Reverse mortgages remain a popular lure for cash-strapped seniors, but what's good in theory is often abysmal in execution.

A reverse mortgage allows someone who is "house rich and cash poor" to get a payment from their lender in exchange for the bank getting the equity in the house over time. It allows people stay in their homes and have their bank pay them to stay in their home.

Here are the pros and cons of reverse mortgages

But what's good in theory is often dangerous in reality because of some unsavory players in the mix, especially unholy alliances of mortgage brokers and insurance salespeople. When doing a reverse mortgage, you can either take a check every month from your bank or take a lump-sum cash out. The real danger comes with the latter.

Taking a lump sum cash-out option puts you right in the crosshairs of sleazy insurance salespeople who will push a series of annuities on unsuspecting seniors. This is just an absolute, horrific abuse of trust and of that senior citizen.

Here's the thing. If you have an elder, you need to get a little nosy. While you're busy with your life, somebody could come along and eviscerate their finances if you're not careful. Consumer Reports  puts it bluntly: "Reverse mortgage should only be a last resort for seniors who want to stay in their homes and have no other alternatives."

I agree wholeheartedly. A reverse mortgage should be the last option, not the first, when all else has been exhausted. If you're talking about a family with younger members of means, it is generally better to have them financially help out aging relative than to have a broker or salesperson take advantage of the senior with a reverse mortgage.

And beware that some scamsters are sending deceptive info to seniors. reports that some of these pitches were marked on the envelope with words like “Economic Stimulus Notice,” “Government Lending Division,” and “Federal Housing Administration Home Benefit HECM Program.” Some of these come-ons even falsely claimed that your heirs will still be able to inherit your house, which is untrue.

Be careful out there! is no longer recommending

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Image of Clark Howard About the author: Clark Howard

Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. View More Articles

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