of authority or they have a nice, friendly voice.
• Make sure you fully understand the terms and conditions of a loan before signing. Don’t sign anything you don’t understand. Don’t sign documents with blanks the lender says they’ll “fill in later.”
• Be wary of any lender that doesn’t welcome questions. Honest, reputable lenders expect you to ask questions.
• Remember, a low monthly payment isn’t always a good deal. Look at the total cost of the loan. Avoid large balloon payments.
• Don’t put up with high-pressure tactics! This is one sign of a predatory lender. If you’re being pressured, don’t hesitate to take your business elsewhere.
• Be wary of promises to refinance the loan to a “better rate” later. Never sign loan papers unless you are comfortable with the payments, interest rate and fees as written.
• Don’t take the first home equity loan you’re offered. Remember, borrowing against the equity in your home means that you are putting the ownership of your home at risk. A reputable lender will decline your loan if they determine you may not be able to pay it back. A predatory lender will approve a loan for the same reason. A reputable lender wants you to remain financially healthy. A predatory lender wants to profit by taking your house if you’re unable to pay!
• Don't judge a book by its cover. Successful con artists sound and look extremely professional and have the ability to make even the flimsiest investment deal sound as safe and sound as putting money in the bank. The sound of a voice, particularly on the phone, has no bearing on the soundness of an investment opportunity.
• Don’t be a courtesy victim. Con artists will not hesitate to exploit your good manners. Save your good manners for friends and family members, not strangers looking for a way into your bank account!