Don’t Fall For The Following Scams

When times are good, scams taking advantage of peoples’ greed and promising extraordinary returns for little effort are all the rage.  Understandably, the lure of high returns is difficult to resist in a bull market when it seems everybody else is busy getting rich.  Bad as that is, scams during a recession take on a far more sinister air because they prey on fear and desperation.  Scams tend to become more prevalent in hard economic times since desperate people are hardly a model of rational thought.  Here are a few obvious scams to be on the lookout for.

1. Equity Skimming Scams – Equity skimming scams (sometimes called equity stripping), tend to focus on unsophisticated, low-income homeowners facing foreclosure.  Usually, a small company or group of investors calling themselves “rescue artists” will take possession (i.e. buy at an insanely low price) of a homeowner’s house in exchange for agreeing to let the former owner stay in the property as a tenant, paying rent to the new owners, usually at a rate as high or higher than their previous mortgage payment.  Once they are in sounder financial footing, the homeowner will supposedly have the option of retaking possession of their home for a moderate fee.  The kicker is, most of the time the homeowners aren’t even aware they are actually giving legal possession of their home (and equity) away due to the complexity of transaction and assurances by the scammers that their equity is safe.  If and when the tenant falls behind on the rent (which is likely since the rent is often as high or higher than their previous mortgage payment), the victim is evicted and booted out of their former home, losing all their equity in the meantime.  If you are in danger of losing you home, please negotiate directly with your lender.  Don’t fall for one of these scams?  For more on equity stripping, check out the wikipedia page.
2. Get Rich Quick Scams - Outrageous claims such as “earn 10% monthly returns with no work,” “get 15% interest in an FDIC-insured savings account,” and “make millions in the forex market” are quite common in online money-related forums.  When pressed, the scammers will refuse to reveal the details of how their “investment” operates and respond with “well, I’ll show you the check to prove it’s real.”  My advice is to run far, far away because there is absolutely no way to generate high returns without high risk.  The stock market’s average of about 10% per year is the most you’re going to get anywhere without taking on crazy amounts of risk.  Yes, some small- or -micro-cap funds can earn returns more than twice that as can highly-leveraged real estate investments but remember:  micro-cap stocks and leveraged real estate investing are very risky.  Just because somebody else managed to get 25% returns a year or two in a row doesn’t mean you will.  The other investor may have just gotten lucky, and might even lose it all in the near future due to over-confidence.  Wise investors create a well-diversified, balanced portfolio and leave speculative trading to the fools.
3. Phishing Scams – I covered phishing scams and how to spot them in a previous post.
4. Lose Weight Quick – I’m a big proponent of healthy living (and working out at home), but there is no such thing as a pill, chemical, food, or diet program that can help you magically shed pounds in a short period of time without hard work.  The secret to long-term weight loss is simple:  a healthy, balanced diet high in protein, unsaturated fats, and a moderate amount of carbohydrates combined with a moderately-intense workout regimen including a mix of both cardiovascular and strength training at least 4 days per week (but preferably 5-6).  You don’t have to spend hours in the gym, but you should spend a minimum of 30 minutes workout out 4-6 days per week.  I cannot stress the importance of doing strength training, however;  most people focus only on cardio when trying to lose weight, which is counter-productive.  Strength training raises your metabolism, which burns more calories throughout the day, even when you’re not working out.  Cardio burns more calories while you’re doing it, but does little to boost your overall metabolic rate and actually stimulates your appetite, so you’re more likely to over-eat.  Regardless, there are no magic pills, diets, or medical procedures.  Just ignore those late-night commercials, because they don’t work (I’m looking at you, Trim Spa).
5. Natural “Miracle” Cures - I’ll be the first to admit modern medicine with it’s long drug-approval process leaves a lot to be desired, but there’s a very good reason why those regulations exist:  to make sure the drugs we put into our bodies are safe and actually work.  Tons of books exist on natural cures and why they deserve your attention (Prescription for Nutritional Healing by Phyllis Balch and Natural Health Remedies by Janet Macarro are two I’ve read, although I can’t recommend them in the sense I think following their advice will cure disease) and there may be something to many of these natural cures, but they don’t replace the need to consult a doctor.  Some obscure brazilian tree root may very well be the best treatment for some exotic illness, but let your doctor prescribe it.  Many doctors are very open to the idea of using alternative medicines provided they don’t interfere with or take the place of more conventional treatments.  Just ask, but whatever you do, don’t take anything without consulting a medical professional.