Scammers are out there, and unfortunately retirees are often their targets. According to the Government Accountability Office, seniors lose several billion dollars a year to financial fraud. Government and law enforcement efforts to stop them have tended to be scattershot, with little coordinated effort. And banks, which are supposed to be on the lookout for suspicious transactions, have not been sufficiently vigilant.
Below are some of the more recent scams aimed at seniors, although anyone is a potential target. In many cases, the frauds masquerade as perfectly legal, though unconventional, financial transactions.
Reverse mortgage fraud
A reverse mortgage is a legitimate financial tool available to people 62 and older. Also known as a home equity conversion mortgage, it allows you to convert the equity in your home into cash—useful to seniors who may be house-rich but cash poor, living on a fixed income but facing decidedly unfixed expenses like health care. Sadly, some of the most vulnerable retirees—those having trouble making mortgage payments or looking for a less expensive home—are those most susceptible to reverse mortgage fraud.
Mortgage guarantor Fannie Mae has noted a striking increase in reverse mortgage fraud since the 2008 financial crisis. The most common types include “Turn Around Mortgages,” where reverse mortgage programs falsely promise to stop foreclosure, and “Equity Theft Schemes,” where seniors are sold a new residence and given a property deed, and then are later requested by the criminals to obtain a reverse mortgage. The scammers abscond with the proceeds.
What to do: Always be suspicious of the free lunch, such as being able to own a home without a down payment, and don’t sign documents for a property you didn’t purchase. Seniors considering a reverse mortgage can check the Housing and Urban Development website at for a list of lenders approved by the Federal Housing Administration.
Investment Retirement Accounts can legally hold a wide variety of assets, which may be appealing to those who’ve soured on stocks. But placing unconventional assets, like real estate and physical gold, in self-directed IRAs requires extra paperwork, and a custodian that specializes in these IRAs is usually needed.
But the custodians aren’t required to evaluate the quality of an investment, according to the North American Securities Administrators Association. A fraudster, targeting an elderly person, will probably say otherwise, paving the way for an investment in an unaudited, illiquid asset, or in worst cases, a Ponzi scheme. Last year the NASAA named self-directed-IRA fraud one of the top four new investor threats.
What to do: Victims of self-directed-IRA scams are pressured to send money immediately, because the opportunity is fleeting. What they should do is precisely the opposite: talk to a trusted financial adviser or relative, check the references of the seller and the investment offer, both of which should be registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority. To find an adviser, use FINRA’s Broker Check.
The 876 scam
You won! No, you didn’t. Last year many seniors in New England were victimized over the phone by what is known as the Lottery or 876 scam, named after the Jamaican area code from which many of the calls originate. The criminal tells the victim he just won a huge sum in a lottery, then tries to gain his trust through repeat phone calls and by using Google Earth to feign familiarity with his community. When trust is established, the victim is encouraged to wire a “process fee” to the criminal. The Federal Trade Commission received 30,000 complaints about the scam last year.
What to do: Scams and frauds may have new wrinkles over time, but they share one common denominator: They’re unsolicited. Just hanging up is the best move.
Hype or help? How to evaluate financial credentials
The alphabet soup of financial designations like CFP, for Certified Financial Planner, is tough enough for consumers to navigate. Now there’s a new slew of financial designations, many of which have the word “Senior” attached to them, presumably to appeal to retirees who are seeking financial counsel. Certified Senior Adviser, Chartered Senior Financial Planner, and Registered Financial Gerontologist are a few of the more than 50 designations you might come across.
Other than to attract business, the value of some of these designations is questionable. Becoming a CFP takes at least two years of supervised financial planning experience. But some of the less common designations require no coursework, or merely a training course of less than a week.
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