Q: I have prime property that is facing foreclosure and I need to sell it – fast. I just heard of a nonprofit organization that recently held a $50 house raffle for a couple facing the loss of their home. The raffle was successful. The couple paid off their loans, the organization received a percentage of the money to benefit its charitable work and someone won a million-dollar home for $50.

I thought it was a great idea and would like to do the same thing, I was hoping you might be able to tell me what you know about doing this sort of thing. Is it legal?Can I do it myself without a nonprofit organization?I assume I cannot profit from it, but that’s okay. I would just like to pay off the loan on my home – and maybe cover the cost of improvements – before foreclosure. Any information, advice, web-sites, or companies that offer this type of raffle service legally, would be greatly appreciated. .

A:   As the real estate market has failed to bounce back as quickly as most would like, many are turning to creative ways of disposing of their property. Like you, I have read about successful raffles. Such publicity has generated a fair number of calls and emails from both individuals and nonprofits exploring this option. While I would begin by suggesting you consult an attorney with expertise in this area, I will share some initial thoughts.

Raffles are a form of gambling and gambling is highly regulated throughout the nation. To my knowledge, there are no states in which an individual can legally engage in running such a game of chance. The reason you have seen nonprofits linked to these home raffles is that in many states they are allowed to run “small” games of chance, usually including raffles, to raise funds to support their mission.

If I were advising the nonprofit, I would advise it NOT to participate in such an enterprise. Most importantly, if anything goes wrong – and there is often “fine print” in the state statutes even where such gaming is legal – the nonprofit could lose its tax-exempt status. However, even if that were not the case, I question whether the organization can make enough money to make the time and effort involved worth it.

Let’s look at some of the practical issues. Together, you and the nonprofit have to sell a LOT of tickets – especially at $50 – to bring in enough money just to cover the mortgage, let alone the real costs such as printing, promotion and accounting fees, and a return on investment for the nonprofit. And, your selling window is finite. You must let everyone know upfront the date of the drawing. This can’t get pushed back if you haven’t sold your minimum number of tickets. Some states require you specify the maximum number of tickets that will be sold. Many require that prior to the start of ticket sales the nonprofit have possession of the property or at least be able to guarantee that the winner will get the house. This puts the nonprofit at great financial risk.

Few organizations have databases that are large enough to generate sufficient ticket sales, considering that not everyone will be interested in buying a chance.  Raffles are not tax deductible and only a relatively small portion of the total proceeds are likely to go toward the organization’s mission. So, unless the buyer actually wants your property, there is minimal incentive to purchase a ticket. And why would someone want to take a chance on an unknown entity – even for $50, plus sales and property taxes? That goes for speculators, too. (Realistically, how many of those are out there – especially today when the property could take a long time to flip?) Are you going to allow anyone who wants to, to traipse through your house? At a minimum you should consider setting up a virtual tour if you move forward.  

Often those most willing to purchase the tickets are those closest to the project – the organization’s volunteers working to sell tickets. However, as the Cystic Fibrosis Gold Coast Guild in Florida found out when one of its volunteers won a home raffle it sponsored in the ‘90s, that can potentially result in a public relations nightmare. An accounting firm conducted the raffle for Cystic Fibrosis and certified its results, but that didn’t satisfy some ticket buyers who felt the organization’s volunteers should have been excluded from participating.

So how can you sell sufficient tickets?  On the Internet?  That raises a whole series of other issues.  (See “A Raffle and the Internet,” July 2006) Even old fashioned friend-to-friend or snail-mail ticket sales can raise problems.  Some communities do not allow raffles, even if the state and neighboring communities do.  Some postmasters will allow raffle tickets to go through the mail and others won’t. (See Should You Hold a Raffle?,Nonprofit World, January/February 1995)

I’m sorry to put a damper on your idea, but again, my concern is for the nonprofits, and I do not think this is a good deal for them. Still, if you wish to pursue this further, you might want to look to websites like www.USAhomeraffle.com or www.charityhomeraffle.us, which match property owners with nonprofits and facilitate the raffle process. (Note: the mention of these websites should not be seen as an endorsement.)

I wish you luck in dealing with this very difficult situation.