The Federal Home Affordable Refinance Program

The US Treasury released its Summary and Stated Guidelines for The Home Affordable Refinance program. They are displayed below:

Treasury Fact Sheet

Making Home Affordable will offer assistance to as many as 7 to 9 million homeowners, making their mortgages more affordable and helping to prevent the destructive impact of foreclosures on families, communities and the national economy.

The Home Affordable Refinance program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.

GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.

The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners program.

With the information now available, servicers can begin immediately to modify eligible mortgages under the Modification program so that at-risk borrowers can better afford their payments. The detailed guidelines (separate document) provide information on the following:

Eligibility and Verification

Loans originated on or before January 1, 2009.

First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750.

Higher limits allowed for owner-occupied properties with 2-4 units.

All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.

Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.

Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.

Modifications can start from now until December 31, 2012; loans can be modified only once under the program.

Loan Modification Terms and Procedures

Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.

Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive – meaning that the net present value of expected cash flow is greater in the modification scenario – the servicer must modify absent fraud or a contract prohibition.

Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions, foreclosure costs and timelines, and borrower cure and redefault rate assumptions.

Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).

The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.

The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.

Servicers must enter into the program agreements with Treasury’s financial agent on or before December 31, 2009.

Payments to Servicers, Lenders, and Responsible Borrowers
The program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.

Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus “pay for success” fees on still-performing loans of $1,000 per year.

Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.

The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.

The program will include incentives for extinguishing second liens on loans modified under this program.

No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury’s financial agent.

Similar incentives will be paid for Hope for Homeowner refinances.

Transparency and Accountability
Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program.

Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.

Freddie Mac will audit compliance.

Hugh Wood

Atlanta, GA

HERE ARE THE GUIDELIINES AS OF MARCH 4, 2009

Affordable Modification Program Guidelines

March 4, 2009

Trial loan modifications consistent with these Guidelines may be offered to homeowners beginning on this date, March 4, 2009, and may be considered for acceptance into the Home Affordable Modification Program upon completion of the trial period and other conditions.

These Guidelines, however, do not constitute a contract offer binding on the Department of the
Treasury.

Program Elements Described in the Guidelines

Monthly Payment
Reduction Cost
Share:

Treasury will partner with financial institutions to reduce homeowners'
monthly mortgage payments. The lender will have to first reduce
payments on mortgages to no greater than 38% Front-End Debt-to-
Income (DTI) ratio. Treasury will match further reductions in monthly
payments dollar-for-dollar with the lender/investor, down to a 31% Front-
End DTI ratio for the borrower.

Servicer Incentive
Payments and Pay
for Success Fees:

Servicers will receive an up-front Servicer Incentive Payment of $1,000
for each eligible modification meeting guidelines established under this
initiative. Servicers will also receive Pay for Success payments -as long
as the borrower stays in the program - of up to $1,000 each year for up to
three years.

Similar incentives will be paid for Hope for Homeowner refinances.

Borrower Pay-for-
Performance
Success Payments:

Borrowers are eligible to receive a Pay-for-Performance Success
Payment that goes straight towards reducing the principal balance on the
mortgage loan as long as the borrower is current on his or her monthly
payments. Borrowers can receive up to $1,000 of Pay-for-Performance
Success Payments each year for up to five years.

Current Borrower
One-Time Bonus
Incentive:

One-time bonus incentive payments of $1,500 to lender/investors and
$500 to servicers will be provided for modifications made while a
borrower is still current on mortgage payments. The servicer will be
required to maintain records and documentation evidencing that the Trial
Period payment arrangements were agreed to while the borrower was less
than 30 days delinquent. The servicer must comply with any express
pooling and servicing contractual restrictions for modifying current loans.


Program Payment
Conditions

No payments under the program to the lender/investor, servicer, or
borrower will be made unless and until the servicer has entered into the
program agreements with Treasury's financial agent. Servicers must
enter into the program agreements with Treasury's financial agent no later
than December 31, 2009.

Eligibility Requirements

Pooling and
Servicing
Agreements:

The program guidelines reflect usual and customary industry standards
for mortgage loan modifications contained in typical servicing
agreements, including pooling and servicing agreements (PSAs)
governing private label securitizations. Participating servicers are
required to consider all eligible loans under the program guidelines unless
prohibited by the rules of the applicable PSA and/or other investor
servicing agreements. Participating servicers are required to use
reasonable efforts to remove any prohibitions and obtain waivers or
approvals from all necessary parties.

Origination Date of
Loan Subject to
Modification:

The mortgage to be modified must have been originated on or before
January 1, 2009.

Program
Expiration:

New borrowers will be accepted until December 31, 2012. Program
payments will be made for up to five years after the date of entry into a
Home Affordable Modification. Monitoring will continue through the
life of the program.

Qualification
Terms:

• The home must be an owner occupied, single family 1-4 unit property
(including condominium, cooperative, and manufactured home
affixed to a foundation and treated as real property under state law).
• The home must be a primary residence (verified with tax return,
credit report, and other documentation such as a utility bill).
• The home may not be investor-owned.
• The home may not be vacant or condemned.
• Borrowers in bankruptcy are not automatically eliminated from
consideration for a modification.
• Borrowers in active litigation regarding the mortgage loan can qualify
for a modification without waiving their legal rights.
• First lien loans must have an unpaid principal balance (prior to
capitalization of arrearages) equal to or less than:
o 1 Unit: $729,750
o 2 Units: $934,200
o 3 Units: $1,129,250
o 4 Units: $1,403,400


In Foreclosure
Process:

Any foreclosure action will be temporarily suspended during the trial
period, or while borrowers are considered for alternative foreclosure
prevention options. In the event that the Home Affordable Modification
or alternative foreclosure prevention options fail, the foreclosure action
may be resumed.

Current LTV:

There is no minimum or maximum LTV ratio for eligibility purposes.

Loan Type
Exclusions:

Loans can only be modified under the Home Affordable Modification
program once.

Subordinate
Financing:

Subordinate liens are not included in the Front-End DTI calculation, but
they are included in the Back-End DTI calculation.


Solicitation to
Borrowers/
Incoming Inquiries:


Servicers should follow any existing express contractual restrictions with
respect to solicitation of borrowers for modifications.

Underwriting Analysis

Front-End DTI
Target:

Front-End DTI is the ratio of PITIA to Monthly Gross Income. PITIA is
defined as principal, interest, taxes, insurance (including homeowners
insurance and hazard and flood insurance) and homeowners association
and/or condominium fees. Mortgage insurance premiums are excluded
from the PITIA calculation.

The Front-End DTI Target is 31%. The Standard Waterfall step that
results in a Front-End DTI closest to 31%, without going below 31%, will
satisfy the Front-End DTI Target. There is no restriction on reducing
Front-End DTI below 31%, but any portion of the reduction below 31%
will not be covered by the Payment Reduction Cost Share.

Property Value:

The servicer may use, at its discretion, either one of the government
sponsored enterprises (GSEs) automated valuation model (AVM) -
provided that the AVM renders a reliable confidence score - or a broker
price opinion (BPO).

As an alternative, the servicer may rely on the AVM it uses internally
provided that (i) the servicer is subject to supervision by a Federal
regulatory agency, (ii) the servicer's primary Federal regulatory agency
has reviewed the model and/or its validation and (iii) the AVM renders a
reliable confidence score.

If the GSE or servicer AVM is unable to render a value with a reliable
confidence score, the servicer must obtain an assessment of the property
value utilizing a property valuation method acceptable to the servicer's
Federal regulatory agency, e.g. in accordance with the Interagency
Appraisal and Evaluation Guidelines (as though such guidelines apply to
loan modifications), or a BPO.

In all cases, the property valuation may not be more than 60 days old.

Income and Asset
Validation:

The borrower's income will be verified by requiring a signed Form 4506-
T (Request for Transcript of Tax Return) and obtaining the most recent
tax return on file for each borrower on the note. For wage earners, the
two most recent pay stubs for each wage earner on the note will also be
required. For self-employed borrowers or for non-wage income, the
borrower's income will be verified by obtaining other third party
documents that provide reasonably reliable evidence of income.
Borrowers must also represent and warrant that they do not have
sufficient liquid assets to make their monthly mortgage payments.

Monthly Gross
Income:

The borrower's Monthly Gross Income is the amount before any payroll
deductions includes wages and salaries, overtime pay, commissions, fees,
tips, bonuses, housing allowances, other compensation for personal
services, Social Security payment, including Social Security received by
adults on behalf of minors or by minors intended for their own support,
annuities, insurance polices, retirement funds, pensions, disability or
death benefits, unemployment benefits, rental income and other income.
Monthly net income can be used for preliminary screening and
qualification. If used, the servicer will need to multiply net income by
1.25 to get to an estimate of Monthly Gross Income.

Back-End DTI:

The Back-End DTI is the ratio of the borrower's total monthly debt
payments (such as Front-End PITIA, any mortgage insurance premiums,
payments on all installment debts, monthly payments on all junior liens,
alimony, car lease payments, aggregate negative net rental income from
all investment properties owned, and monthly mortgage payments for
second homes) to the borrower's Monthly Gross Income. The servicer
must validate monthly installment, revolving debt and secondary
mortgage debt by pulling a credit report for each borrower or a joint
report for a married couple. The servicer must also consider information
obtained from the borrower orally or in writing concerning incremental
monthly obligations.

Borrowers who otherwise qualify for a modification under this program,
but who would have a post-modification Back-End DTI greater than or
equal to 55%, will be provided with a letter stating that they are required
to work with a HUD-approved counselor and the modification will not
take effect until they provide a signed statement indicating that they will
obtain counseling.

Reasonably
Foreseeable /
Imminent Default:

Every potentially eligible borrower who calls or writes in to their servicer
in reference to a modification must be screened for hardship. This screen
must ascertain whether the borrower has had a change in circumstances
that causes financial hardship, or is facing a recent or imminent increase
in the payment that is likely to create a financial hardship (payment
shock). If the borrower reports a material change in circumstances, the
servicer must ask about current income and assets, and current expenses
as well as the specific circumstances relating to the claimed financial
hardship. Each of these elements shall be verified through
documentation.

If the servicer determines that a non-defaulted borrower facing a financial
hardship is in Imminent Default and will be unable to make his or her
mortgage payment in the immediate future, the servicer must apply the
NPV Test.

Required
Modifications and
Optional
Modifications:

A standard NPV Test will be required on each loan that is in Imminent
Default or is at least 60 days delinquent under the MBA delinquency
calculation. This NPV Test will compare the net present value (NPV) of
cash flows expected from a modification to the net present value of cash
flows expected in the absence of modification. If the NPV of the
modification scenario is greater, the NPV result is deemed positive.
The NPV Test applies to the Standard Waterfall only and does not require
consideration of principal forgiveness. However, the servicer may
choose to forgive principal if the servicer determines that principal
forgiveness improves the likelihood of loan performance and the value of
modification. Required parameters for the NPV Test will be published
separately.

If the NPV Test generates a positive result when applying the Standard
Waterfall, the servicer is required to offer a Home Affordable
Modification to the borrower. If the NPV Test generates a negative
result, modification is optional, unless prohibited under contract. The
monthly payment reduction incentive is available for any Home
Affordable Modification, whether or not NPV positive, that meets the
eligibility requirements and is performed according to the waterfall
described below.

If the NPV Test result is negative and a Home Affordable Modification is
not pursued, the lender/investor must seek other foreclosure prevention
alternatives, including alternative modification programs, deed-in-lieu
and short sale programs.

Loan Modification and Standard Waterfall

Overview:

Servicers will follow the Standard Waterfall described below to reduce
monthly payments to the 31% Front-End DTI Target defined above. The
initiative will reimburse lenders/investors for one half of the cost of
reducing monthly payments from a level consistent with a 38% Front-
End DTI Ratio (or less, if the unmodified DTI is less than 38%) down to
a level consistent with a 31% Front-End DTI Ratio. This Payment
Reduction Cost Share can last for up to five years.

Hope for
Homeowners:

Servicers will be required to consider a borrower for refinancing into the
Hope for Homeowners program when feasible. Servicer incentive
payments will be paid for Hope for Homeowner refinances.
If the underwriting process for a Hope for Homeowners refinance would
delay eligible borrowers from receiving a modification offer, servicers
will use the Standard Waterfall to begin the Home Affordability
Modification and work to complete the Hope for Homeowners refinance
during the Trial Modification Period.

Consideration for a Hope for Homeowners refinance should not delay
eligible borrowers from receiving a modification offer and beginning the
Trial Modification Period.

Standard Waterfall
Process:

Step 1a: Request Monthly Gross Income as specified above.
Step 1b: Validate total first lien debt and monthly payments (PITIA). For
purposes of making a provisional modification offer during the trial
modification period, the borrower's unverified income and debt payments
can be used. Provisional information and modification terms will be
verified in a timely manner.

Step 2: Capitalize arrearage. Servicers may capitalize accrued interest,
past due real estate taxes and insurance premiums, delinquency charges
paid to third parties in the ordinary course of servicing and not retained
by the servicer, any required escrow advances already paid by the
servicer and any required escrow advances by the servicer that are
currently due and will be paid by the servicer during the Trial Period.
Late fees are not capitalized.

Step 3: Target a Front-End DTI of 31%. The lender/investor shall follow
steps 4, 5, and 6 to reduce the borrower's payment to the level
corresponding to the Front-End DTI Target.

Step 4: Reduce the interest rate to reach the Front-End DTI Target
(subject to a floor of 2%). The note rate should be reduced in increments
of 0.125 %, and should bring the monthly payment as close as possible to
the Front-End DTI Target without going below 31%. If the resulting
modified interest rate is at or above the Interest Rate Cap, this modified
interest rate will be the new note rate for the remaining loan term. If the
resulting modified interest rate is below the Interest Rate Cap, this
modified interest rate will be in effect for the first five years, followed by
annual increases of 1% (100 basis points) per year or such lesser amount
as may be needed until the interest rate reaches the Interest Rate Cap, at
which time it will be fixed for the remaining loan term.

Step 5: If the Front-End DTI Target has not been reached, extend the
term of the loan up to 40 years. If term extension is not permitted extend
amortization. The 40-year term begins at the start of the modification
(after the borrower successfully completes the Trial Period). Note that
the servicer should only extend to a term that is necessary to reach the
Front-End DTI Target; there is no requirement to extend to a 40-year
term.

Step 6: If the Front-End DTI Target has not been reached, forbear
principal. If there is a principal forbearance amount, a balloon payment
of that forbearance amount is due on the maturity date, upon sale of the
property, or upon payoff of the interest bearing balance. If the
modification does not pass the NPV Test and the servicer chooses to
modify the loan, the modified balance must be no lower than the current
property value.

Principal
Reduction Option:

There is no requirement to use principal reduction under the Home
Affordable Modification program; however, servicers may forgive
principal to achieve the Front-End DTI Target.

Principal forgiveness can be used on a standalone basis or before any step
in the Standard Waterfall process. If principal forgiveness is used,
subsequent steps in the Standard Waterfall may not be skipped. If
principal is forgiven and the rate is not reduced, the rate will be frozen at
its existing level and treated as a modified rate for the purposes of the
Interest Rate Cap.

In the event of principal forgiveness, the Payment Reduction Cost Share
continues to be based on the change in the borrower's monthly payment
from 38% to 31% Front-End DTI ratio and is limited to five years.

Modification Terms

Interest Rate Floor:

The Interest Rate Floor for modified loans is 2%.

Interest Rate Cap:

The modified interest rate must remain in place for five years, after which
time the interest rate will be gradually increased 1% (100 basis points)
per year or such lesser amount as may be needed until it reaches the
Interest Rate Cap.

The Interest Rate Cap for the modified loan is the lesser of (i) the fully
indexed and fully amortizing original contractual rate or (ii) the Freddie
Mac Primary Mortgage Market Survey rate for 30-year fixed rate
conforming mortgage loans, rounded to the nearest 0.125%, as of the date
that the modification document is prepared.

If the modified rate exceeds the Freddie Mac Primary Mortgage Market
Survey rate in effect on the date the modification document is prepared,
the modified rate will be the new note rate for the remaining loan term.

Principal
Forbearance:

No interest will accrue on the forbearance amount.
If the option to forebear principal is selected, the servicer shall forbear on
collecting the deferred portion of the Capitalized Balance until the
earliest of (i) the maturity of the modified loan, (ii) a sale of the property,
or (iii) a pay-off or refinancing of the loan.

Redefaulting
Loans:

A loan will be considered to have redefaulted when the borrower reaches
a 90-day delinquency status under the MBA delinquency calculation.
Redefaulting Loans will be terminated from the program, and no further
payments of any kind will be made to the lender/investor, servicer, or
borrower. Redefaulting Loans should be considered for other loss
mitigation programs prior to being referred to foreclosure.

Approval Conditions

Trial Period
Required:

Successful completion of the trial modification period and entry into
program agreements between the servicer and Treasury's financial agent
are prerequisites for any payments to the lender/investor, servicer, or
borrower.

Modification is effective the first calendar month following the
successful completion of the Trial Period. Successful completion means
that the borrower is current (under the MBA delinquency calculation) at
the end of the Trial Period.

Borrowers in foreclosure restart states will be considered to have failed
the Trial Period if they are not current at the time the foreclosure sale is
scheduled.

No payments under the program to the lender/investor, servicer, or
borrower will be made during the Trial Period. No payments under the
program to the lender/investor, servicer, or borrower will be made if the
Trial Period is not completed successfully. No payments under the
program to the lender/investor, servicer, or borrower will be made unless
and until the servicer has entered into the program agreements with
Treasury's financial agent.

Length of Trial
Period:

The Trial Period will last 90 days (three payments at modified terms) or
longer if necessary to comply with investor contractual obligations. The
borrower must be current at the end of the Trial Period to obtain a Home
Affordable Modification.

Escrows:

Servicers are required to escrow for modified borrowers' real estate taxes
and mortgage-related insurance payments immediately if they have the
capability of processing these payments or are already using a third-party
vendor for this purpose. Servicers who do not have this capacity must
implement an escrow process within six months of the program
agreement.

Counseling
Requirements:

For borrowers with a Back-End DTI of 55% or higher, the servicer must
inform the borrower of the availability and advantages of counseling and
provide a list of local HUD-approved counselors. The servicer must
provide the borrower with a letter stating that counseling is a requirement
of the modification terms. This letter may be required by counselors in
order to begin counseling. The modification will not take effect until the
borrower represents in writing that he or she will obtain counseling.

Assumable:

If the modified loan was assumable prior to modification, a Home
Affordable Modification cancels this feature.

Fees/Charges

Modification Fees
and Charges to
Borrower:

There are no modification fees or charges borne by the borrower.

Modification Fees
and Charges
Reimbursable by
Investor:

Modification fees and charges to the servicer will be reimbursable by the
investor. These include notary fees, property valuation and other
required fees. Servicer reimbursement by the investor will take place
within the normal process between the servicer and the investor.

Unpaid Late Fees
Waived:

Unpaid late fees will be waived for the borrower. These include late fees
prior to the start of the Trial Period and accrued during the period.

Credit Report:

The servicer will cover the cost of the credit report.

Compensation

Servicer
Compensation:

Compensation is provided to the servicer that performs the loss
mitigation or modification activities. Upon modification following
successful completion of the Trial Period, and contingent on signing the
program servicer agreement, the servicer will receive an incentive fee of
$1,000 for each eligible modification meeting Home Affordable
Modification guidelines.

Servicers will also receive Pay for Success fees - payable 12 months
from the effective date of the Trial Period as long as the borrower
continues in the program - of up to $1,000 each year for three years.
Servicers will no longer receive Pay for Success incentive payments for
Redefaulting Loans or for loans that have paid off subject to certain de
minimis constraints (discussed below).

For loans modified while still current under the MBA delinquency
calculation, the servicer will receive a Current Borrower One-Time
Incentive of $500 following successful completion of the Trial Period.
Lenders that service their own loans are eligible for these incentives.
Throughout this document the term "servicer" means the party that is
responsible for performing the modification activities.

Similar incentives will be paid for Hope for Homeowner refinances.

Borrower Cash
Contribution:

The investor may not require the borrower to contribute cash.

Lender/Investor
Compensation:

Lenders/investors will be compensated only in the event that the Front-
End DTI Target or a lower Front-End DTI is achieved. Lenders/investors
will follow the Standard Waterfall specified above to reach a monthly
payment that satisfies the Front-End DTI Target. As described above,
Treasury will provide compensation based on one half of the dollar
difference between the monthly payment for a 31% Front-End DTI Ratio
and the lesser of (i) the monthly payment for a 38% Front-End DTI Ratio
or (ii) the borrower's current monthly payment. This compensation will
be provided for up to five years or until the loan is paid off.

Upon a modification becoming effective following successful completion
of the Trial Period by a borrower who was current prior to the start of the
Trial Period, lenders/investors will be paid a $1,500 Current Borrower
One-Time Incentive, subject to certain de minimis constraints (discussed
below).

No monthly lender/investor payments will be made during the Trial
Period. Monthly lender/investor payments will begin after the Trial
Period is successfully completed, the servicer signs a service agreement
with Treasury, and formal modification begins. No monthly
lender/investor payments will be made if the Trial Period is not
completed successfully.

Borrower
Compensation:

Borrowers will be eligible to accrue up to $1,000 each year in Pay-for-
Performance Success Payments for up to five years, a total of up to
$5,000 over five years, subject to certain de minimis constraints
(discussed below). Accruals are based on on-time payment performance.
The first annual principal balance reduction will be effective 12 months
after entering the Trial Period as long as the borrower is not terminated
from the program. In any given month, the borrower's mortgage
payment must be made on time, accounting for standard servicer grace
periods, in order to accrue the monthly Pay for Performance Success
Payment. The borrower will receive information on a monthly basis
regarding the accrual of these payments.

The payment will be directed to the servicer, who will reduce the
principal balance by the payment amount (but not by more than $1,000
per year) for five years if the borrower continues in the program.
Payments are to be applied directly and entirely to reduce the principal
balance, and any applicable prepayment penalties on partial principal
prepayment made by the government must be waived. The equivalent of
three months of Pay-for-Performance Success Payments will be made
upon successful completion of the Trial Period, contingent upon the
servicer signing a service agreement with the Treasury.

Borrowers who are terminated from the program lose their right to
outstanding accruals.

De Minimis
Constraint:

To qualify for servicer Pay for Success payments and borrower Pay for
Performance Success Payments, the modification must reduce the
monthly payment by a minimum of 6 %. The monthly payment is the
PITIA payment, as used in defining DTI, with the loan fully indexed and
fully amortized.

When paid, servicer annual Pay for Success payments and borrower Pay
for Performance Success Payments will be the lesser of (i) $1,000 or (ii)
half the reduction in the borrower's annualized monthly payment.
The de minimis constraint does not apply to the up-front Servicer
Incentive Payment, the Payment Reduction Cost Share, or the Home
Price Depreciation Reserve Payment.

Consumer Protection

Disclosure

When promoting or describing loan modifications, servicers should
provide borrowers with information designed to help them understand the
modification terms that are being offered and the modification process.
Servicers also must provide borrowers with clear and understandable
written information about the material terms, costs, and risks of the
modified mortgage loan in a timely manner to enable borrowers to make
informed decisions.

Fair Lending

Servicers' modifications under this program must comply with the Equal
Credit Opportunity Act and the Fair Housing Act, which prohibit
discrimination on a prohibited basis in connection with mortgage
transactions. Loan modification programs are subject to the fair lending
laws, and servicers and lenders should ensure that they do not treat a
borrower less favorably than other borrowers on grounds such as race,
religion, national origin, sex, marital or familial status, age, handicap, or
receipt of public assistance income in connection with any loan
modification. These laws also prohibit redlining.

Consumer
Inquiries and
Complaints

Servicers should have procedures and systems in place to be able to
respond to inquiries and complaints relating to loan modifications.
Servicers should ensure that such inquiries and complaints are provided
fair consideration, and timely and appropriate responses and resolution.

Monitoring

Documentation:

Servicers will be required to maintain records of key data points for
verification/compliance reviews. These documents may include, but are
not limited to, borrower eligibility and qualification, underwriting
criteria, and incentive payments. These documents also include a
hardship affidavit, which every borrower is required to execute.
Borrowers will be required to provide declarations under penalty of
perjury attesting to the truth of the information that they have provided to
the servicer to allow the servicer to determine the borrower's eligibility
for entry into the Home Affordable Modification Program.
Detailed guidance on data requirements will be released separately.

Anti-Fraud
Measures:

Measures to prevent and detect fraud, such as documentation and audit
requirements, will be described in the servicer guidelines and the
program guidelines in the financial agency agreements with Fannie Mae
and Freddie Mac. Additional fraud protection measures will be
announced by Treasury.

Participating servicers and lenders/investors are not required to modify
the loan if there is reasonable evidence indicating the borrower submitted
false or misleading information or otherwise engaged in fraud in
connection with the modification. Servicers should employ reasonable
policies and/or procedures to identify fraud in the modification process.

Data Collection:

Servicers will be required to collect and transmit borrower and property
data in order to ensure compliance with the program as well as to
measure its effectiveness. Data elements may include data needed to
perform underwriting analysis, loan modification and waterfall analysis,
and modification terms. In addition, borrower profiles and property level
information may be included. Detailed guidance on data requirements
will be released separately.

Accounting and
Legal:

The provisions of the Program should not be construed to override, void
or in any way modify the responsibility of the management of lenders
and servicers for preparing financial statements and regulatory reports in
accordance with all applicable generally accepted accounting principles,
including standards such as Statement of Financial Accounting Standards
(SFAS) No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings, SFAS No. 114, Accounting by Creditors for Impairment
of a Loan, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and
AICPA Statement of Position 03-3, Accounting for Certain Loans or
Debt Securities Acquired in a Transfer, and their related amendments and
interpretations.

Other Program Features

Home Price
Depreciation
Payments:

To encourage lenders/investors to modify more mortgages, compensation
will be provided to partially offset probable losses from home price
declines. This will be structured as a simple cash payment on each
modified loan while the loan remains active in the program.

Payments for Short
Sales and Deeds-in-
Lieu:

Compensation will be provided to servicers and borrowers in order to
facilitate short sales or deeds-in-lieu in those cases in which borrowers
either fail the net present value (NPV) test (described below) or fail to
qualify for, or default under, the modification program.

Second Lien
Elimination
Payments:

To reduce the borrower's overall indebtedness and improve loan
performance, additional incentives will be provided to extinguish junior
liens on homes with first-lien loans that are modified under the program.

Government Loan
Programs:

FHA, VA and rural housing loans will be addressed through standalone
modification programs run by those agencies. FHA's Hope for
Homeowners refinancing program will also be included in a parallel
incentive program.


Net Present Value Model Parameters

NPV Test:

An NPV Test will be required on each loan that is in Imminent Default or
is at least 60 days delinquent under the MBA delinquency calculation.
This NPV test will compare the net present value (NPV) of cash flows
expected from a modification to the net present value of cash flows
expected in the absence of modification. If the NPV of the modification
scenario is greater, the NPV result is deemed positive, and the servicer
must modify the loan (absent fraud, etc.) However, an "NPV positive"
result is not necessary to qualify a loan for a Home Affordable
Modification and the associated lender/investor, servicer, and borrower
payments.

Standard NPV
Model:

To provide a consistent and industry-wide approach to the required NPV
Tests, Treasury will set forth a Standard NPV Model with parameters
specified below. Complete details on each component outlined below are
forthcoming.

Discount Rate:

The program allows the servicer to choose the Discount Rate to use in the
NPV Model, subject to a program-determined ceiling that will be
sensitive to the market-determined cost of funds. The ceiling on the
allowable Discount Rate for the NPV Test is the Freddie Mac Primary
Mortgage Market Survey rate (PMMS), plus a spread of 2.5 percentage
points. The PMMS is the conventional mortgage rate published in the
Federal Reserve's H.15 bulletin.

The servicer may choose a different Discount Rate for loans in portfolio
versus loans in investor pools, but may not otherwise apply different rates
to different loans in the servicing book. For example, it may choose to
use a Discount Rate equal to the PMMS + 2.0 percent for its investor
pools and a Discount Rate equal to the PMMS for its loans in portfolio.

Cure Rate and
Redefault Rate:

The Cure Rates and Redefault Rates will be obtained from a default
equation with parameters based on GSE analytics and program portfolio
data except where servicers use custom parameters (see below).
Treasury, in consultation with an inter-agency team of government
officials, will update these tables periodically based on incoming data.

Property Value:

Property value will be determined in accordance with the Guidelines.

Incentive
Payments:

Incentive payments, including the Payment Reduction Cost Share, annual
borrower performance bonus payments toward principal, and Current
Borrower One-Time Bonus Incentive, will be determined in accordance
with the Guidelines.

Other Parameters:

The remaining parameters will come from data sets held or produced by
the Federal Housing Finance Agency: home price forecast, valuation of
the house price depreciation reserve, foreclosure timelines, and
foreclosure costs and REO stigma

NPV Test
Customization:

Servicers having at least a $40 billion servicing book will have an option
to substitute a set of Cure Rates and Redefault Rates estimated based on
the experience of their own aggregate portfolios. A servicer using this
option should take into account, as feasible, current LTV, current DTI,
current credit score, delinquency status, and other relevant variables the
servicer identifies.

The Cure and Redefault Rates must be empirically validated where
possible. Servicer judgment regarding the effect of DTI is expected,
given the limited data available and the likelihood that the new program
will materially affect Cure and Redefault Rates. However, all
assumptions must be tested as program data become available and revised
as appropriate.

A servicer who chooses to use customized Cure and Redefault Rates
must apply the same assumptions for Cure and Redefault Rate to the
entire servicing portfolio, without distinguishing between loans in
portfolio and investor pools.

Models and assumptions will be subject to review by federal bank
supervisory agencies where applicable, and in all cases by Freddie Mac
as program compliance agent.

A servicer not meeting the size threshold may apply for permission to
apply Cure Rates and Redefault Rates estimated based on the servicer's
portfolio experience.

Mortgage
Insurance:

For loans that have mortgage insurance (MI) coverage, the NPV Test will
incorporate the value of the contingent claim payment in the event of
default when evaluating projected foreclosure or modification scenarios.
If the modification does not pass the NPV Test, then it will be referred to
the appropriate MI company. The major MI companies have agreed to
develop a mechanism by which they will pay partial claims where they
deem appropriate to avoid foreclosure.

Hugh Wood

Wood & Meredith, LLP

Atlanta, GA

404-633-4100

hwood@woodandmeredith.com

END

The New Mechanic's Lien Law :: And Its New Put Up or Shut Up "Notice of Contest" Rule

Mechanic's liens are important and subcontractors and materialmen must get paid for legitimate work they do on real property. However, there are other "gray area" mechanic's liens. Those are the ones your client calls you about and says, "We just found a lien on our property for the installation of pool cleaning equipment, but we don't own a pool" [1] The "gray" liens will not survive under the new law.

For years, perhaps a century or more, property owners, homeowners and commercial owners, have been held hostage by undefined, vague, unknown and "willy nilly" mechanics liens. The new "Notice of Contest," Form and built-in lien expiration dates will prevent this harm. Property owners will now be able to "join the issue" within sixty (60) days or the lien will expire.

I. Omnibus Changes Associated with the New Law

From reading the new law [2], my guess is we will see changes in three (3) areas: 1) the volume of lien suits will rise, due to the "notice of contest" provisions, 2) the cost to bond around mechanic's liens will rise significantly, and 3) plenty of lien filers will die on the vine under the new two (2) day Notice Provision.

Lien laws are a derogation of common law and must be strictly construed. That means, if you fail to follow the letter of the statute you get - no lien. Many claimants and practitioners had difficulty with the old law; the new law has some new and interesting pitfalls of its own.

Mechanics and Materialmen have a special lien on the real property until they are paid. [3] Generally, the lien runs in favor of: contractors, subcontractors, materialmen furnishing material to subcontractors, laborers to subcontractors, architects, foresters, land surveyors, professional engineers, [ * * * ] and suppliers of rental tools. Id.

The old mechanic's lien law provided that the lien must be filed within 3 months of the last work or last supply of materials to the jobsite and that suit was to be filed, if at all, within 12 months from the last work. [4] The new lien law, thankfully, tracks this date from the date of the filing of the lien at the courthouse, not the vague date the subcontractor last worked (supplier last delivered to) on the property.

II. Technical Changes Associated with the New Law

The new Mechanic's Lien law generally allows the creation of the lien in the same format as the old law.

The main changes are: If the owner (homeowner, commercial property owner) bonds around or bonds off the lien, the new statute requires that the lienholder be notified. Notice was not required under the old statue. The dates are more completely defined. Three months to file has been changed to "90" days to file. Under the new law, the lienholder has only two (2) days to forward the notice of lien by certified mail or overnight courier to the owner. The old law stated, notice had to be given, but no date was specified.

Under the old law, a lienholder had one year to file suit from the last work or delivery of material. Under the new law, the lienholder has 365 days from the filing the lien in the courthouse. The filing of the Notice of the Lawsuit has been extended to 30 days from 14 days. There are also substantial changes to the Interim Waiver of and Release Upon Payment. [5] The new law also mandates that notice be sent to the owner of the property and to the contractor, if a notice of commencement has been filed by the contractor. The new law clarifies a defect in the old law. The mechanic's lien must now state when it expires or state the last date by which suit must be filed.

Property Owners get a new tool, the "Notice of Contest." Now an owner, homeowner, or commercial property owner, may immediately challenge the filing of the lien by forwarding a "Notice of Contest," to the individual or entity that filed the lien. The Notice of Contest is no mere impotent filing. It "joins the issue," so to speak. The Lienholder's time to sue drops by 10 months. The lienholder must sue within 60 days or the lien expires.

III. Areas of Impact

While these are this author's impressions only, my guess is we will see the volume of lien suits rise. The reason for the increase in lien suits will be associated with the Notice of Contest. If the mechanic's lienholder must sue or lose it, many more suits will be commenced to preserve the lien.

It will be interesting to see if one of the old tried and true litigation letters, the "tolling agreement," migrates to this new area of lien law. If the property owner and lien holder are still negotiating on the 59th day, it may be more cost effective to enter into a tolling agreement, than proceed with suit. The other option is to file, and then extend the time to answer.

I expect we will see bonding prices rise. Presently the bond companies (which are not legion), have factored into their rates the low number of suits that are filed a year after the work. Now with the new 60 day acceleration rule and the mandatory notification to the property owner, the bonding company is going to be immediately in the subcontractor’s gunsites. Would a client be more likely to sue a bonding company than the homeowner? Absolutely. If subcontractor proves its lien by suit, the bonding company is sitting on the pot of gold. With the property owner, the lienholder still faces the nightmare of colleting out of the property owner or foreclosing on the property. And the lien is generally subordinate to a junior to a first security deed bank.

Bonding companies will become the new hunted bounty under this new law - and, correspondingly, they should raise the bonding premium to reflect the new risk.

New motion practice will arise over whether the notice was mailed within two (2) days. While it seems black and white, I assure you this provision will not be clear after about the 3rd Georgia Court of Appeals opinion is handed down on this issue.

If the subcontractor files late, "too bad, he should have hired a lawyer." If the lawyer files late, it's a different story. Lawyers best get use to this new killer provision or be prepared to call their E&O carrier. Two days (2) is one of the shortest statutes known to man. [And, I thought the time a tenant had to answer a dispossessory was short. This make the "shorter than 11 days," in federal court look like an eternity. F.R.C.P. 6(a)(1)] Think about it. If you (a lawyer) file on a Thursday afternoon and get distracted over a long weekend, the lien is probably dead by the time you get it in the mail. Go explain to your client that you flushed his $92,000 mechanic's lien down the toilet because the lien filing is still in your briefcase. [6]

VI. Conclusion

Overall, the changes in the Mechanic's Lien Law should be a welcome change of defined dates and defined notices. The old law was vague and undefined and probably caused many subcontractors to miss the one year filing deadline. The new notice provisions, and "notice of contest," will cause more suits to be filed. Lawsuits against bonding companies will increase, bonding premiums will increase and the two (2) day Notice Provision will generate a number of "Lien or No-Lien" lawsuits.

Hugh Wood
Atlanta, Georgia

Wood & Meredith, LLP
3756 Lavista Road
Suite 250
Tucker, GA 30084


Endnotes:

[1]

Donovan Donaly: "Excellent. Well, let's get right down to it, then, shall we? We'll take a couple of vacuum hoses. We probably need a new filter round about now. Maybe... Wait a minute, darling. Do we actually have a swimming pool?" Intolerable Cruelty (2003)

[2]

OCGA § 44-14-361.1. [Effective 3/31/2009] How Liens Declared And Created; Record; Commencement Of Action; Notice; Priorities; Parties; Limitation On Aggregate Amount Of Liens.
(a) To make good the liens specified in paragraphs (1) through (8) of subsection (a) of Code Section 44-14-361, they must be created and declared in accordance with the following provisions, and on failure of any of them the lien shall not be effective or enforceable:
(1) A substantial compliance by the party claiming the lien with his or her contract for building, repairing, or improving; for architectural services furnished; for registered forester services furnished or performed; for registered land surveying or registered professional engineering services furnished or performed; or for materials or machinery furnished or set up;
(2) The filing for record of his or her claim of lien within 90 days after the completion of the work, the furnishing of the architectural services, or the furnishing or performing of such surveying or engineering services or within 90 days after the material or machinery is furnished in the office of the clerk of the superior court of the county where the property is located. The lien shall include a statement regarding its expiration pursuant to Code Section 44-14-367 and a notice to the owner of the property on which a claim of lien is filed that such owner has the right to contest the lien; the absence of such statement or notice shall invalidate the lien. The claim shall be in substance as follows:
'A.B., a mechanic, contractor, subcontractor, materialman, machinist, manufacturer, registered architect, registered forester, registered land surveyor, registered professional engineer, or other person (as the case may be) claims a lien in the amount of (specify the amount claimed) on the house, factory, mill, machinery, or railroad (as the case may be) and the premises or real estate on which it is erected or built, of C.D. (describing the houses, premises, real estate, or railroad), for satisfaction of a claim which became due on (specify the date the claim was due, which is the same as the last date the labor, services, or materials were supplied to the premises) for building, repairing, improving, or furnishing material (or whatever the claim may be).'
No later than two business days after the date the claim of lien is filed of record, the lien claimant shall send a true and accurate copy of the claim of lien by registered or certified mail or statutory overnight delivery to the owner of the property or, if the owner's address cannot be found, the contractor, as the agent of the owner; provided, however, if the property owner is an entity on file with the Secretary of State's Corporations Division, sending a copy of the claim of lien to the entity's address or the registered agent's address shall satisfy this requirement. In all cases in which a notice of commencement is filed with the clerk of the superior court pursuant to subsection (b) of Code Section 44-14-361.5, a lien claimant shall also send a copy of the claim of lien by registered or certified mail or statutory overnight delivery to the contractor at the address shown on the notice of commencement;
(3) The commencement of a lien action for the recovery of the amount of the party's claim within 365 days from the date of filing for record of his or her claim of lien. In addition, within 30 days after commencing such lien action, the party claiming the lien shall file a notice with the clerk of the superior court of the county wherein the subject lien was filed. The notice shall contain a caption referring to the then owner of the property against which the lien was filed and referring to a deed or other recorded instrument in the chain of title of the affected property. The notice shall be executed, under oath, by the party claiming the lien or by such party's attorney of record, but failure to execute the notice under oath shall be an amendable defect which may be cured by the party claiming the lien or by such party's attorney without leave of court at any time before entry of the pretrial order and thereafter by leave of court. An amendment of notice pursuant to this Code section shall relate back to the date of filing of the notice. The notice shall identify the court or arbitration venue wherein the lien action is brought; the style and number, if any, of the lien action, including the names of all parties thereto; the date of the filing of the lien action; and the book and page number of the records of the county wherein the subject lien is recorded in the same manner in which liens specified in Code Section 44-14-361 are filed. The clerk of the superior court shall enter on the subject lien so referred to the book and page on which the notice is recorded and shall index such notice in the name of the then purported owner as shown by the caption contained in such notice. A separate lis pendens notice need not be filed with the commencement of this action; and
(4) In the event any contractor or subcontractor procuring material, architect's services, registered forester's services, registered land surveyor's services, or registered professional engineer's services, labor, or supplies for the building, repairing, or improving of any real estate, building, or other structure shall abscond or die or leave the state during the required time period for filing a lien action, so that personal jurisdiction cannot be obtained on the contractor or subcontractor in a lien action for the services, material, labor, or supplies, or if the contractor or subcontractor shall be adjudicated a bankrupt, or if, after the filing of a lien action, no final judgment can be obtained against him or her for the value of such material, services, labor, or supplies because of his or her death, adjudication in bankruptcy, or the contract between the party claiming the lien and the contractor or subcontractor includes a provision preventing payment to the claimant until after the contractor or the subcontractor has received payment, then and in any of these events, the person or persons furnishing material, services, labor, and supplies shall be relieved of the necessity of filing a lien action or obtaining judgment against the contractor or subcontractor as a prerequisite to enforcing a lien against the property improved by the contractor or subcontractor. Subject to Code Section 44-14-361, the person or persons furnishing material, services, labor, and supplies may enforce the lien directly against the property so improved in a lien action against the owner thereof, if filed within the required time period for filing a lien action, with the judgment rendered in any such proceeding to be limited to a judgment in rem against the property improved and to impose no personal liability upon the owner of the property; provided, however, that in such lien action for recovery, the owner of the real estate improved, who has paid the agreed price or any part of same, may set up the payment in any lien action brought and prove by competent and relevant evidence that the payments were applied as provided by law, and no judgment shall be rendered against the property improved. Within 30 days after filing such lien action, the party claiming the lien shall file a notice with the clerk of the superior court of the county wherein the subject lien was filed. The notice shall contain a caption referring to the then owner of the property against which the lien was filed and referring to a deed or other recorded instrument in the chain of title of the affected property. The notice shall be executed, under oath, by the party claiming the lien or by his or her attorney of record. The notice shall identify the court or arbitration venue wherein the lien action is brought; the style and number of the lien action, if any, including the names of all parties thereto; the date of the filing of the lien action; and the book and page number of the records of the county wherein the subject lien is recorded in the same manner in which liens specified in Code Section 44-14-361 are filed. The clerk of the superior court shall enter on the subject lien so referred to the book and page on which the notice is recorded and shall index such notice in the name of the then purported owner as shown by the caption contained in such notice. A separate lis pendens notice need not be filed with the commencement of this action.
(b) As between themselves, the liens provided for in Code Section 44-14-361 shall rank according to the date filed; but all of the liens mentioned in this Code section for repairs, building, or furnishing materials or services, upon the same property, shall, as to each other, be of the same date when declared and filed for record within 90 days after the work is done or before that time.
(c) The liens specified in Code Section 44-14-361 shall be inferior to liens for taxes, to the general and special liens of laborers, to the general lien of landlords of rent when a distress warrant is issued out and levied, to claims for purchase money due persons who have only given bonds for titles, and to other general liens when actual notice of the general lien of landlords and others has been communicated before the work was done or materials or services furnished; but the liens provided for in Code Section 44-14-361 shall be superior to all other liens not excepted by this subsection.
(d) In any proceeding brought by any materialman, by any mechanic, by any laborer, by any subcontractor, or by any mechanic of any sort employed by any subcontractor or by any materialmen furnishing material to any subcontractor, or by any laborer furnishing labor to any subcontractor, to enforce such a lien, the contractor having a direct contractual relationship with the subcontractor shall not be a necessary party; but he or she may be made a party. In any proceedings brought by any mechanic employed by any subcontractor, by any materialmen furnishing material to any subcontractor, or by any laborer furnishing labor to any subcontractor, the subcontractor shall not be a necessary party; but he or she may be made a party. The contractor or subcontractor or both may intervene in the proceedings at any time before judgment for the purpose of resisting the establishment of the lien or of asserting against the lienor any claim of the contractor or subcontractor growing out of or related to the transaction upon which the asserted lien is based.
(e) In no event shall the aggregate amount of liens set up by Code Section 44-14-361 exceed the contract price of the improvements made or services performed.
(f) The filing fees for a claim of materialman's or mechanic's lien and any related document created pursuant to this Code section, including but not limited to a notice of commencement of action, shall be the amount set by Code Section 15-6-77 for liens on real estate and personal property.
History. Amended by 2008 Ga. Laws 766, § 2, eff. 3/31/2009.

[3]

Part 3. MECHANICS AND MATERIALMEN
Current through 2008 Legislative Session
OCGA § 44-14-361. Creation Of Liens; Property To Which Lien Attaches.
(a) The following persons shall each have a special lien on the real estate, factories, railroads, or other property for which they furnish labor, services, or materials:
(1) All mechanics of every sort who have taken no personal security for work done and material furnished in building, repairing, or improving any real estate of their employers;
(2) All contractors, all subcontractors and all materialmen furnishing material to subcontractors, and all laborers furnishing labor to subcontractors, materialmen, and persons furnishing material for the improvement of real estate;
(3) All registered architects furnishing plans, drawings, designs, or other architectural services on or with respect to any real estate;
(4) All registered foresters performing or furnishing services on or with respect to any real estate;
(5) All registered land surveyors and registered professional engineers performing or furnishing services on or with respect to any real estate;
(6) All contractors, all subcontractors and materialmen furnishing material to subcontractors, and all laborers furnishing labor for subcontractors for building factories, furnishing material for factories, or furnishing machinery for factories;
(7) All machinists and manufacturers of machinery, including corporations engaged in such business, who may furnish or put up any mill or other machinery in any county or who may repair the same;
(8) All contractors to build railroads; and
(9) All suppliers furnishing rental tools, appliances, machinery, or equipment for the improvement of real estate.
(b) Each special lien specified in subsection (a) of this Code section may attach to the real estate of the owner for which the labor, services, or materials are furnished if they are furnished at the instance of the owner, contractor, or some other person acting for the owner contractor and shall include the value of work done and materials furnished in any easement or public right of way adjoining said real estate if the work done or materials furnished in the easement or public right of way is for the benefit of said real estate and is within the scope of the owner's contract for improvements to said real estate.

[4]

Here is the OLD statute:

OCGA § 44-14-361.1. [Effective Until 3/31/2009]How Liens Declared And Created; Record; Commencement Of Action; Notice; Priorities; Parties; Limitation On Aggregate Amount Of Liens.
[Note: THIS STATUTE HAS BEEN SUPERCEEDED AS OF MARCH 31, 2009.]
(a) To make good the liens specified in paragraphs (1) through (8) of subsection (a) of Code Section 44-14-361, they must be created and declared in accordance with the following provisions, and on failure of any of them the lien shall not be effective or enforceable:
(1) A substantial compliance by the party claiming the lien with his contract for building, repairing, or improving; for architectural services furnished; for registered forester services furnished or performed; for registered land surveying or registered professional engineering services furnished or performed; or for materials or machinery furnished or set up;
(2) The filing for record of his claim of lien within three months after the completion of the work, the furnishing of the architectural services, or the furnishing or performing of such surveying or engineering services or within three months after the material or machinery is furnished in the office of the clerk of the superior court of the county where the property is located, which claim shall be in substance as follows:
"A.B., a mechanic, contractor, subcontractor, materialman, machinist, manufacturer, registered architect, registered forester, registered land surveyor, registered professional engineer, or other person (as the case may be) claims a lien in the amount of (specify the amount claimed) on the house, factory, mill, machinery, or railroad (as the case may be) and the premises or real estate on which it is erected or built, of C.D. (describing the houses, premises, real estate, or railroad), for satisfaction of a claim which became due on (specify the date the claim was due) for building, repairing, improving, or furnishing material (or whatever the claim may be)."
At the time of filing for record of his claim of lien, the lien claimant shall send a copy of the claim of lien by registered or certified mail or statutory overnight delivery to the owner of the property or the contractor, as the agent of the owner;
(3) The commencement of an action for the recovery of the amount of the party's claim within 12 months from the time the same shall become due. In addition, within 14 days after filing such action, the party claiming the lien shall file a notice with the clerk of the superior court of the county wherein the subject lien was filed. The notice shall contain a caption referring to the then owner of the property against which the lien was filed and referring to a deed or other recorded instrument in the chain of title of the affected property. The notice shall be executed, under oath, by the party claiming the lien or by such party's attorney of record, but failure to execute the notice under oath shall be an amendable defect which may be cured by the party claiming the lien or by such party's attorney without leave of court at any time before entry of the pretrial order and thereafter by leave of court. An amendment of notice pursuant to this Code section shall relate back to the date of filing of the notice. The notice shall identify the court wherein the action is brought; the style and number of the action, including the names of all parties thereto; the date of the filing of the action; and the book and page number of the records of the county wherein the subject lien is recorded in the same manner in which liens specified in Code Section 44-14-361 are filed. The clerk of the superior court shall enter on the subject lien so referred to the book and page on which the notice is recorded and shall index such notice in the name of the then purported owner as shown by the caption contained in such notice. A separate lis pendens notice need not be filed with the commencement of this action; and
(4) In the event any contractor or subcontractor procuring material, architect's services, registered forester's services, registered land surveyor's services, or registered professional engineer's services, labor, or supplies for the building, repairing, or improving of any real estate, building, or other structure shall abscond or die or leave the state within 12 months from the date such services, labor, supplies, or material are furnished to him or her, so that personal jurisdiction cannot be obtained on the contractor or subcontractor in an action for the services, material, labor, or supplies, or if the contractor or subcontractor shall be adjudicated a bankrupt, or if, after the filing of an action, no final judgment can be obtained against him or her for the value of such material, services, labor, or supplies because of his or her death, adjudication in bankruptcy, or the contract between the party claiming the lien and the contractor or subcontractor includes a provision preventing payment to the claimant until after the contractor or the subcontractor has received payment, then and in any of these events, the person or persons furnishing material, services, labor, and supplies shall be relieved of the necessity of filing an action or obtaining judgment against the contractor or subcontractor as a prerequisite to enforcing a lien against the property improved by the contractor or subcontractor. Subject to Code Section 44-14-361, the person or persons furnishing material, services, labor, and supplies may enforce the lien directly against the property so improved in an action against the owner thereof, if filed within 12 months from the time the lien becomes due, with the judgment rendered in any such proceeding to be limited to a judgment in rem against the property improved and to impose no personal liability upon the owner of the property; provided, however, that in such action for recovery, the owner of the real estate improved, who has paid the agreed price or any part of same, may set up the payment in any action brought and prove by competent and relevant evidence that the payments were applied as provided by law, and no judgment shall be rendered against the property improved. Within 14 days after filing such action, the party claiming the lien shall file a notice with the clerk of the superior court of the county wherein the subject lien was filed. The notice shall contain a caption referring to the then owner of the property against which the lien was filed and referring to a deed or other recorded instrument in the chain of title of the affected property. The notice shall be executed, under oath, by the party claiming the lien or by his or her attorney of record. The notice shall identify the court wherein the action is brought; the style and number of the action, including the names of all parties thereto; the date of the filing of the action; and the book and page number of the records of the county wherein the subject lien is recorded in the same manner in which liens specified in Code Section 44-14-361 are filed. The clerk of the superior court shall enter on the subject lien so referred to the book and page on which the notice is recorded and shall index such notice in the name of the then purported owner as shown by the caption contained in such notice. A separate lis pendens notice need not be filed with the commencement of this action.
(b) As between themselves, the liens provided for in Code Section 44-14-361 shall rank according to the date filed; but all of the liens mentioned in this Code section for repairs, building, or furnishing materials or services, upon the same property, shall, as to each other, be of the same date when declared and filed for record within three months after the work is done or before that time.
(c) The liens specified in Code Section 44-14-361 shall be inferior to liens for taxes, to the general and special liens of laborers, to the general lien of landlords of rent when a distress warrant is issued out and levied, to claims for purchase money due persons who have only given bonds for titles, and to other general liens when actual notice of the general lien of landlords and others has been communicated before the work was done or materials or services furnished; but the liens provided for in Code Section 44-14-361 shall be superior to all other liens not excepted by this subsection.
(d) In any proceeding brought by any materialman, by any mechanic, by any laborer, by any subcontractor, or by any mechanic of any sort employed by any subcontractor or by any materialmen furnishing material to any subcontractor, or by any laborer furnishing labor to any subcontractor, to enforce such a lien, the contractor having a direct contractual relationship with the subcontractor shall not be a necessary party; but he may be made a party. In any proceedings brought by any mechanic employed by any subcontractor, by any materialmen furnishing material to any subcontractor, or by any laborer furnishing labor to any subcontractor, the subcontractor shall not be a necessary party; but he may be made a party. The contractor or subcontractor or both may intervene in the proceedings at any time before judgment for the purpose of resisting the establishment of the lien or of asserting against the lienor any claim of the contractor or subcontractor growing out of or related to the transaction upon which the asserted lien is based.
(e) In no event shall the aggregate amount of liens set up by Code Section 44-14-361 exceed the contract price of the improvements made or services performed.
This statute has been superceeded as of March 31, 2009.

[5]

This issue is not discussed in this Blog, but is discussed Owen C. Murphy's very fine well written article recently published in the Real Estate Section's Newsletter Spring 2009. See, Section IV, Infra.

& & &

IV. Lien Waivers
12. The form for the "Interim Waiver and Release Upon Payment" has been
overhauled with new language which, as specified in the amendment, must be
"in boldface capital letters in at least 12 point font." The most
substantial change to the form of the interim lien waiver is to provide a
notice that the party executing the interim waiver shall be conclusively
deemed to be paid in full in the amount stated in the waiver, even if
payment has not actually been received, upon the expiration of sixty (60)
days after the date stated in the interim lien waiver. (§ 44-14-366(c)).
13. The language of the final lien waiver form now entitled "Waiver and
Release Upon Final Payment," is also amended by providing the same
formatting requirements as the interim waiver and again providing for the
expanded sixty (60) day period after which the party will be conclusively
deemed to have been paid unless an affidavit of nonpayment or claim of lien
has been filed during that time period. (§ 44-14-366(d)).
14. O.C.G.A. § 44-16-366(f)(2)(c) has been amended to specifically provide
for this new rule, now referenced in both lien waiver forms, that monetary
amounts stated in lien waivers are conclusively deemed to have been paid
upon the expiration of sixty (60) days, thus expanding the thirty (30) day
period provided under the old statute, unless an affidavit of nonpayment or
claim of lien is filed within that time period.
15. The amendments overhaul the form of the affidavit of nonpayment which
can be filed pursuant to O.C.G.A. § 44-16366. The new form provides that a
copy of the affidavit of nonpayment must be sent to the owner of the
property by registered or certified mail or overnight delivery within seven
(7) days of being filed. It also provides that if the project has a notice
of commencement on file and the party filing the affi-
Continued on page 4
II. Lien Text.
5. The substance of the text of the claim of lien must now include a
statement of the expiration date of the lien (three hundred ninety-five
(395) days from the date of filing of the lien if no lien action and notice
of commencement of lien action are filed). The formatting requirements (at
least 12 point bold font) and exact language for this notice are provided
in § 44-14-367. The exact text required in the body of the lien is as
follows
This claim of lien expires and is void 395 days from the date of filing of
the claim of lien if no notice of commencement of lien action is filed in
that time period.
The failure to include this language invalidates the lien and prevents it
from even being tiled. (§ 44-14361.1(a)(2); § 44-14-367). The new
§44-14-367 goes on to provide that "[n]o release or voiding of [expired]
liens shall be required," thus creating the more efficient "self-expiring"
lien.
6. Although no recommended or suggested text is given, the amendments
provide that the text of the claim of lien shall also contain a notice to
the owner of the property that the owner has a right to contest the lien,
presumably referring to the new § 44-14-368, which creates the notice of
contest of lien which property owners can now file. (Discussed at No. 16,
infra). Again, the failure to include this language will invalidate the
lien. (§ 44-14361.1(a)(2); § 44-14-368).
III. Notice Requirements.
7. The lien statute previously required that a copy of the claim of lien be
sent to the owner of the property via registered/certified mail or
statutory overnight delivery "at the time of filing for record his claim
lien." This phrase was ambiguous and required interpretation as to exactly
what time frame would qualify as "at the time of filing" or how literally
such a phrase could be taken. The amendment changes the language to provide
that this notice must be sent to the owner no later than "two business
days" after the date the claim of lien is filed. (§ 44-14-361.1(a)(2)).
8. Regarding this same requirement of sending a copy of the claim of lien
to the owner, the statute has been amended to state that a hen claimant may
provide the contractor with the statutory notice, in lieu of the owner,
only when the owner's address "cannot be found." (§ 44-14-361.1(a)(2)).
This restricts the previous rule which allowed the lien claimant the option
of providing a copy of the lien to the contractor, as agent for the owner,
under any circumstances. The amendment also provides that if the property
owner is a legal entity (such as a corporation) then a copy of the claim of
lien can be sent to the entity's address as listed on the Secretary of
State or the registered agent's address. (§ 4414-361.1(a)(2)).
9. The statute has been amended to require that on all projects where a
notice of commencement has been filed with the Superior Court pursuant to §
44-14-361.5, the lien claimant must, in addition to sending a copy of the
claim of lien to the owner, send a copy of the claim of lien via registered,
Continued from page 3
davit of nonpayment is not in privity of contract with the property owner,
a copy of the affidavit must also be sent to the contractor at the address
shown on the notice of commencement. The same new alternative address
options for entities on file with the Secretary of State apply here as well.
V. Notice to Contest Lien
16. The new code section 44-14-368 is created and provides that an owner or
contractor may challenge a lien and shorten the 365-day time period within
which the lien claimant must commence a lien action by filing a "Notice of
Contest of Lien" in the Superior Court in the form and format provided in
the new code section. The Clerk of Superior Court is required to cross
reference this notice with the lien itself. The filing of the Notice of
Contest of Lien requires the lien claimant to commence his lien action
within sixty (60) days of the receipt of the Notice and to file his notice
of commencement of lien action within thirty (30) days of the filing of
that action. It further provides that the lien will be extinguished and
invalidated as a matter of law upon expiration of ninety (90) days after
the filing of the Notice of Contest of Lien if the lien action and notice
of commencement of lien action have not been filed within that time period.
Again, it-is not-necessary to record a release of lien or obtain a decree
from a judge as to the invalidity of the lien when the deadlines are not
met -- it expires automatically.
The owner or contractor filing the Notice of Contest of Lien must send a
copy of the Notice to the lien claimant (via registered, certified or
overnight mail) within seven (7) days of filing the Notice, service being
deemed complete upon mailing.

CONSTRUCTION LIEN LAW:
LEGISLATIVE UPDATE
SIXTEEN NOTABLE CHANGES TO
GEORGIA'S LIEN STATUTES
By: Owen C. Murphy

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[6]

You could miss it under the old law, but it was substantially more vague.

END

How to Raffle Your House for a Profit. Maybe.

I. Introduction

With home prices continuing to slide and profitable home sales hard to come by, a new sales vehicle has sprung up in real estate – the house raffle. [1] While a raffle can sell a home quickly and for the full retail price, it is fraught with pitfalls. A wholly private house raffle is illegal and considered “gambling” in Georgia. Charitable § 501(c) corporations can conduct raffles and sell houses, but any “profit” over and above the sale price goes to the charity not the homeowner. The lucky raffle “winner” gets a very valuable house for a tiny fraction of its price. However, the “winner” also gets a nasty tax bill from Uncle Sam that must be paid in cash, even though the winner does not receive any cash. Tennessee is conducting big raffles, but most sister state raffle rules are similar to Georgia’s.

II. Sensational Newspaper Headlines

No doubt interest in home raffles is stoked by sensational newspaper headlines such as: "Danville [California] couple wins $2 million House in Raffle," Mercury News, February 23, 2009," $100.00 Raffle Ticket Gets Man a $390,000.00 House. [Maryland]," CBS News, March 24, 2008, and “Amy Grant appear[s] on stage . . . for the raffle of Saint Jude dream home - a 3,871 square foot house valued at $650,000.00…[Tennessee],” County Singers Promote Dream Home Raffle," LookToTheStars, February 28, 2008.

III. For Profit Raffles Are Prohibited

So, is it legal for a homeowner to raffle a house in Georgia and keep the profits? The simple answer in Georgia is, "No." OCGA Code § 16-12-20. [2] The law in most states is found in their Code under the heading of Lottery, Bingo or Raffle. [3] In Georgia, it is considered to be illegal gaming to conduct a "for-profit" raffle. [4]

The Georgia case law is fairly well established on this issue. A "for profit" raffle [5] violates the private lottery statute, since it contains all prohibited elements: 1) a prize (the house), 2) chance (one person will win the house), and 3) consideration (the price of the raffle ticket). [6] A raffle falls within the prohibited definition of a lottery pursuant to OCGA § 16-12-20, whether it is called a "raffle" or referred to by some other creative name. [7] For example, a chinese auction, a calcutta pool, a penny social, a tombola (if played for money), a tricky tray or pick-a-prize are all prohibited, if they are played for a profit. [8]

Some states have statutory prohibitions against raffles of real estate. [9] New Hampshire banned real estate raffles. Its supreme court held that its "raffle" statute did not include the raffling of a "real estate" even by a non-profit. [10]

IV. Non-Profit Raffles Are Allowed

The prohibition against raffles in Georgia is not the same for § 501(c) non-profit organizations. OCGA § 16-12-22.1(a). [11] "[I]t is the intention of the [Georgia] General Assembly that only non-profit, tax exempt, ... § 501(c) organizations ... shall be allowed to operate raffles." [12] In Georgia, only a non-profit that has been in existence for two (2) years may apply to the County Sheriff where the raffle is to be held for a "license" to operate a raffle. The fee is about $100.00. [13] As you might expect, there is no extant uniformity for Sheriff’s raffle licenses across Georgia’s 159 counties.


V. How House Raffles Are Presently Conducted

A few charities in Georgia are conducing house raffles in Atlanta, Gainesville and Alpharetta. But the basic “how to” procedure remains, in Georgia, largely unknown. [14] Only one state, Maryland, seems to provide a skeletal statutory framework for the entire house raffle process. [15]

Given that there is no uniformly recognized method to conduct a house raffle, the following outline is “what is occurring,” right now in the United States: 1) the homeowner sells or agrees to sell the house at market value (some states require an appraisal) to a non-profit corporation; 2) the non-profit corporation runs the raffle and if the raffle generates enough cash closes on the transaction (buys the house) with the homeowner; 3) if the raffle generates excess cash (above the sales price) the non-profit keeps the excess as a charitable contribution.

A newspaper that interviewed the § 501(c) that conducted a very successful house raffle in California, The San Mar Children's Home, published the following suggestions. [16] The homeowner must partner with a § 501(c) organization that actually “wants to” conduct the raffle. The homeowner and the § 501(c) must heavily market the raffle; lack of marketing will cause the raffle to fail. If the ticket prices are low, $50.00, $100.00, the § 501(c) must have a user-friendly webpage and secure credit card purchasing site. The § 501(c) must maintain meticulous records and have an accounting firm or CPA review the raffle financial records. § 501(c)’s must avoid desperate homeowners; they will not allow enough time to correctly conduct the raffle. Lack of a significant raffle timeframe (time to sell the necessary number of tickets) dooms the raffle to failure.

Texas and Maryland allow real estate raffles by statute. [17] Other states must allow it, since home raffles are proceeding in California, Indiana, Illinois, Nevada, New Jersey, Ohio and Tennessee. This is not a complete list.

In a non-profit raffle, the winning raffle ticket holder wins the house. The losing raffle ticket holders are not considered, by law, to have made a charitable contribution to the § 501(c). [18] The upside of a successful raffle is good for both the homeowner and the charity; the house sells and the charity gets a big contribution. If the ticket sales are bad and the target sales amount is not reached, the house does not sell and the cash from the ticket sales must be refunded. Raffle refund provisions are cumbersome and in some states failure to refund may be a misdemeanor. [19] Massachusetts and Wisconsin require refunds by statue. [20]

VI. Income Tax Problems Associated with Raffles

Tax issues sink many house raffles. The Secretary of State of Maryland reported at end of 2008 that of ten house raffles that had obtained permits only one had been successful. [21] One of the major reasons for the failure of the Maryland raffles was the shocking income tax load to the winner. [22]

Consider the tax implications of winning the house in a raffle. Assume the raffle concerns a $200,000 house. Assume that an individual with a $75,000.00 gross income pays approximately 25% of his or her gross income in taxes or $18,750.00 in taxes per year. Winning a $200,000.00 house for a $100.00 investment in a raffle ticket generates the following distortion in gross income (IRC Code § 61). The $75,000.00 a year winner will see his or her income spike to $275,000.00 in gross income (though $200,000.00 of it is in the non-cash receipt of the raffled house). He or she will see the income tax load increase to $68,750.00, even if we artificially keep the tax rate at 25%. The tax load on our “winner” will move from $18,750.00 to $68,750.00. The win generates an additional $50,000.00 of income tax due for which the recipient receives no cash from the raffle.

The “winner” gets the joy of filing out IRS Form 5754, “Receipt of Gambling Winnings.” The § 501(c) sends the winner a W2-G and “withholds” 25% of the winnings. The § 501(c) must pay the IRS 25% in cash as withholding without regard to whether the § 501(c) collects the cash from the “winner.” If the § 501(c) fails to withhold, it becomes liable for the tax. IRS Pub. 3079. [23] That’s the rub. How do you withhold 25% in cash of a non-cash asset? Some raffles have set up a mortgage lender to loan the withholding to the winner, but (so far) there is no nationwide consensus on this problem. Given that the winner may reject the house based on the tax consequences, some raffles state that a 2nd and 3rd, and so on, winner will be drawn until someone “accepts” the grand prize. [24] Beyond the tax problems, the § 501(c) needs to state that it sells the house “as is,” “with all faults,” and obtains a complete release at the time it sells the raffle ticket.

VII. Raffles Are Not Allowed on Ebay® and Paypal®

Can you use Ebay® to run a profit or non-profit raffle or to handle the cumbersome refund provisions of the raffle? No. Ebay's® Contract of Terms prohibit games of chance. [25] The same terms are in force at California based PayPal®. PayPal® prohibits "Raffles and Auctions of 'Chance.' " [26] Thus, the § 501(c) or homeowner will need to buy into a system that sells tickets and handles the refund responsibilities.

VIII. Advertising Problems

Georgia does not seem to have any advertising restrictions associated with home raffles. Forget Broker, Realtor®, MLS or FMLS interest in advertising or promoting raffles; under most procedures in use, there is no recognized method for them to earn a commission. Texas and Arkansas prohibit TV and Internet sales of raffles. [27] The State of Washington limits the entire process to 12 days. [28]

IX. Raffles in Georgia's Sister States

If you can't raffle in Georgia, what about crossing the state line and selling in some tickets in states near Georgia? As least as far as Georgia's contiguous sister states are concerned, the "for profit" raffle is prohibited there also.

Alabama has an absolute prohibition on raffles for profit. [29] So, forget crossing the bridge and selling tickets in Phenix City, Alabama. Tennessee prohibits "for profit" raffles and has a very bizarre (and costly) registration scheme for non-profit raffles. [30] Notwithstanding, Tennessee seems to have an active non-profit raffle industry. Tennessee is one of the few states that actually mentions the raffle of "real property" in its statutes. [31] South Carolina prohibits "for profit" raffles. [32] This very question, "may a house be raffled," was recently posed by a member of the South Carolina Legislature to the Attorney General of South Carolina for a formal opinion. While not controlling on Georgia law, the South Carolina Attorney General's response was a blistering "No." At this writing, there is a bill pending in the South Carolina General Assembly to change this answer. [33] North Carolina allows non-profit raffles, but prohibits private profit raffles. [34] Florida prohibits for profit raffles, [35] but allows non-profit raffles. [36]

X. Conclusion

Raffles are a sign of the times. As long as housing prices continue to decline, there will be continued interest in such novel sale procedures as the "raffle" of a personal residence. Despite the tax implications of the raffle, a motivated seller and creative charity can use this novel procedure to sell a home in Georgia.

Hugh Wood
Atlanta, GA


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Endnotes

[1]

The history of Raffles: Ever since, Elizabeth Taylor rode National Velvet to the Grand National, people have been fascinated with raffles. National Velvet (Film) (1935). Bagnold, Enid (Algerine) National Velvet (About a girl who wins the Grand National on a horse won in a raffle).

Raffles were born out of a game in southern Italy. The original name for the numbers out of which the winners were drawn is called the "tambola," a term still used extensively in England. Lottery History, North American Association of State and Provincial Lotteries.

The first sanctioned lottery in England was: Proclamation of the Lottery, Her Royal Highness, Queen Elizabeth (I), Summer of 1567, London. Youngs, Fredrick A., The Proclamations of the Tudor Queens, Archive Publishers (1976) at 277. See Also, Lotteries, Encyclopedia Britannica.

[2]

OCGA § 16-12-20. Definitions.
As used in this part, the term:
(1) "Bet" means an agreement that, dependent upon chance even though accompanied by some skill, one stands to win or lose something of value. A bet does not include:
(A) Contracts of indemnity or guaranty or life, health, property, or accident insurance; or
(B) An offer of a prize, award, or compensation to the actual contestants in any bona fide contest for the determination of skill, speed, strength, or endurance or to the owners of animals, vehicles, watercraft, or aircraft entered in such contest.
(2) "Gambling device" means:
(A) Any contrivance which for a consideration affords the player an opportunity to obtain money or other thing of value, the award of which is determined by chance even though accompanied by some skill, whether or not the prize is automatically paid by contrivance;
(B) Any slot machine or any simulation or variation thereof;
(C) Any matchup or lineup game machine or device, operated for any consideration, in which two or more numerals, symbols, letters, or icons align in a winning combination on one or more lines vertically, horizontally, diagonally, or otherwise, without assistance by the player. Use of skill stops shall not be considered assistance by the player; or
(D) Any video game machine or device, operated for any consideration, for the play of poker, blackjack, any other card game, or keno or any simulation or variation of any of the foregoing, including, but not limited to, any game in which numerals, numbers, or any pictures, representations, or symbols are used as an equivalent or substitute for cards in the conduct of such game. Any item described in subparagraph (B), (C), or (D) of this paragraph shall be a prohibited gambling device subject to and prohibited by this part, notwithstanding any inference to the contrary in any other law of this state.
(3) "Gambling place" means any real estate, building, room, tent, vehicle, boat, or other property whatsoever, one of the principal uses of which is the making or settling of bets; the receiving, holding, recording, or forwarding of bets or offers to bet; or the conducting of a lottery or the playing of gambling devices.
(4) "Lottery" means any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prize, whether such scheme or procedure is called a pool, lottery, raffle, gift, gift enterprise, sale, policy game, or by some other name. A lottery shall also include the organization of chain letter or pyramid clubs as provided in Code Section 16-12-38. A lottery shall not mean a:
(A) Promotional giveaway or contest which conforms with the qualifications of a lawful promotion specified in paragraph (16) of subsection (b) of Code Section 10-1-393;
(B) Scheme whereby a business gives away prizes to persons selected by lot if such prizes are made on the following conditions:
(i) Such prizes are conducted as advertising and promotional undertakings in good faith solely for the purpose of advertising the goods, wares, and merchandise of such business; and
(ii) No person to be eligible to receive such prize shall be required to:
(I) Pay any tangible consideration to the operator of such business in the form of money or other property or thing of value;
(II) Purchase any goods, wares, merchandise, or anything of value from such business; or
(III) Be present or be asked to participate in a seminar, sales presentation, or any other presentation, by whatever name denominated, in order to win such prizes; or Raffle authorized under Code Section 16-12-22.1.

[3]

A review of the terms of remaining 49 states reveals the colorful language surrounding this unique human activity.

Alabama

Bingo, raffle boards, punchboards, 'tip' boards, or raffle or chance cards or tickets in Alabama. Private Lotteries seem to be illegal. An unlawful gambling scheme in which the players pay or agree to pay something of value for chances, represented and differentiated by numbers or by combinations of numbers or by some other medium, one or more of which chances are to be designated by the winning ones; and the winning chances are to be determined by a drawing or by some other fortuitous method; and the holders of the winning chances are to receive something of value. It's a rough state for raffles, "Chuck E. Cheese," was pinched for running an illegal lottery.

Alaska

Raffle, animal classic, raffle of rat, hamster, gerbil or other rodent, ... , an activity involving the chance of chicken manure on a lettered grid, ... , bingo, Calcutta pool, ..., canned salmon classic, ..., sandhill crane classic, deep freeze classic, dog mushers classic, fishing derby, goose classic, ice classic, mercury (temperature) classic, pull-tab classis, Seward race classic, rain classic, snow machine classic, ... raffle to harvest Dall sheep, bison, musk ox, brown or grizzly bear, moose, caribou and wolf.

Arizona

Games of bingo, raffles, amusement gambling and social gambling.

Arkansas

Raffle, dice to be thrown for money, gambling with cards, dominoes, numbered or lettered grid, bingo and pull tab bingo.

California

Raffle means a scheme for the distribution of prizes by chance among persons who have paid money for paper tickets that provide the opportunity to win prizes.

Colorado

Refers to it as "bingo-raffle."

Connecticut

Bazaar, cow-chip raffle, cow-chip bingo, tea-cup raffle, duck-race raffle, frog race raffle. [This is not in the Connecticut Code, but it describes a Cow Chip Raffle.] A Cow Chip Raffle: On a grid of 750 squares, or thereabouts, paint a grid on the ground. Each square will be assigned a number and will be 2 feet by 2 feet. Three well-fed cows will be let loose on the grid to, well, let their chips fall where they may. Prizes will be based upon the order in which the chips fall and upon the number of the square where the cow leaves its chip.

Delaware

No discussion of "raffle," but pari-mutuel wagering on jai-alai exhibitions are deemed not a lottery.

District of Columbia

Bingo game, raffle, or Monte Carlo night party

Florida

Raffle, Bingo and drawing by chance.

Hawaii

Raffle, lottery and mutual scheme.

Idaho

Raffle, Duck-Race and Idaho has a formal "Bingo-Raffle Advisory Board."

Illinois

Raffle: A "lottery" is any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prizes, whether such scheme or procedure is called a lottery, raffle, gift, sale or some other name.

Indiana

Bingo event, charity game, raffle, door prize, festival, pull tab, punchboard and tip board.

Iowa

"Raffle" means a lottery in which each participant buys a ticket for a chance at a prize with the winner determined by a random method and the winner is not required to be present to win. "Raffle" does not include a slot machine. Bingo, Game of skill, game of chance or raffle; pyramid raffles prohibited.

Kansas

Prizes by chance, lottery, punch boards, dog race betting and radio giveaway.

Kentucky

Bingo, raffle and charity fund raising event.

Louisiana

Raffle, games of chance, bingo, super bingo or keno.

Maine

Raffle, door-prize, bingo, Beano, High-Stakes Beano and organization may not raffle live fowl, turtles or rabbits.

Maryland

Raffle means a lottery using paper chances, a paddle wheel, a wheel of fortune, a chance book, bingo or a raffle.

Massachusetts

A raffle or bazaar.

Michigan

Raffle, bingo game, millionaire party, numeral game or charity game.

Minnesota

Lottery, bingo, pull-tab, tipboard, paddlewheel and raffle games.

Mississippi

Raffle and bingo.

Missouri

Lottery.

Montana

Raffle, live bingo, keno and promotional game of chance.

Nebraska

Raffle shall mean a gambling scheme in which (a) participants pay or agree to pay something of value for an opportunity to win, (b) winning opportunities are represented by tickets differentiated by sequential enumeration, (c) winners are determined by a random drawing of the tickets . . . and (d) at least eighty percent of all of the prizes to be awarded are merchandise prizes which are not directly or indirectly redeemable for cash by the licensed organization conducting the raffle or any agent of the organization.

Nevada

Lottery, raffle or gift enterprise.

New Hampshire

Raffle, prize, premium, beano and lucky 7.

New Jersey

Raffle, penny auction, lottery, game of chance, big six wheel and big eight wheel.

New Mexico

Bingo, raffle and games of chance.

New York

Raffle, games of chance currency, merchandise wheels, coin boards, merchandise boards, seal cards, raffles, bell jars and flare.

North Carolina

Raffle, contest, sweepstakes, bingo, chicken plate fund-raising or lottery. It seems that the following may be allowed at agricultural events: "Casino event" shall not include a fair, bazaar, field days, agricultural exposition or similar event which utilizes a wheel of fortune, chuck-a-luck or other such games commonly conducted at such events, or break-open tickets, bingo, a lottery or a raffle.

North Dakota

Bingo, raffle, pull tabs, prize boards and sports pools. For ND Residents only, raffle of moose, big horn sheep, elk and antelope license.

Ohio

Defines raffle as a form of Bingo (that's odd). Illegal to give away any rabbit or baby poultry which has been dyed or otherwise colored. Also, called punch board.

Oklahoma

A lottery is any scheme for the disposal or distribution of property by chance among persons who have paid, or promised, or agreed to pay any valuable consideration for the chance of obtaining such property, or a portion of it, or for any share of or interest in such property, upon any agreement, understanding or expectation that it is to be distributed or disposed of by a lot or chance, whether called a lottery, a raffle, or a gift enterprise, or by whatever name the same may be known.

Oregon

"Casino game" means any of the traditional gambling-based games commonly known as dice, faro, monte, roulette, fan-tan, twenty-one, blackjack, Texas hold-'em, seven-and-a-half, big injun, klondike, craps, poker, chuck-a-luck, Chinese chuck-a-luck (dai shu), wheel of fortune, chemin de fer, baccarat, pai gow, beat the banker, panquinqui, red dog, acey-deucey, or any other gambling-based game similar in form or content. Also, Bingo, lotto or raffle games, Monte Carlo events.

Cannot raffle off alcohol in Oregon (what a shame).

Pennsylvania

Illegal lotteries, gambling and bookmaking are prohibited as delineated in 18 Pa.C.S.A. §§ 5512 (lotteries), 5513 (gaming devices, gambling) and 5514 (pool selling, bookmaking).

Rhode Island

Lottery commonly known as a "twenty-week club" or a raffle conducted by a charitable organization, beano and bingo.

South Carolina

The word 'lottery' it has been held, has no technical, legal meaning but must be construed in the popular sense. It has been variously defined by lexicographers, legal authors, judges, and, in some instances, by statute; and Webster's definition, 'a scheme for the distribution of prizes by lot or chance,' has been quoted with approval by numerous authorities, and also Worcester's definition as 'a distribution of prizes and blanks by chance, a game of hazard in which small sums are ventured for the chance of obtaining a larger value either in money or in other articles.' Other definitions often adopted by the Courts are: 'Where a pecuniary consideration is paid, and it is determined by lot or chance, according to some scheme held out to the public, what and how much he who pays the money is to have for it, that is a lottery'; and 'A scheme by which a result is reached by some action or means taken, and in which result man's choice or will has no part, nor can human reason, foresight, sagacity, or design enable him to know or determine such result until the same has been accomplished.' An example of a statutory definition of a lottery is, 'A scheme for the distribution of property by chance, among persons who have paid or agreed to pay a valuable consideration for the chance, whether called a lottery, raffle, or gift enterprise or by some other name.

South Dakota

A lottery is any scheme for the disposal or distribution of property by chance, directly or indirectly, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property, or a portion of it, or for any share of, or interest in such property, upon any agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance, whether called a lottery, a raffle, a gift enterprise, or by whatever name the same may be known.

Tennessee

Bingo game, raffle or similar game of chance.

Texas

"Raffle" means the award of one or more prizes by chance at a single occasion among a single pool or group of persons who have paid or promised a thing of value for a ticket that represents a chance to win a prize; "Reverse raffle" means a raffle in which the last ticket or tickets drawn are considered the winning tickets.

A prize offered or awarded at a raffle may not be money; the value of a prize offered or awarded at a raffle that is purchased by the organization or for which the organization provides any consideration may not exceed $50,000; the value of a residential dwelling offered or awarded as a prize at a raffle that is purchased by the organization or for which the organization provides any consideration may not exceed $250,000.

A lottery is "any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win anything of value, whether such scheme or procedure is called a pool, lottery, raffle, gift, gift enterprise, sale, policy game, or some other name."

Texas has a Bingo Enabling Act provides and, under separate statutes, bingo, raffle, Schools are allowed to conduct raffles.

Utah

Lottery: means any scheme for the disposal or distribution of property by chance among persons who have paid or promised to pay any valuable consideration for the chance of obtaining property, or portion of it, or for any share or any interest in property, upon any agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance, whether called a lottery, raffle, or gift enterprise, or by whatever name it may be known.

Vermont

Lottery, raffle and bingo Game of Chance.

Virginia

Instant bingo cards, pull-tab raffle cards, lottery and duck-race.

Washington

Raffle, bingo game, fishing derbies (not a raffle), social card games, bingo, raffle, and punchboard games, and pull-tabs, raffle to hunt big game.

West Virginia

Raffle, raffle board, bingo and lottery.

Wisconsin

Raffle, Bingo, Elk and Bear Hunting License Raffle.

Wyoming

Calcutta Wagering, raffle, bingo, pulltab, cutter horse racing, dog sled racing, professional rodeo event, professional golf tournament and raffle elk, deer or antelope designated licenses.

[4]

Sparkman v. The State, 209 Ga.App. 763, 434 S.E.2d 564 (1993); Tierce v. State, 122 Ga.App. 845, 178 S.E.2d 913 (1970). A Gwinnett County man, Joseph Imafidon, found himself arrested and charged with running an illegal “for profit,” raffle in March of 2009. His website is www.getmyhouse.net.

[5]

A "Raffle" [in Georgia] means any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prize. Such term shall also include door prizes which are awarded to persons attending meetings or activities provided that the cost of admission to such meetings or activities does not exceed the usual cost of similar activities where such prizes are not awarded.

[6]

Boyd v. Piggly Wiggly Southern, 115 Ga.App. 628, 633, 155 S.E.2d 630 (1967); Defendants convicted of running a "numbers game." They were convicted under "lottery statute," which statute also prohibits raffles. [ * * * ] "Lottery" is defined by OCGA § 16-12-20(4) as "any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prize, whether such scheme or procedure is called a pool, lottery, raffle, gift, gift enterprise, sale, policy game, or by some other name." Appellants contend that the "essence of a lottery as defined by Georgia law is the distribution of one or more prizes among persons who have paid or promised a consideration for a chance to win such a prize. It contemplates a pool of prizes or money to be distributed among the players." Sparkman v. The State, 209 Ga.App. 763, 434 S.E.2d 564 (1993)

[7]

Tierce v. State, 122 Ga.App. 845 , 178 S.E.2d 913 (1970) (Manager of Piggly-Wiggly guilty of running a forprofit lottery, even though he mailed "Jackpot" cards to customers for no consideration.)


[8]

The names for raffles and private lotteries run the gamet. Alaska statutes refer to it as a "Calcutta Pool" Alaska Stat. § 05.15.180. See also, pull-tab games, race classics, rain classics, goose classics, mercury classics, deep freeze classics, dog mushers' contests, snow machine classics, canned salmon classics, salmon classics, animal classics, crane classics, Calcutta pools, and king salmon classics.

[9]

N.D. Cent. Code § 53-06.1-10.1. (North Dakota) Raffles. A prize for a raffle may be cash or merchandise but may not be real estate.

[10]

Boys' Club of Nashua, Inc. vs. The Attorney General of New Hampshire, 122 N.H. 325, 444 A.2d 541 (1982).

[11]

OCGA § 16-12-22.1(a).

[12]

OCGA § 16-12-22.1. Raffles Operated By Nonprofit, Tax-exempt Organizations.
(a) It is the intention of the General Assembly that only nonprofit, tax-exempt churches, schools, civic organizations, or related support groups; nonprofit organizations qualified under Section 501(c) of the Internal Revenue Code, as amended; or bona fide nonprofit organizations approved by the sheriff, which are properly licensed pursuant to this Code section shall be allowed to operate raffles.
(b) As used in this Code section, the term:
(1) "Nonprofit, tax-exempt organization" means churches, schools, civic organizations, or related support groups; nonprofit organizations qualified under Section 501(c) of the Internal Revenue Code, as amended; or bona fide nonprofit organizations approved by the sheriff.
(2) "Operate," "operated," or "operating" means the direction, supervision, management, operation, control, or guidance of activity.
(3) "Raffle" means any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prize. Such term shall also include door prizes which are awarded to persons attending meetings or activities provided that the cost of admission to such meetings or activities does not exceed the usual cost of similar activities where such prizes are not awarded.
(4) "Sheriff" means the sheriff of the county in which the nonprofit tax-exempt organization is located.
(c) Any other law to the contrary notwithstanding, no nonprofit, tax-exempt organization shall be permitted to operate a raffle until the sheriff issues a license to the organization authorizing it to do so. The license described in this subsection is in addition to and not in lieu of any other licenses which may be required by this state or any political subdivision thereof, and no raffle shall be operated until such time as all requisite licenses have been obtained. In the event a nonprofit, tax-exempt organization desires to conduct a raffle in more than one county, such organization shall not be required to obtain a license under this Code section in each county in which such raffle is to be conducted and shall only be required to obtain such license from the sheriff of the county in which the state headquarters of such organization are located.
(d)(1) Any nonprofit, tax-exempt organization desiring to obtain a license to operate raffles shall make application to the sheriff on forms prescribed by the sheriff. The sheriff may require the payment of an annual fee not to exceed $100.00. No license shall be issued to any nonprofit, tax-exempt organization unless the organization has been in existence for 24 months immediately prior to the issuance of the license. The license will expire at 12:00 Midnight on December 31 following the granting of the license.
Renewal applications for each calendar year shall be filed with the sheriff prior to January 1 of each year and shall be on a form prescribed by the sheriff.
(2) Each application for a license and each application for renewal of a license shall contain the following information:
(A) The name and home address of the applicant and, if the applicant is a corporation, association, or other similar legal entity, the names and home addresses of each of the officers of the organization as well as the names and addresses of the directors, or other persons similarly situated, of the organization;
(B) The names and home addresses of each of the persons who will be operating, advertising, or promoting the raffle;
(C) The names and home addresses of any persons, organizations, or other legal entities that will act as surety for the applicant or to which the applicant is financially indebted or to which any financial obligation is owed by the applicant;
(D) A determination letter from the Internal Revenue Service certifying that the applicant is an organization exempt under federal tax law;
(E) A determination letter from the Georgia Department of Revenue certifying that the applicant is exempt under the tax laws of this state;
(F) The location at which the applicant will conduct the raffles and, if the premises on which the raffles are to be conducted is to be leased, a copy of the lease or rental agreement; and
(G) A statement showing the convictions, if any, for criminal offenses other than minor traffic offenses of each of the persons listed in subparagraphs (A), (B), and (C) of this paragraph.
(3) The sheriff shall refuse to grant a raffle license to any applicant who fails to provide fully the information required by this Code section.
(4) When a nonprofit, tax-exempt organization which operates or intends to operate raffles for residents and patients of a retirement home, nursing home, or hospital operated by that organization at which gross receipts are or will be limited to $100.00 or less during each raffle and pays or will pay prizes having a value of $100.00 or less during each raffle, then, notwithstanding any other provision of this Code section or any rule or regulation promulgated by the sheriff pursuant to the provisions of subsection (l) of this Code section, neither the applicant nor any of the persons whose names and addresses are required under subparagraphs (A) and (B) of paragraph (1) of this subsection shall be required to submit or provide fingerprints or photographs as a condition of being granted a license.
(e)(1) The sheriff shall have the specific authority to suspend or revoke any license for any violation of this Code section. Any licensee accused of violating any provision of this Code section shall be entitled, unless waived, to a hearing on the matter of the alleged violation conducted in accordance with Chapter 13 of Title 50, the "Georgia Administrative Procedure Act."
(2) By making application for a license under this Code section, every applicant consents that the sheriff, as well as any of his agents, together with any prosecuting attorney, as well as any of his agents, may come upon the premises of any licensee or upon any premises on which any licensee is conducting a raffle for the purpose of examining the accounts and records of the licensee to determine if a violation of this Code section has occurred.
(f) The sheriff shall, upon the request of any prosecuting attorney or such prosecuting attorney's designee, certify the status of any organization as to that organization's exemption from payment of state income taxes as a nonprofit organization. The sheriff shall also upon request issue a certificate indicating whether any particular organization holds a currently valid license to operate a raffle. Such certificates properly executed shall be admissible in evidence in any prosecution, and Code Section 48-7-60, relative to the disclosure of income tax information, shall not apply to the furnishing of such certificate.
(g) Notwithstanding the other provisions of this Code section, the sheriff, upon receiving written evidence of the bona fide nonprofit, tax-exempt status of the applicant organization, shall be authorized to issue a special limited license to a nonprofit, tax-exempt organization which will allow it to operate up to three raffles during a calendar year. In such cases, the sheriff shall waive the application and license fee provided for in subsection (d) of this Code section and the annual report provided for in subsection (j) of this Code section.
(h) Raffles shall be operated only on premises owned by the nonprofit, tax-exempt organization operating the raffle, on property leased by the nonprofit, tax-exempt organization and used regularly by that organization for purposes other than the operation of a raffle, or on property leased by the nonprofit, tax-exempt organization operating the raffle from another nonprofit, tax-exempt organization.
(i) No person under the age of 18 years shall be permitted to play any raffle conducted pursuant to any license issued under this Code section unless accompanied by an adult.
(j) On or before April 15 of each year, every nonprofit, tax-exempt organization engaged in operating raffles shall file with the sheriff a report disclosing all receipts and expenditures relating to the operation of raffles in the previous year. The report shall be in addition to all other reports required by law. The report shall be prepared and signed by a certified public accountant competent to prepare such a report and shall be deemed a public record subject to public inspection.
(k)(1) A licensee that conducts or operates a raffle shall maintain the following records for at least three years from the date on which the raffle is conducted:
(A) An itemized list of the gross receipts for each raffle;
(B) An itemized list of all expenses other than prizes that are incurred in the conducting of the raffle as well as the name of each person to whom the expenses are paid and a receipt for all of the expenses;
(C) A list of all prizes awarded during the raffle and the name and address of all persons who are winners of prizes of $50.00 or more in value;
(D) An itemized list of the recipients other than the licensee of the proceeds of the raffle, including the name and address of each recipient to whom such funds are distributed; and
(E) A record of the number of persons who participate in any raffle conducted by the licensee.
(2) A licensee shall:
(A) Own all the equipment used to conduct a raffle or lease such equipment from an organization that is also licensed to conduct a raffle;
(B) Display its raffle license conspicuously at the location where the raffle is conducted;
(C) Conduct raffles only as specified in the licensee's application; and
(D) Not conduct more than one raffle during any one calendar day.
(3) No nonprofit, tax-exempt organization shall enter into any contract with any individual, firm, association, or corporation to have such individual, firm, association, or corporation operate raffles or concessions on behalf of the nonprofit, tax-exempt organization.
(4) A nonprofit, tax-exempt organization shall not lend its name nor allow its identity to be used by any individual, firm, association, or corporation in the operating or advertising of a raffle in which said nonprofit, tax-exempt organization is not directly and solely operating the raffle.
(5) No person shall pay consulting fees to any person for any services performed in relation to the operation or conduct of a raffle.
(6) A person who is a member of more than one nonprofit, tax-exempt organization shall be permitted to participate in the raffle operations of only two organizations of which such person is a member; provided, however, that such person shall not receive more than $30.00 per day for assisting in the conduct of raffles regardless of whether such person assists both organizations in the same day.
(l) The sheriff is authorized to promulgate rules and regulations which the sheriff deems necessary for the proper administration and enforcement of this Code section which are not in conflict with any provision of this Code section.
(m) Any person who operates a raffle without a valid license issued by the sheriff as provided in this Code section commits the offense of commercial gambling as defined in Code Section 16-12-22 and, upon conviction thereof, shall be punished accordingly. Any person who knowingly aids, abets, or otherwise assists in the operation of a raffle for which a license has not been obtained as provided in this Code section similarly commits the offense of commercial gambling.
Any person who violates any other provision of this Code section shall be guilty of a misdemeanor of a high and aggravated nature.
Any person who commits any such violation after having previously been convicted of any violations of this Code section shall be guilty of a felony and, upon conviction thereof, shall be punished by imprisonment for not less than one nor more than five years or by a fine not to exceed $10,000.00, or both.

& & &

It may be that too much gaming activity on behalf of a 501(c) may jeopardize its status. IRS Pub. 3079 takes a dim view of the “gaming” activities of 501 (c) stating that there is “nothing charitable,” about running a gaming operation.

[13]

OCGA § 16-12-22.1(d).

[14]

FCS Urban Ministries. Win This Georgia Home. www.winthisgahome.com; $435,000 house in Alpharetta for a $5.00 ticket. www.liveinalpharetta.com ; Gainesville Couple raffles $432,000 house for SeedSowers Ministry. www.meetonthegreen.com/raffleingmyhouse. See nationally, www.unitedhouseraffles.com; Searchers should be careful with search routines, the Internet is replete with similar auctions in Germany, Austria, Italy, the UK, Australia, etc.

[15]

Md. Code Ann. § 13-1810. (a) A qualified organization may conduct a raffle in the county to benefit charity or to further the purpose of the qualified organization; (b) A raffle shall be conducted by a qualified organization and not by a person who: (1) retains a portion of the proceeds from the raffle; or (2) is compensated by the qualified organization for which the raffle is held. (c) A person may not receive a private profit from the proceeds of a raffle. (d) A qualified organization that conducts a raffle shall: (1) keep accurate records of all transactions that occur on behalf of the raffle; (2) keep the records for 2 years after the raffle; and (3) on request, make the records available for examination by: [A list of State Officers ] (e) A person operating a raffle shall be a resident of the county and a member of the qualified organization. (f) Prizes of money or merchandise may be awarded in a raffle conducted under this subtitle. (g) For a raffle of real property, the requirements of this section are in addition to the requirements of § 12-106(a) of this article. (h) (1) Except as provided in paragraph (2) of this subsection, a qualified organization may not conduct more than 12 raffles each year. (2) There is no limit to the number of 50/50 raffles that a qualified organization may conduct if the prize for each 50/50 raffle does not exceed $300.

[16]

Hedding, D., How to Raffle Your House, True Gotham, November 11, 2008.

[17]

Texas Code Ann. § 2002.056. (b-1). "The value of a residential dwelling offered or awarded as a prize at a raffle that is purchased by the organization or for which the organization provides any consideration may not exceed $250,000."

Md. Code Ann.. § 13-1810.(g) "For a raffle of real property, the requirements of this section are in addition to the requirements of § 12-106(a) of this article."

[18]

IRS Publication 526; Charitable Contributions.

[19]

Strangely, no state statute (that this author has read), outlines the mechanics or procedure to be employed by the 501(c) organization for refunds; it is clear that the failure to refund, in some states, may be a misdemeanor.

[20]

Mass. Gen. Laws § 12.03; Wis. Rev. Stat. § 563.93(7).

[21]

The High Stakes Game Of Raffling Off A House, Washington Post, November 17, 2008, Page D01.

[22]

Douglas Hedding, D., The Sad Truth About House Raffles, The True Gotham, December 5, 2008.

[23]

www.irs.gov Forms 5754 and W2-G. See Also, IRS Pub. 3079.

[24]

Why would you want to win a raffle house if your cash load to purchase for the same $200,000 was substantially less than the raffle. If an individual wishes to purchase a $200,000.00 home on the open market that individual faces at closing a realtor's fee and a cash down payment. An individual wishing to buy a $200,000.00 home may expend somewhere between $10,000.00 to $25,000.00 in cash depending on whether a 5% or 10% down payment is now required under more stringent lending practices, closing costs and if the buyer shared in any real estate fee. The purchaser then obtains a mortgage for somewhere between $180,000.00 and $200,000.00. That purchaser's cash outlay is no more than $10,000.00 to $25,000.00 to purchase the same house.

[25]

Ebay Specifically prohibits Raffles and Auctions of "Chance." eBay does not permit listings that sell an opportunity to win an item or prize either by chance or in connection with a skill contest. Specifically, eBay does not permit listings that promote giveaways, lotteries, sweepstakes, random drawings, raffles, contests, or prizes. Such promotions are highly regulated and may be unlawful in many states. eBay itself may run such promotions on the site, and may grant authorization to its partners or third party companies to run promotions that comply with applicable laws.
Ebay Seller's Agreement.

[26]

PayPal Specifically prohibits Raffles and Auctions of "Chance," if they are not allowed under State Law.
PayPal Acceptable Use Policy
This Policy was last modified on November 10, 2008.
You are independently responsible for complying with all applicable laws in all of your actions related to your use of PayPal's services, regardless of the purpose of the use. In addition, you must adhere to the terms of this Acceptable Use Policy.
Prohibited Activities
You may not use the PayPal service for activities that:
1. violate any law, statute, ordinance or regulation
2. relate to sales of (a) narcotics, steroids, certain controlled substances or other products that present a risk to consumer safety, (b) drug paraphernalia, (c) items that encourage, promote, facilitate or instruct others to engage in illegal activity, (d) items that promote hate, violence, racial intolerance, or the financial exploitation of a crime, (e) items that are considered obscene, (f) items that infringe or violate any copyright, trademark, right of publicity or privacy or any other proprietary right under the laws of any jurisdiction, (g) certain sexually oriented materials or services, or (h) certain firearms, firearm parts or accessories, ammunition, weapons or knives
3. relate to transactions that (a) show the personal information of third parties in violation of applicable law, (b) support pyramid or ponzi schemes, matrix programs, other "get rich quick" schemes or certain multi-level marketing programs, (c) are associated with purchases of annuities or lottery contracts, lay-away systems, off-shore banking or transactions to finance or refinance debts funded by a credit card, (d) are for the sale of certain items before the seller has control or possession of the item, (e) are by payment processors to collect payments on behalf of merchants, (f), are associated with the sale of traveler's checks or money orders, (h) involve currency exchanges or check cashing businesses, or (i) provide certain credit repair or debt settlement services
4. violate applicable laws or industry regulations regarding the sale of (a) tobacco products, or (b) prescription drugs and devices
5. involve gambling, gaming and/or any other activity with an entry fee and a prize, including, but not limited to casino games, sports betting, horse or greyhound racing, lottery tickets, other ventures that facilitate gambling, games of skill (whether or not it is legally defined as a lottery) and sweepstakes unless the operator has obtained prior approval from PayPal and the operator and customers are located exclusively in jurisdictions where such activities are permitted by law.
Activities Requiring Approval
PayPal requires pre-approval to accept payments for certain services as set out in 5 above and detailed in the chart below.
Service Requiring Pre-Approval
Contact Information
Collecting donations as a charity or non-profit organization; dealing in jewels, precious metals and stones; acting as a money transmitter or selling stored value cards; selling stocks, bonds, securities, options, futures or an investment interest in any entity or property; or providing escrow services.

[27]

Tex. Code Ann. § 2002.054; Ark. Code Ann. § 23-114-401.

[28]

RCW 9.46.0312.

& & &

Alabama

[29]

Ala. Code § 13A-12-20
The following definitions apply to this article:
(1) ADVANCE GAMBLING ACTIVITY. A person "advances gambling activity" if he engages in conduct that materially aids any form of gambling activity. Conduct of this nature includes but is not limited to conduct directed toward the creation or establishment of the particular game, contest, scheme, device or activity involved, toward the acquisition or maintenance of premises, paraphernalia, equipment or apparatus therefor, toward the solicitation or inducement of persons to participate therein, toward the actual conduct of the playing phases thereof, toward the arrangement of any of its financial or recording phases or toward any other phase of its operation. A person advances gambling activity if, having substantial proprietary control or other authoritative control over premises being used with his knowledge for purposes of gambling activity, he permits that activity to occur or continue or makes no effort to prevent its occurrence or continuation.
(2) BOOKMAKING. Advancing gambling activity by unlawfully accepting bets from members of the public as a business, rather than in a casual or personal fashion, upon the outcome of future contingent events.
(3) CONTEST OF CHANCE. Any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.
(4) GAMBLING. A person engages in gambling if he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he or someone else will receive something of value in the event of a certain outcome. Gambling does not include bona fide business transactions valid under the law of contracts, including but not limited to contracts for the purchase or sale at a future date of securities or commodities, and agreements to compensate for loss caused by the happening of chance, including but not limited to contracts of indemnity or guaranty and life, health or accident insurance.
(5) GAMBLING DEVICE. Any device, machine, paraphernalia or equipment that is normally used or usable in the playing phases of any gambling activity, whether that activity consists of gambling between persons or gambling by a person involving the playing of a machine. However, lottery tickets, policy slips and other items used in the playing phases of lottery and policy schemes are not gambling devices within this definition.
(6) LOTTERY or POLICY. An unlawful gambling scheme in which:
a. The players pay or agree to pay something of value for chances, represented and differentiated by numbers or by combinations of numbers or by some other medium, one or more of which chances are to be designated by the winning ones; and
b. The winning chances are to be determined by a drawing or by some other fortuitous method; and
c. The holders of the winning chances are to receive something of value.
(7) PARI-MUTUEL, MUTUEL or THE NUMBERS GAME. A form of lottery in which the winning chances or plays are not determined upon the basis of a drawing or other act on the part of persons conducting or connected with the scheme, but upon the basis of the outcome of a future contingent event or events otherwise unrelated to the particular scheme.
(8) PLAYER. A person who engages in any form of gambling solely as a contestant or bettor, without receiving or becoming entitled to receive any profit therefrom other than personal gambling winnings, and without otherwise rendering any material assistance to the establishment, conduct or operation of the particular gambling activity.
(9) PROFIT FROM GAMBLING ACTIVITY. A person "profits from gambling activity" if he accepts or receives money or other property pursuant to an agreement or understanding with any person whereby he shares or is to share in the proceeds of gambling activity.
(10) SLOT MACHINE. A gambling device that, as a result of the insertion of a coin or other object, operates, either completely automatically or with the aid of some physical act by the player, in such a manner that, depending upon elements of chance, it may eject something of value. A device so constructed or readily adaptable or convertible to such use is no less a slot machine because it is not in working order or because some mechanical act of manipulation or repair is required to accomplish its adaptation, conversion or workability. Nor is it any less a slot machine because apart from its use or adaptability as such it may also sell or deliver something of value on a basis other than chance.
(11) SOMETHING OF VALUE. Any money or property, any token, object or article exchangeable for money or property or any form of credit or promise directly or indirectly contemplating transfer of money or property or of any interest therein, or involving extension of a service entertainment or a privilege of playing at a game or scheme without charge.
(12) UNLAWFUL. Not specifically authorized by law.
(Acts 1977, No. 607, p. 812, § 6101.)
ARTICLE IV, SECTION 65, Constitution of Alabama
Lotteries and gift enterprises prohibited. The legislature shall have no power to authorize lotteries or gift enterprises for any purposes, and shall pass laws to prohibit the sale in this state of lottery or gift enterprise tickets, or tickets in any scheme in the nature of a lottery; and all acts, or parts of acts heretofore passed by the legislature of this state, authorizing a lottery or lotteries, and all acts amendatory thereof, or supplemental thereto, are hereby avoided.

Tennessee

[30]

Tenn. Code Ann. §§ 3-17- 101 to 116.
Here is the Raffle filing fee for Tennessee: Event Gross: Revenue Filing Fee $0.00 to $5,000.00: $150.00; $5,001.00 to $10,000.00; $300.00; $10,001.00 to $20,000.00; $450.00 over $20,001.00; $600.00.

[31]

Tenn. Code Ann. § 3-17-110. Name of organization on ticket, share, chance or similar record - Method of payment of prizes and awards - Limitations on prices and awards.
(a) The ticket, share, chance or other similar record shall bear on its face the name of the 501(c)(3) organization on whose behalf the event is being conducted.
(b) All cash prizes or awards exceeding fifty dollars ($50.00) shall be paid by check from a designated account of the organization to a named individual. In the case of non-cash prizes or awards, payment shall be in the form of goods or services and, if applicable, by an appropriate legal instrument including, but not limited to, deeds, titles and gift certificates. Checks or other legal instruments payable to "cash" or "bearer" are expressly prohibited.
(c) (1) For single location annual events, the total value of all prizes awarded per annual event shall not exceed two hundred fifty thousand dollars ($250,000); provided, that such limitation shall not apply to prizes of real property.
(2) For multiple location annual events, the total value of all prizes awarded per annual event location shall not exceed one hundred fifty thousand dollars ($150,000); provided, that such limitation shall not apply to prizes of real property.

South Carolina

[32]

S.C. Code Ann. § 16-19-10
Whoever shall publicly or privately erect, set up, or expose to be played or drawn at or shall cause or procure to be erected, set up, or exposed to be played, drawn, or thrown at any lottery under the denomination of sales of houses, lands, plate, jewels, goods, wares, merchandise, or other things whatsoever or for money or by any undertaking whatsoever, in the nature of a lottery, by way of chances, either by dice, lots, cards, balls, numbers, figures, or tickets or who shall make, write, print or publish, or cause to be made, written, or published any scheme or proposal for any of the purposes aforesaid is guilty of a misdemeanor and, upon conviction, must be fined one thousand dollars and imprisoned for one year. One-third of the fine imposed shall be paid to the person, if any, who informed law enforcement officials or other appropriate authorities about the violation which led to the conviction. Each violation constitutes a separate offense. See Also, Johnson, et al., v. Collins Entertainment Company, 349 S.C. 613, 564 S.E.2d 653 (S.C. 2002); Darlington Theatres, Inc. v. Coker, Sheriff, et al., 190 S.C. 282, 2 S.E.2d 782 (S.C. 1939)

[33]

Letter from Henry McMaster, Atty. Gen. South Carolina, to Hon. Thad Viers, South Carolina Legislature, July 9, 2008. South Carolina’s law is at odds with its sister states. When South Carolina amended its Constitution to allow a State Lottery in 1975, it also allowed bingo, but not raffles. Johnson v. Collins, Supra. H. 3629 was introduced into the 2009 – 2010 SC General Assembly to authorize raffles. The plain language of the proposed amendment to S.C. Code Ann. § 16-19-35, does not seem to provide that the 501(c) can pay the homeowner for the house, but instead takes the full donation of the house and then raffles it off. If this is the correct interpretation of the bill, it will be great for donations to charity but be a bust to homeowners who want to raffle their home in this down market.

[34]

N.C. Gen. Stat. § 14-291.1 (Private lotteries and raffles prohibited.) § 14-309.15. Raffles. Non-Profit Raffles are Regulated and Legal in North Carolina.

Florida

[35]

Fla. Stat. Ann. § 849.0935(7).

[36]

Fla. Stat. Ann. § 849.0935. Charitable, nonprofit organizations; drawings by chance; required disclosures; unlawful acts and practices; penalties.
(1) As used in this section, the term:
(a) "Drawing by chance" or "drawing" means an enterprise in which, from the entries submitted by the public to the organization conducting the drawing, one or more entries are selected by chance to win a prize. The term "drawing" does not include those enterprises, commonly known as "matching," "instant winner," or "preselected sweepstakes," which involve the distribution of winning numbers, previously designated as such, to the public.
(b) "Organization" means an organization which is exempt from federal income taxation pursuant to 26 U.S.C. s. 501(c)(3), (4), (7), (8), (10), or (19), and which has a current determination letter from the Internal Revenue Service, and its bona fide members or officers.
(2) The provisions of s. 849.09 shall not be construed to prohibit an organization qualified under 26 U.S.C. s. 501(c)(3), (4), (7), (8), (10), or (19) from conducting drawings by chance pursuant to the authority granted by this section, provided the organization has complied with all applicable provisions of chapter 496.
(3) All brochures, advertisements, notices, tickets, or entry blanks used in connection with a drawing by chance shall conspicuously disclose:
(a) The rules governing the conduct and operation of the drawing.
(b) The full name of the organization and its principal place of business.
(c) The source of the funds used to award cash prizes or to purchase prizes.
(d) The date, hour, and place where the winner will be chosen and the prizes will be awarded, unless the brochures, advertisements, notices, tickets, or entry blanks are not offered to the public more than 3 days prior to the drawing.
(e) That no purchase or contribution is necessary.
(4) It is unlawful for any organization which, pursuant to the authority granted by this section, promotes, operates, or conducts a drawing by chance:
(a) To design, engage in, promote, or conduct any drawing in which the winner is predetermined by means of matching, instant win, or preselected sweepstakes or otherwise or in which the selection of the winners is in any way rigged;
(b) To require an entry fee, donation, substantial consideration, payment, proof of purchase, or contribution as a condition of entering the drawing or of being selected to win a prize. However, this provision shall not prohibit an organization from suggesting a minimum donation or from including a statement of such suggested minimum donation on any printed material utilized in connection with the fundraising event or drawing;
(c) To condition the drawing on a minimum number of tickets having been disbursed to contributors or on a minimum amount of contributions having been received;
(d) To arbitrarily remove, disqualify, disallow, or reject any entry or to discriminate in any manner between entrants who gave contributions to the organization and those who did not give such contributions;
(e) To fail to promptly notify, at the address set forth on the entry blank, any person, whose entry is selected to win, of the fact that he or she won;
(f) To fail to award all prizes offered;
(g) To print, publish, or circulate literature or advertising material used in connection with the drawing which is false, deceptive, or misleading;
(h) To cancel a drawing; or
(i) To condition the acquisition or giveaway of any prize upon the receipt of voluntary donations or contributions.
(5) The organization conducting the drawing may limit the number of tickets distributed to each drawing entrant.
(6) A violation of this section is a deceptive and unfair trade practice.
(7) Any organization which engages in any act or practice in violation of this section is guilty of a misdemeanor of the second degree, punishable as provided in s. 775.082 or s. 775.083. However, any organization or other person who sells or offers for sale in this state a ticket or entry blank for a raffle or other drawing by chance, without complying with the requirements of paragraph (3)(d), is guilty of a misdemeanor of the second degree, punishable by fine only as provided in s. 775.083.
(8) This section does not apply to the state lottery operated pursuant to chapter 24.

One newspaper citation indicates Florida prohibits raffles of real estate; so, I must admit, I am not certain about Florida.

(c) Hugh Wood, Atlanta, GA 2009. All Rights Reserved.

Wood & Meredith, LLP; 404-633-4100; hwood@woodandmeredith.com

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