Elder Financial Abuse: Know the Red Flags and Avoid Liability

November 21, 2017

When discussing housing trends, the conversation quickly turns to how Millennials will affect the future of the real estate market. An area of concern not widely discussed, however, is the country’s aging population, which fuels the need to recognize and prevent financial exploitation of older clients and family members. Highlighting the concern, the Consumer Financial Protection Bureau (CFPB) issued an advisory last year on how to prevent elder financial exploitation. If an insured real estate transaction is later found to be void, title and settlement companies may expose themselves to escrow or policy losses. Because of this, it’s critical the industry be alert to financial elder abuse and recognize the red flags.

Elder financial abuse refers to a broad range of behaviors, including taking money or property, forging an older person’s signature, coercing or unduly influencing an older person to sign a financial document and defrauding or scamming money from an older person.

The population of people aged 65 and over is expected to reach nearly 75 million, or one fifth of the total population by 2030, according to analysis of Census Bureau data. Even though financial exploitation of elders is growing fast and is a common form of abuse of the elderly, it is often unreported or undetected. According to a report from True Link Financial, estimated losses from elder abuse range from $2.9 billion to $36.9 billion a year. 

Wealthy Targets

Older people are attractive targets because they may have accumulated assets or equity in their homes and usually have a regular source of income such as Social Security or a pension. At the end of this year’s first quarter, Americans age 70 and above had a net worth of nearly $35 trillion, according to Federal Reserve data. These consumers may be especially vulnerable due to isolation, cognitive decline, physical disability, health problems, and/or the recent loss of a partner, family member or friend.

There are three main categories of abusers targeting elders. The first are family members, specifically adult children and grandchildren (20 percent daughters, 24 percent sons). The second group consists of professional criminals such as home repair scammers and telemarketers. Finally, there are friends or others in a position of trust. This group could include attorneys, bank employees, caretakers and pastors, according to the National Adult Protective Services.

Abuse of Legal Authority

The abuse of legal authority occurs when a person with the legal authority to act on behalf of another misuses that power. As fiduciaries, they must act on behalf of the person in that person’s best interests. They are charged with preserving assets, using them wisely and for the benefit of the person. Failure to do so is a violation of that fiduciary duty, and may be a crime.

“While powers of attorney are legal and binding, and must be acknowledged as such when appropriate, they can be both wide ranging and narrow in scope,” said Ruth Dillingham NTP, senior underwriting counsel for First American Title Insurance Co. “It is important to always review the power of attorney and make sure the act it is proposing is within the limitations of the actual power. A power of attorney to sign the purchase contract and/or escrow instructions for the sale of a house does not—without more documentation—mean the holder can sign the deed.”

While a court-ordered appointment as a guardian or conservator is perceived as a more protected status, it can be abused as well—and it is not a license to steal the assets of the incapacitated person, Dillingham added.

Transfer of Title

The first example is a forgery of the owner’s signature on a deed or mortgage. The conveyancing practice of requiring that the person signing the document appear in person before the notary public taking the acknowledgment is intended to make forgery more burdensome, but it is not impossible.

“Of course the notary could be an accomplice of the forger, or could fail to require valid proof of identity of the person signing,” Dillingham said.

Perhaps harder to determine, especially in the case of elder abuse, is whether the owner is signing without true consent. To establish actual or legal consent to an act, the person must have the ability—mental capacity—to act.

“They need to know what it is they are doing and they need to intend that it happen—voluntarily,” according to Dillingham.

In the case of undue influence, the person may have all of the components to give consent, but be acting against their own interests due to fear or dependency.

Every state has specific requirements on reporting elder abuse. As a general rule, the primary entity responsible for reporting elder abuse is the lender. In most instances, a lender will explain any responsibility in its closing instructions.

Dillingham said, “In the context of a real estate closing, the settlement agent, in conjunction with information from the title report, is the ‘eyes and ears’ of the financial institution and plays a critical part.”

In every state, even if there is no direct duty for a person to report elder abuse, it may be reported voluntarily. It is important to remember that elder abuse reporting applies to all parties in the transaction. This includes both the borrower and the seller.

“A deed signed under duress is just as fatal as a mortgage signed with a forged power of attorney,” Dillingham said.

Patricia Pinto, legal claims education officer for North American Title Insurance Co., added that the party involved in a transaction has a responsibility to independently conduct due diligence in accordance with the law and instructions of the principals to the transaction. She said a closing should not proceed until any issues are resolved to the satisfaction of the lender, the underwriter, and the borrower and/or family.  While the title agent typically has no personal contact with the senior, the chain of title is examined for suspicious recordings and documents.  A commitment or preliminary report is generated that may contain such information for the lender’s notification. The title agent will notify the escrow/settlement agent with suspicions of abuse, who in turn will notify the lender for guidance. 

Additionally, if title is held in a trust, it’s important to read the trust document carefully and note if there have been changes in trustees, expansions in trustee powers or changes to eliminate the requirement of beneficiary consent, Dillingham said.

Like others, Pinto has noticed an increase in claims involving elder abuse, especially in areas where home values have rebounded since the 2007 financial crisis.

“This equity allows relatives, caregivers, acquaintances and other unscrupulous opportunists to prey on the isolated senior who is dependent on others for support,” Pinto said. “The increase in these types of claims may also be a function of evolving or broadly written state laws that allow for such claims to be asserted against anyone connected with a transaction involving a senior.”

When a transaction closes involving elder abuse, the new owner or lender’s title may be subject to challenge by the senior that can result in substantial loss to the underwriter. In addition, the title and settlement agent may be exposed to tort or contractual liability.

While title and settlement agents typically don’t come into contact with the subject until the closing, it’s important to be aware of red flags and proceed cautiously when encountering irregularities or unusual situations, such as a large cash out from a refinance, proceeds being wired to an account not belonging to the senior, or a relative or caretaker who shows too much interest in the transaction for no apparent reason. 

“The escrow or settlement agent should take note of any signs of cognitive impairment, confusion or lack of understanding of the transaction when the senior is present to sign documents before or during the closing,” Pinto said. “If a mobile notary service is utilized, the escrow agent should obtain the notary’s observations of the senior’s mental and physical state and the senior’s living situation before closing the transaction. If the senior is accompanied by an overbearing third party who has no apparent interest or role in the transaction, the settlement agent may wish to speak directly with the senior before proceeding further.”

Pinto’s company recently stopped a transaction because of suspected financial elder abuse. The warning signs included a third party who was overly involved in the transaction, which involved a large amount of equity being pulled out of free and clear property and proceeds to be wired to an unfamiliar account. 

“We sent our traveling notary to the senior, and the notary was convinced the senior had a serious cognitive impairment,” Pinto said. “The most telling sign was that the transaction simply did not make sense. It defied common sense for the elder, given his age and length of ownership, to take out a new, 30-year institutional loan, hard money loan or equity line.”

CFPB Advisory

Underscoring the threat of elder abuse, the Consumer Financial Protection Bureau (CFPB) issued an advisory and a report last year with recommendations on how to prevent, recognize, report and respond to financial exploitation of older Americans.

“This action gives financial institutions best practices and tools to protect older consumers from financial abuse,” said CFPB Director Richard Cordray. “When seniors fall prey to a scam by a stranger or to theft by a family member, they may be too embarrassed or too frail to report it. Banks and credit unions are uniquely positioned to look out for older Americans and take action to protect them.”

With their opportunities for face-to-face transactions, the CFPB reported that financial institutions are well-situated to protect older Americans from financial exploitation. Financial institutions are also uniquely suited to detect and act when an elder account holder has been targeted or victimized, and are mandated to report suspected elder financial exploitation under many states’ laws.

According to the CFPB, the following are recommendations to help prevent elder abuse:

  • Train staff to recognize abuse: Financial institutions should educate employees to prevent, detect and respond to abuse. Training should cover the warning signs of financial exploitation and appropriate responses to suspicious events.
  • Use fraud detection technologies: Financial institutions should ensure that their fraud detection systems spot suspicious account activity and products associated with elder fraud risk. This includes using predictive analytics to review account holders’ patterns and explore additional risk factors that may be associated with elder financial exploitation. Some signs of elder fraud risk may not match conventionally accepted patterns of suspicious activity, but nevertheless may be unusual given a particular account holder’s regular behavior.
  • Offer age-friendly services: Banks and credit unions should enhance protections for seniors, such as encouraging consumers to plan for incapacity. They can also offer age-friendly account features such as opt-in limits on cash withdrawals or geographic transactions, alerts for specific account activity and view-only access for authorized third parties. And they can enable older consumers to provide advance consent to share account information with a trusted relative or friend when the consumer appears to be at risk.
  • Reporting suspicious activity to authorities: Financial institutions should promptly report suspected exploitation to relevant federal, state and local authorities, regardless of whether reporting is mandatory or voluntary under state or federal law. Banks and credit unions can work closely with local Adult Protective Services and law enforcement to enhance prevention and response efforts, including expediting document requests and providing them at no charge.

“Whether it’s in your master closing instructions or you start getting alerts from lenders, I’d imagine this will be a hot topic because America isn’t getting any younger,” Dillingham said. “I expect to see lenders starting to add this to their vendor management policies and the CFPB to start examining for it.”

Jeremy Yohe is vice president of communications for the American Land Tiitle Association. He can be reached at jyohe@alta.org.

Contact ALTA at 202-296-3671 or communications@alta.org.