Selling House With Lottery Leads To Fraud Risk

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Summary: It's illegal to hold a lottery to sell a house, even though with the financial crisis it might seem like a good option. The reason it's illegal to use a lottery to sell a home is that it could lead to fraud -- it's hard to know who owns the home, who won the home, who has the right to give away the home. To prevent fraud in contests most states have extensive rule requirements -- the small print at the end of contest entry forms. While holding a lottery to sell a home may seem like a quick solution, it's banned by law.

Q: In today's economy, why is it still illegal to use a lottery to give away a house? It would seem to me a perfect way to solve a huge problem we are facing with foreclosures and short sales.

The homeowner could recoup his investment, eliminating expense to the lender and other parties involved. Any profit above and beyond his cost could be donated to a non-profit organization. Individuals who normally could not afford to purchase a house would now have a chance.

While the political powers of our states are busy trying to make ends meet, so are the citizens. I think the general laws governing house lotteries should be amended temporarily and by doing so would lead to a much quicker real estate recovery.

A: Over the past six months, I've received perhaps a dozen questions about trying to unload real estate through a lottery of one form or another.

Why don't most states permit house sales by lottery? I think the primary reason is that states are concerned about the massive potential for fraud in this arena. If you buy a ticket, how would you ever know whether you -- or anyone -- won the property? Who would regulate the lottery?

When companies offer a contest, there are specific laws that have to be followed regarding notification and disclosure. That's why the fine print on contest entry forms is so long.

For example, in most states, many games of chance and lotteries require "no purchase" to enter. While that definition has some limitations, companies that conduct prize giveaway games usually have a method of participating without the payment of a fee.

House Lottery Regulation

Imagine what states would have to do to regulate house lotteries. When companies hold a lottery, there are a ton of rules involving notification and disclosure that have to be followed. It would be next to impossible to get homeowners who don't have sophisticated legal teams checking every word of their lottery paperwork to comply with these sorts of rules and regulations.

I think this is probably a big reason why most states have made selling your house by lottery illegal. Changing the laws even temporarily could be like hanging up a "welcome" sign for scam artists.

I guess if you wanted to give the home away and not charge a fee, you could check into the laws of your state to see if it is permissible. But I understand that you don't really want to give your house away (you could just donate the property to a charity and take a write-off). You are hoping to "sell" enough lottery tickets to get you close in sum to what you feel is the true market price for the home.

Thanks for your comments.

Jan. 8, 2009.

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Related Topics

• fraud, 
• real estate law, 
• scam, 
• seller, 
• selling

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