Editor’s note: This article was first published in August 2010, in the middle of Spain’s financial crisis. The Spanish rules it describes, including authorization from the state lottery body, a levy of around 15% and tax owed by the winner, reflect the law at that time; gambling regulation and prize taxation have changed since.
What do you do when you can no longer pay the mortgage on a house you’ve been paying off for more than 15 years? It’s a question many homeowners have been asking themselves since the crisis began. Thousands of families are waiting for the bank’s notice to leave their home, which will be repossessed. Wouldn’t it be better to sell the house before the bank repossesses it? Of course. That’s a great option, but there are other, far more attractive options that are being used in some countries.
Years ago, a solution emerged in Austria for “getting rid of” your house that does the buyer a favor and, on top of that, leaves the seller much better off.
An Austrian businessman bought a luxury villa when his company was booming. Then hard times came, and he had to make up his mind to sell it because he could no longer keep up with the payments. But he ran into a problem: few people can afford a luxury home worth around €900,000, so a sale was unlikely.
That was when he came up with the idea of raffling off his house. He issued 9,999 tickets at €99 each for a draw of his own home. The idea was such a success that within a few weeks he had raised €990,000 for a house valued at around €900,000.
The lucky winner got a luxury villa for just €99. The buyer got an incredible bargain, and the seller managed to sell his house, something that would have been impossible any other way.
The case made headlines around the world, so the following year another Austrian decided to do the same with his luxury villa in Palma de Mallorca, worth more than €1 million. Tickets were bought in the United States, Brazil and Austria, and even by Spaniards. That raffle was a success too, and the seller managed to part with his house.
Then we Spaniards gave it a try. Welcome to Spain.
The first offer came from a Spaniard who, drowning in his mortgage, decided to raffle off his flat in Madrid, which was worth around 230,000 euros. He put tickets on sale at 30 euros each, and everything was going well until the tax authorities (Hacienda, Spain’s tax agency) stepped in.
The tax agency opened proceedings against the owner for not having authorization from the state lottery and gaming body and for not paying the raffle levies, which come to around 15%, and demanded €48,000 from him.
Unsurprisingly, the owner decided to abandon the raffle: what was meant to be a way out so he wouldn’t lose his home would end up putting him even deeper in debt. But that’s not all. If you’re the lucky person who wins the home with your 30 euros, it isn’t all good news either, because you’ll also have to pay the tax authorities for winning a prize.
In Spain you wouldn’t have won a house for 30 euros. You’d have won a house plus a tax bill of around €20,000. So clearly it’s not a solution in Spain.
Welcome to Spain. Do you still have any doubts about why we’ll be the last to get out of the crisis?
See also: How rising interest rates will hit Spain: the perfect storm, part 2
However, if home raffles and draws work differently in your country than under the Spanish system, it’s a great business idea for selling your home.
Further reading
Featured image: Alyson Hurt, CC BY 2.0, via Flickr.
