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Elder Abuse in Finance

Updated on August 14, 2014

Elder abuse isn’t just about physical and mental abuse of the elderly by their spouse or children. Nor is it limited to the conman who convinces the widow to withdraw her savings for some phony cause. It has become a much broader problem and the ramifications of the actions of those dealing with the elderly, whether well-intentioned or not, can result in civil and/or criminal charges for the assisting party and even for those entities and individuals involved, however tangentially, with the transaction. Elder abuse in an earlier deal can even have negative repercussions for those involved in downstream transactions.

Financial Elder Abuse
Financial Elder Abuse

Statistics from the Department of Health and Human Services, Administration on Aging indicate
that the percentage of Americans age 65 and older is expected to double by the year 2030 to
71.5 million, or 20% of the population. With this in mind, the number of older Americans who are
involved in financial transactions involving real estate can be expected to grow exponentially as
well. Title companies need to be alert when dealing with older persons and sensitive to their susceptibility to elder financial abuse. Elder financial abuse occurs when a person or entity takes advantage of an older person to fraudulently take that person’s real or personal property.

Loan scam
Loan scam

This article will summarize California law on elder financial abuse and will describe real scenarios to illustrate how such abuse can and does manifest itself during a real estate transaction from the perspective of the title and escrow company. California has adopted the Elder Abuse and Dependent Adult Civil Protection Act (Welfare & Institutions Code section 15600 et seq., or the “Elder Abuse Act”). In adopting the Act, the Legislature recognized that elders may be subjected to abuse, neglect, or abandonment and that California has a responsibility to protect the elderly and other dependent persons. “Elders are uniquely vulnerable to abuse because ... they face advancing frailty, deterioration of mental capacity, and increasing reliance for assistance upon the families they raised.”

“Elders frequently relinquish control to those who have gained their trust, becoming emotionally and financially dependent. In such circumstances, abusers become the elder’s trustee or executor and primary beneficiary. For example, most financial abuse is perpetrated by one person, usually a family member, or other trusted person.”

The Elder Abuse Act was originally designed to encourage elder abuse to be reported and it provided for criminal prosecution of elder abuse laws. However, attorneys were reluctant to pursue civil elder abuse lawsuits in part because compensation was not permitted if the elder died before died before the case went to verdict. The Legislature then modified the statutory scheme to provide incentives for civil prosecution of elder abuse lawsuits.

The incentives include heightened remedies such as pain and suffering damages even after the abused elder dies, punitive damages, and attorney fee awards.

Elder financial abuse occurs when a person or entity (1) takes, secretes, appropriates, or retains real or personal property of an elder to a wrongful use or with intent to defraud, or both, or (2) assists in taking, secreting, appropriating, or retaining real or personal property of an elder to a wrongful use or with intent to defraud, or both. (Welf. & Inst.Code, § 15610.30) A person or entity shall be deemed to have taken, secreted, appropriated, or retained property for a wrongful use if done in bad faith. A person or entity acts in bad faith if the person or entity knew or should have known that the elder had the right to have the property transferred or made readily available to the elder or to his or her representative (such as a conservator, trustee, or attorney-in-fact under a power of attorney).

The Elder Abuse Act mandates reporting of suspected financial elder abuse by financial institutions. All officers and employees of financial institutions are required to report suspected elder abuse by telephone and by providing a written report within two working days to the local
law enforcement agency or local adult protective services agency. (Welf. & Inst.Code, §
15630.1) Failure to make a required report of suspected elder abuse is a misdemeanor.

Even so, non-mandated reporters of suspected financial elder abuse may submit a report to a local law enforcement agency or local adult protective services agency if they know or reasonably suspect that an elder has been the victim of abuse. (Welf. & Inst.Code, § .15631) Reasonable suspicion means objectively reasonable suspicion. That is, a reasonable person in a like position would suspect abuse. (Welf. & Inst.Code, § 15610.65)

A non-mandated reporter reporting a known or suspected case of financial elder abuse is shielded from incurring civil or criminal liability as a result of the report unless the report was false and the person reporting it knew it was false. (Welf. & Inst.Code. § 15634)

As a real life example, Mrs. V is a 79 year old widow who still owns and resides in the home she and her late husband resided in for more than 40 years. Unbeknownst to her only daughter, her only grandchild convinces “Grandma” to use some of the equity in the home to help finance her fledgling movie career. In the process of the escrow and her local title company, Granddaughter has the escrow officer prepare a gift deed for the home from Grandma to Granddaughter, who is told that this is necessary for the Home Equity Loan. Over the course of the next several months, Granddaughter refinances the property again, pulling out several hundred thousand dollars, representing most of the remaining equity.

When Grandma receives a notice of default on the new loan, she visits her attorney. The ensuing lawsuit names granddaughter, the local title company and the individual escrow officer, the Home Equity lender, the lender who funded the refinance and the mortgage broker. Of course, the lenders were insured and both of their title insurers were tendered the defense of the lawsuit. Three law firms,one for the title company and escrow officer who provided the original escrow services and one each for the insured lenders, and 24 months of litigation later, the case settled in mediation. The collective cost for this claim to the three title companies, including their attorney fees and settlement contributions, exceeded $400,000.00.

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Plaintiffs attorneys are particularly intractable in these lawsuits. They know that their client is going to appear sympathetic to the jury, regardless of how they got themselves into the situation and the cases don’t usually settle piecemeal. A number of lawyers and firms are getting a reputation for taking on these cases and they are becoming more proficient at pleading causes of action against escrow companies, notaries and lenders. Invariably, they seek to set aside the new insured deed of trust, triggering title coverage.

Additionally, it is common to find that large law firms are teaming up with local housing authorities and other nonprofit groups on a pro bono basis, and are devoting vast amounts of associate time to litigating these cases.

Causes of action in a typical case may include Allegations relating to the Home Equity Sales
Contract Act and Mortgage Consultant’s Act, civil conspiracy, fraud undue influence, unfair business practices, breach of fiduciary duty, cancellation of instruments and quiet title as well as various causes of action for emotional distress. The cases often involve three to ten defense firms and the discovery process is burdensome and expensive. Plaintiffs lawyers know this and use the costs of defense to their advantage in mediation and settlement conferences.

Red Flags and Warnings:

There are often warning signs, but it is most often an Escrow Officer who is in the best position to spot a potential elder abuse case before it closes. What should the escrow officer be on the alert for? Most often the “victim” is
a single woman, who is usually, but not always, over 65. Does the realtor or mortgage broker accompany her to the signings, without any family member present? Does the elder appear confused or appear to not understand the consequences of her actions? Are the borrower/seller unable to come into the office and require a mobile notary?

Does the realtor or broker offer to take the closing documents out for signing? What is the purpose of the transaction and who is going to get the benefit of the transaction? If it is a third person, even if that person is a relative, beware! If
the home is in foreclosure or there are liens in default, is a mortgage consultant involved? If any of these Red Flag warnings are present in your transaction bring the concerns to the attention of your advisory officers. Not all elderly persons are incapable of handling their own affairs. However, if your concerns about the deal remain after inquiry, your Company may want to consider requiring the presence of a conservator or attorney to represent the borrower or seller as a condition of continuing to handle the transaction.

© 2014 TomRy


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