Home-sale contests trigger alarm

Recent Oregon promotion ends in arrest

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted May. 12, 2010

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Recent Oregon promotion ends in arrest

Tom Kelly
Inman News

There have been several different methods used to advertise home sales via an essay contest -- neighborhood fliers, church bulletins and newspaper classifieds -- but the latest example was truly a sign of the times.

A man in Seaside, Ore., allegedly used the lure of a peaceful retirement and relaxing vacation time on the Oregon coast to mount an online campaign (www.win99dollarbeachhouse.com) to sell a beach cabin, according to reports.

Theodore Zennie allegedly capitalized on the power of the Internet to spread the word that for $99 and a short essay of "six lines or less explaining why you wanted or needed the cottage" entrants could buy a chance to own the property free and clear. The contest drew not only cash-strapped first-time homebuyers, but also retirement folks and second-home investors, The Oregonian newspaper reported.

Zennie was later arrested and charged with possession and distribution of a controlled substance -- he had allegedly used some money from the raffle to purchase drugs. Zennie's campaign was highlighted by many media outlets.

In another instance, a couple completed an extensive remodel on their multilevel view home when the wife's physical condition limited her ability to climb stairs and continually move from floor to floor. The couple placed the home on the market but found no takers.

The woman had lost her job and the couple used the essay contest as a last resort. They were hoping to pay off their mortgage from the entry fees paid by contestants.

The couple appeared genuine in their efforts. They stated to contestants that if the contest were canceled for any reason, all entry fees would be returned, less a 10 percent fee for contest, escrow and processing costs.

All entry fees were held in a registered escrow account until the winner had been notified via telephone, e-mail, and/or registered mail. Title insurance was provided on the property. When the number of entries did not meet the amount of the mortgage, the couple returned all entry fees.

Law enforcement officials are familiar with home-sale contests. In fact, the current attorneys general in many states have scrutinized similar contests when consumers began to question their legitimacy.

In most states, any activity that includes "prize, chance and consideration" is gambling and must be properly licensed and regulated. For example, raffling off a house would be prohibited because it is based on chance. A lottery is similar. Some skill may be involved in choosing the numbers, but it's mostly chance or luck.

The controversial step that the man behind the contest -- the homeowner -- needed to prove was that the contest was totally based on skill, not chance. The man said he would choose three "professional people and clergy" to serve as judges.

How do you know the judging is independent? Who are the judges, and who picked them? Relatives of the homeowner can't enter the contest, but what about friends and acquaintances and co-workers? How do you know they won't win the house?

Another critical piece to the puzzle was the tax question: Would the Internal Revenue Service consider the house a "gift" and thereby taxable to the winner?

A real estate tax attorney said the "gift" question was definitely a gray area that would probably be up to a court to decide. If it were not a gift -- if there was no gratuitous intent -- then it would be taxable to the person receiving the home. It would be taxed as ordinary income.

The essay contest concept seems to surface every few years. The idea was the focus of a motion picture several years ago and the film immediately generated a new wave of home essay contests. "The Spitfire Grill" starred Ellen Burstyn as the owner of a café in a small Maine town.

The character Burstyn portrayed was getting on in years and was tired of the early preparation that came with daily breakfast. She also was concerned that the grill would never sell.

Alison Elliott, the woman with the secret past who became a huge help to Burstyn, suggested to Burstyn that she hold an essay contest -- with the grill as the one and only prize. Entrants would pay a fee to enter their essays.

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