By Lori Aratani
Washington Post Staff Writer
Monday, November 17, 2008

In the casino of the housing market, Tom Walters is holding the wrong cards. He's a mortgage broker, so business has been slow, and on his own house, payments have risen to about $6,200 -- too much to handle.

Instead of gambling on a sale, Walters and his wife decided to let others take a chance.

So for just $50, people can buy a raffle ticket for his six-bedroom, 4 1/2 -bath, 6,000-square-foot home on a two-acre parcel just outside of Annapolis. Estimated value? One million clams.

Walters is partnering with Annapolis-based We Care and Friends in the raffle venture because under Maryland law only charity groups can raffle off houses. The charity must sell at least 31,500 tickets to pay off the loans and keep its cut of at least 10 percent, Walters said.

This is the 10th house raffle attempted this year, according to the Maryland secretary of state's office. But only one, in Hagerstown, has been successful so far.

In the Walterses' raffle, the winner (to be picked Dec. 31) gets the home, free and clear. No closing costs. No mortgage payments. No broker fees. The Walterses get to walk away.

"It's kind of bittersweet," Walters said. "We've put so much into this that it'll be tough moving, but at the same time you have to do what's right for the family."

There is, however, the issue of, ahem, taxes. (Isn't there always?) Whoever wins the house would have to pay property taxes, currently about $3,000 a year but likely to increase when the house is reassessed, Walters said. And the new owner would also be taxed on the value of the home because that is technically income under IRS rules.

"It's just like winning the lottery," said Walter Deyhle, director of the tax department at Gelman, Rosenberg, Freedman, a Bethesda accounting firm. "If the fair market value of the home is $1 million, they'll pay ordinary income on that."

But there is some good news.

"If they have other gambling expenses, they can deduct those," he said, "so if they go to Vegas and lose, they can deduct those losses." So that $50 ticket? Totally deductible.

News of the Walterses' raffle plan has prompted inquiries from as far away as Korea, thanks to an article in the Korean Daily News in September. A woman in Wisconsin is among the 10,000 folks who have ponied up for a ticket.

James Howard, a retired physician, lives near the Walters and said neighbors have watched renovations on the home for more than a year. Then one day the sign appeared announcing the raffle.

But Howard won't be buying a ticket. He and his wife like their place just fine -- and frankly, the Walterses' home isn't quite their style.

"It's an interesting monstrosity," Howard said.

The Walters had big plans for the house when they bought it for $425,000 in 2006. It was in foreclosure. Tom Walters had grown up nearby, and he and his wife, Dianne, fell for the log cabin originally built in 1840. Sure, it needed a bit of work. No problem, they thought.

By the time they were done, they'd sunk about $750,000 into renovations (granite counters, hardwood floors) and additions (wrap-around porch and in-law suite complete with kitchen). That includes the $450,000 construction loan they took out.

In the meantime, the mortgage market imploded. The Walterses found they couldn't pull any of the equity out and their payments had grown.

"That's when it became necessary to sell," Walterses said. "Rather than stick it on market and take our chances, we wanted to be proactive."

That's where the raffle came in.

Walters read that someone had raffled off an old farm house near Hagerstown last spring. Karen Crawford and her husband sold tickets for $100 a pop. People bit. Someone won the house and the San Mar Children's Home in Boonsboro received $214,000 in charitable proceeds.

"We thought, we grew our own lemons, well how do you make lemonade?" Walters said.

Apparently, in Edgewater you sell tickets.

Staff researcher Meg Smith contributed to this report.