Reverse mortgages offer an excellent source of tax-free income for many seniors who need it the most. These loans, which not long ago were seen in a negative light, have gradually gained approval from financial advisers. That said, the overall positive view of such loans is far from unanimous. For as applications for these types of mortgage loans have become increasingly common among certain segments of the senior community so has the number of unscrupulous service providers.

You'd be hard-pressed to find an example of a consumer transaction that involves larger sums of money than a typical mortgage deal. The reverser mortgage nich of the mortgage lending industry, therefore, is naturally appealing to scammers in search of a big payday. While far from exhaustive, the following is a brief list of reverse mortgage scams:

1. The bundling of reverse mortgages with such things as home improvements, burial plots and even living trusts. The loan officer leads the borrower to believe that he or she must buy one of these products to be eligible for a reverse mortgage.

2. Borrowers are allowed to submit an HECM application prior to receiving counseling from an independent source. In-person counseling services are expected in all cases, except where the borrower is unable to be physically present. Scammers try to capitalize on this allowance by steering applicants to cohorts offering counseling services, often for a fee, that are watered down at best or filled with disinformation at worst. The result is the forfeiting of hard-earned equity due to misinformation or disinformation.

3. Funds from the loan are stolen through the use of forgery. Two different checks get sent out. One check goes out to the borrower and the other to the loan officer.

All of these dangers present reasons to think twice before listening to the wrong person. Other perceived dangers are the result of misconceptions. Having to repay the loan is a concern. Many seniors are afraid they might somehow get foreclosed upon. The fact is that the loan will never mature during the borrower's life so long as he or she continue to live in the home as a principle residence. Outliving the loan is not a scenario in which the mortgagor could lose the home. Also, the fact of a lien against the property is irrelevant when it comes to inheritance. Only the amount owed on the loan affects inheritance. The total amount owed on the loan is the only thing that gets subtracted from the equity inherited by the heirs. This remainder is available to the borrower's heirs.

Would would have guessed that the HECM industry would grow to the point that is has today. What was once not even a consideration is now the primary option for many seniors. Like any endeavor there are things that can go wrong. The same is true for HECM's. But considering all that stands to be gained it is a goal worth pursuing when one's life circumstances warrant it. Improvements in existing laws can help prevent scams from being perpetrated. Due diligence and education is the best defense against these dangers.