A recent report by The National Consumer Law Center shows an alarming trend happening across the United States: the elderly losing their homes because of back owed taxes. At a first glance, that may not be too alarming, but when you consider that some are losing their homes over just a couple hundred owed in back taxes, it’s a huge problem.

Out dated state laws in many states are leaving the elderly vulnerable to big banks and investors that have their bottom lines in mind. According to the NCLC, local governments are seizing homes when property owners fall behind on back taxes, then selling the homes as a way to generate revenue during a time where most local governments are struggling to make ends meet.

The process works something like this:

  1. The government files a tax lien, which allows it to seize the property if the back-owed taxes aren’t paid.
  2. When the taxes aren’t paid, the tax lien is auctioned off to investors.
  3. For a short period of time, the homeowner has the right to buy back the home by paying the lien. The trick is that the bank or investor group that owns the lien can add taxes, interest and fees ontop of the actual cost of the lien.
  4. If the owner can’t pay the inflated price, the investors can sell the home.

Let’s look at how this works in the sense of profits. In our example, Bob is an elderly widow, whose wife handled the finances. He fails to pay property taxes, and has a bill of $1,200.

  1. The local government files a tax lien for the $1,200 and notifies Bob that he has 30 days to pay.
  2. Bob is on a fixed income that barely covers his bills, and is unable to come up with the $1,200.  The lien is auctioned off to an investor group.
  3. The investor group lets Bob know that he can have his home back for the $1,200 lien, plus an additional $2,000 in fees.
  4. Bob couldn’t afford $1,200, so he certainly can’t afford $3,200. The investor group sells the home, and makes a huge profit.

Some states only permit the home to be sold for the cost of the lien, which means anyone can purchase the home, flip it, and make a huge profit. For many elders, their entire retirement savings is wrapped up in the equity of their homes. When these tax liens happen, they are left homeless, and without any of the equity they have invested in over their lives.

JP Morgan and Bank of America have both stopped buying, bundling and reselling these tax liens, but they still hold liens they already owned. They also manage tax liens for others.