Investment and Reverse Mortgage Scams Can Leave Seniors Bankrupt

Every year, older Americans, including residents of nursing homes and elder care facilities, lose billions of dollars to con artists who have carefully targeted them. In many cases, seniors are living off the savings they’ve built up over a lifetime of hard work. Even though the cost of living goes up, the amount of money these retirees have to spend does not. Therefore, it’s not surprising that they may be particularly vulnerable to schemes that promise a high and sometimes impossible rate of return.

In this post, we will take a look at some of the most common investment scams that can leave seniors financially vulnerable or even bankrupt. If you have a loved one in a Kentucky nursing home, it’s important to be aware of each of these schemes. 

1. Pyramid Scheme. This is a scheme in which the money from new investors is used to pay old investors. It usually starts with one person, who collects a certain sum of money – say $100 – from a number of people. Then each of those people brings another set of people into the scheme, each paying $100. The early investors do well. Someone who brought 10 people into the scheme and invested $100 would get back $1,000. The problem with this scheme is that it eventually collapses because there aren’t enough new people to pay the previous investors. There is no wealth created and nothing has been sold. Experts estimate that 90% of the people who participate in pyramid schemes lose their money.
2. Ponzi Scheme. A Ponzi scheme is often used interchangeably with a pyramid scheme. In a Ponzi scheme, all the investors give their money to one person who is charged with investing it. Like the pyramid scheme, that person pays money to the investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned.
3. Nigerian Scams. In this case, the victim gets a letter or an e-mail from someone in Nigeria, who claims that he or she has access to a large sum of money but is unable to get it out of the country. If the victim will send money – usually escalating amounts for various things like taxes, bribes or fees – to help get the sum out of the country, he or she is promised a large portion of it. In many variations of this scam, the con artists ask the victim for his or her bank account information, claiming that the money will be directly deposited to that account. Of course, once the scammer has the account information, he or she takes money out, rather than putting it in!
4. Reverse Mortgage Scams. For some older Americans, reverse mortgages – a product which allows you to convert the equity in your home into a monthly payment – may be a good idea. However, be aware that there are a number of scams surrounding the industry. For example, scammers may try to charge a fee to find you a lender or provide you with information that is available from HUD for free. In other cases, your reverse mortgage may require you to make repairs on your home, and the mortgage company may recommend a contractor with inflated fees. More dangerous scams include those that offer you money or a new home in exchange for the title of your current home, but ultimately they take the title and give you nothing.

Here’s one final word on financial advisors. Meeting with a financial advisor is an important step for all retirees. However, be careful that the person you’re meeting with is a legitimate advisor. Some seniors have been scammed by people claiming to be advisors who misappropriate funds or shift them to investments with a high commission.