Q: Regarding your recent article on house raffles, I’d like to respectfully point out that the story contains a lot of inaccuracies. I have just received approval to raffle my house in Maryland.
A lengthy application process was required, and a non-profit sponsor is required. You must have rules for the house raffle and for the transfer of the property. And, if a pre-determined number of tickets aren’t sold, the property doesn’t change hands.
House raffles are complicated animals legally, but, by working closely with your state and local government, they are definitely possible, and a way for the owner to sell their house for top dollar in a trashed market.
A: Thanks for your comment on your ability to get a house raffle up and going. We were surprised to get your email, as most states have a strict policy against raffling off a house where the owner actually gets some or all of the money. To find out more, we contacted Richard Morris, Director of Charities and Legal Services for the State of Maryland, and Michael Schlein, Investigator for Charities and Legal Services for the State of Maryland.
Your house raffle is set up in conjunction with a charity that is either registered as a charity in the State of Maryland or is exempt from registration by the State. You gave a brief outline of the manner in which the State of Maryland allows charities to conduct house raffles and in which an individual homeowner can receive some of the proceeds from the raffle.
In Maryland, to sell your house using a raffle, you must work closely with a charity. That charity would have to either have to buy the home from you and then raffle it off or would have to have a contract to buy the home from you and upon the successful conclusion of the house raffle, the title to the home would transfer to the raffle winner.
According to Morris and Schlein, the charity involved must receive a benefit from the house raffle. A homeowner can’t simply set up a house raffle and advertise it. The process is rather complex and requires an application with the State of Maryland along with documentation relating to the house raffle.
The State of Maryland will review the forms and determine if the documentation complies with the strict requirements for house raffles conducted by charities. If the documentation complies with the rules and the charity is properly registered or exempt from registration, the house raffle may proceed.
But the homeowner and the charity must abide by certain rules in proceeding with the house raffle. One of the primary rules for the house raffle is that the homeowner can’t get more than the fair market value for his home. That fair market value must be determined within 90 days of the raffle by an independent appraiser licensed by the State of Maryland.
So even if the raffle is hugely successful, the homeowner is limited in the amount of money he can receive from the raffle. And if the market is depressed, the homeowner may get less in a raffle than he might get by selling his home through the normal sale methods.
One additional item to consider, according to Schlein: If you’re unable to sell sufficient raffle tickets and the raffle is unsuccessful, the raffle must be canceled and the raffle participants must receive a refund of the amount they paid for the raffle ticket, less a small processing fee.
Maryland is in the process of tightening up its processing of house raffles, according to Schlein, but the ability of charities to sell houses via a raffle should still be permitted.
You should know that many other states require that all of the proceeds from the house raffle or lottery must be given to the charity and in other states, such games of chance might be illegal – even when conducted by a qualified charity.
According to Terence McElroy, a spokesperson for the Florida Department of Agriculture and Consumer Affairs, a legitimate 501(c) charitable organization could conduct a house raffle and even suggest a contribution amount someone would donate in order to be able to enter the raffle – but the charity could not require payment for the ticket to enter the raffle.
McElroy indicated that the Florida criminal statute makes it illegal to require payment to participate in a house raffle.
In California, 90 percent of the gross proceeds from the sale of lottery tickets by a charitable organization must be used to support beneficial or charitable purposes. That won’t leave a lot left over for the homeowner.
According to the spokesperson at the Attorney General’s office for the State of Texas, “Raffles in Texas are illegal unless held by a tax exempt organization that qualifies under that statute. The only way it would work is if the person donated or sold the house to the charity for less than or equal to $250,000, and then the raffle [was] conducted by the qualified organization, and all proceeds from the raffle would have to be used for a charitable purpose as defined in the statute.”
New York is even more restrictive in its laws relating to raffles and makes the possibility of a house raffle in that state extremely unlikely, unless the value of the raffled home is quite low.
So while you may be able to conduct the house raffle in Maryland, it doesn’t work that way in other states. And, you are right: The house raffle paperwork required is extensive and may overwhelm many who are thinking about conducting their own house raffle in the state.
While the real estate market has been significantly affected by the credit crisis and housing market collapse, the idea that a house raffle is another way to sell a house for top dollar everywhere in the country may be a stretch.
Read more on problems with house raffles in a challenging housing market.