Using The Lottery in Home Foreclosures

This is an interesting idea though not necessarily new. It had been used before in the early days of the century to help struggling homeowners cope with the payments and somehow derive a little value of what's left. However, most authorities have shot down this idea due to the real possibility of fraud. You and well know that lotteries and games of chance always tend to attract fraudsters in its wake. But the idea seems to be catching as people are at their wit's end on how to get out of a financial obligation. Its proponents claim that conducting house lotteries can help in the housing market's recovery.

But exactly what is a house lottery? How does this thing work out? A house lottery is done like any other game of chance to unload a house in danger of being foreclosed. Tickets are sold to buyers and then a draw will be held to determine a winner. The winner of the draw gets the house in exchange for the cost of a ticket. Like games of chance such as gambling or sweepstakes, a lot depends on honesty and transparency. These two factors have authorities worried because this is sometimes a sure sign to attract scam artists. For example, if a house currently has a financed value (the cost of the outstanding bank loan) of about US$300,000 then the homeowner can opt to hold a lottery by selling about 30,000 tickets sold at US$100 apiece. If he is able to sell all the tickets, the proceeds from ticket sales would be used to pay off the bank loan and the homeowner escapes with his credit rating intact. There will be no negative credit files on him and he might be able to borrow again with more favorable terms.

If the house owner opts to sell extra tickets, say an extra 500 tickets, then that would net him an amount of US$50,000 (500 x $100) over and above what is due to the bank. This will give him a considerably large amount to make a new start for himself. The problem with house lotteries is the possibility of a scam being committed. The homeowner may decide to just take the money and run away. All the ticket buyers will be left holding the bag. Or the drawing itself can be rigged to make it appear no winning number was drawn. The possibilities are endless for a scam to be perpetrated. If you had bough a ticket, how would you know you or someone really won? What if not enough tickets were sold?

States with constrained budgets and limited manpower cannot possibly supervise house lotteries if they are ever allowed again. There are tons of regulations to be followed regarding notification, disclosure and transparency. Companies that sell a product or service and hold prize giveaways have to comply with these rules which is why contest rules are very long and usually in hardly readable fine print.

At first glance, selling a house about to be foreclosed via a lottery may seem like a win-win situation for all parties concerned. The homeowner in financial difficulty can get out of his obligations, the lender or the bank that financed the mortgage gets back its investment and the lucky ticket holder gets a house for the mere price of ticket. Due to some public clamor, states are taking a serious second look at this mode of disposing a house.