There a handful of legal cases around the country where owners and timeshare companies are at odds over contracts, reservations, and promises made during sales presentations. Here are the details on two recent cases that are reverberating throughout the industry.
Owners Win Big, Get Their Money Back, in Wisconsin and Tennessee
Two recent legal cases, one in Wisconsin, the other in Tennessee, may give timeshare owners hope there is, indeed, a light at the end of their timeshare tunnel. As these cases show, sometimes the little guys — rank and file timeshare owners — actually win a case against big brand-name resort developers.
In the Wisconsin case, the Wyndham timeshare chain — the largest, publicly owned timeshare company in the world — agreed to pay $665,404 in restitution to 29 owners as part of a court-approved settlement announced May 29 by the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP).
In the Tennessee case, the state's appellate court upheld a trial verdict awarding $500,000 in punitive damages to a couple whom the court said were deliberately misled and lied to about their timeshare purchase at a Gatlinburg resort owned by Westgate Resorts, the largest privately owned timeshare company in the world.
In the Wisconsin settlement, Wyndham not only agreed to pay restitution to owners, but to rescind their contracts and clear their records with credit companies. The restitution payments ranged from $3,259 to $84,698. Wyndham Vacation Ownership also agreed to pay the state of Wisconsin $99,520 in fines and $62,702 in legal fees.
The settlement resolved a long-running investigation by Wisconsin regulators into consumer complaints filed by Westgate owners who bought timeshares between 2008 and 2013 — alleging unfair trade practices. Wyndham sells timeshares at Glacier Canyon Resort in the Wisconsin Dells and maintains two nearby resorts, Wyndham Tamarack and Wyndham Sundara Cottages.
According to court documents, the state outlined ten unrefuted allegations against Wyndham, most of which focus on misrepresentations by sales people and high-pressure sales tactics, such as telling buyers that gift incentives are only good for one day.
Officially, Wyndham denied any wrongdoing, but the company nonetheless agreed to settle with the owners to avoid further legal prosecution from Wisconsin regulators. In an e-mail to RedWeek following the announcement, Wyndham Vacation Ownership issued this response: "We are committed to ensuring our sales practices are compliant with all regulatory requirements while striving to meet the highest standards of fairness and transparency, and continually look for ways to make the buying process more consumer-friendly. Businesses and regulatory agencies working together is good for our industry and good for consumers, and we are pleased to have a strong record in this regard."
In New York, the Attorney General's office recently announced settlements with Wyndham and Hilton Resorts, "to protect New Yorkers from misleading timeshare practices." Wyndham agreed to stop offering reservation certificates for a timeshare resort known as Midtown 45, prior to regulatory approval of Midtown's offering plan. These certificates, according to the AG's office, "led some consumers to believe they were purchasing an interest in the Midtown 45 timeshare."
Hilton agreed to drop a clause in its timeshare contracts that denied responsibility for representations in sales pitches about reservations, hotel use rights, rentals, resales, and buybacks of timeshare interests.
But the focus here is on Wyndham, which claims to have 900,000 owner families in its vast network of multi-branded timeshare resorts. In addition to drawing attention from regulators, the company has generated 1,657 complaints from consumers to the Better Business Bureau during the past three years, including 544 in the last year. Among those complaints, 1,170 focused on advertising and sales issues while 389 involved services and products. Another 94 complained of collection practices.
Tennessee Appeals Court Upholds $500K Punitive Damage Verdict Against Westgate Resorts
Unlike the Wisconsin case, the Tennessee lawsuit actually went to court. Most timeshare lawsuits never reach a courthouse. Instead, they are settled out of court with confidential agreements between the timeshare owners and the timeshare companies. There are lawyers around the country who proudly specialize in getting owners out of their contracts — by threatening to sue over disclosure problems. Then they settle, and no one talks about the details. The Tennessee case, involving Nathan and Patricia Overton, is noteworthy because their complaints were publicly adjudicated in court.
The Overtons sued Westgate — a $1.4 billion company — to rescind a contract on grounds they were defrauded during their sales presentation and never provided adequate documentation for their $39,280 purchase in 2011. The trial court ruled in their favor and ordered Westgate to rescind the contract and repay their purchase money.
According to the appellate court's Jan. 30 ruling: "The trial court found that the defendant had violated the respective statutory provisions [of Tennessee's TimeShare Law] and was guilty of fraud and misrepresentation."
The court also awarded the Overtons $600,000 in punitive damages to "punish" Westgate for its business practices — which included a pattern, admitted by Westgate officials in court, of misleading potential buyers about their timeshares.
On appeal, Tennessee's high court unanimously affirmed the prior rulings but reduced the punitive damage award to $500,000 to comply with the state's pre-existing cap on punitive damages.
The Overtons story started simply enough. They were vacationing in Gatlinburg, July 2011, looking for a cabin for family vacations. They encountered a Westgate sales booth in Gatlinburg and, after some talk, accepted an invitation for a 90-minute presentation and tour, complete with gifts. At the trial court, the Overtons testified that they ended up enduring eight hours of a hard-sell timeshare pitch. When it was over, they paid $39,280 for Unit 458, based on assurances from the sales team that they could reserve the unit for the same December week every year, and that they could book additional unlimited nights at any Westgate resort for $49 to $69 (so-called owners' nightly rates). The sales people promised, in writing, to refund $1,500 of their sales commissions to the Overtons. They also promised to buy a foosball table for the Overtons' use during their family vacations.
The guarantees about fixed week reservations and unlimited low-cost nights, however, were not put in writing. The Overtons' contract, signed at 11 p.m. at night, specifically stated that their interval was a floating week and unit, not fixed — so they could not be assured the same week and unit annually. Along with the contract, Westgate gave the Overtons a briefcase with all their closing documents and three CD-ROM discs.
The Overtons drove home to Dickson, Tennessee, expecting a followup call from their salesman to confirm their December 2011 stay in Unit 458. It never came. When they followed up with the resort, they discovered that they had no guarantee of securing Unit 458 or the Christmas week they thought they had bought. They then found out, through a series of conversations with Westgate personnel, that they did not have unlimited owners' nights either.
At this point, the Overtons contacted an attorney who reviewed their package of CD-ROMs from Westgate. The attorney discovered that the Overtons had not been provided with a current copy of Westgate's Public Offering Statement, as required by Tennessee law. The CD-ROMs, in fact, contained an outdated POS from 2006 and other illegible documents that could only be navigated by a computer expert.
Four months later, the Overtons decided they'd had enough. On Oct. 25, they formally submitted a rescission letter to Westgate's corporate offices in Florida. Westgate said NO, so the Overtons filed suit to get out of their contract, claiming fraud.
The story got even more unfortunate once it reached the Tennessee courts. The case went to trial in June 2013. The court not only ruled in favor of the Overtons but determined that Westgate had broken the rules of fair disclosure all along the way. Worse, the court said Westgate had deliberately refused to rescind the contract "despite overwhelming evidence" that rescission was justified.
In legal terms, the court ruled that the Overtons had been offered gifts (foosball table and unlimited owners' nights) without proper disclosure; Westgate violated the Tennessee Timeshare Act and Consumer Protection Act and engaged in deceptive practices; Westgate was also guilty of common law fraud and misrepresentation; the court also found Westgate trained its salespersons to make false promises about unlimited owners nights — while knowing there was no written documentation to guarantee the promise.
In October 2013, the trial court held a follow-up hearing to consider the amount of punitive damages that should be assessed against Westgate. After reviewing Westgate's financial status, the court set the punitives at $600,000 based upon the "reprehensibility" of Westgate's conduct. The Overtons were also awarded $136,000 in legal fees.
Westgate, sticking to its legal strategy, appealed the punitive damage award. On appeal, in January 2015, Tennessee's appeals court unanimously reduced the $600,000 to $500,000 to comply with the state's cap on punitives.
The appellate court was not persuaded by Westgate's appeal. "We agree with the trial court's finding that Westgate willfully violated Tennessee Code... and clearly failed to provide the Overtons with a current and complete copy of the POS," the court said. "Mark Barton, executive director of contract processing at Westgate's corporate headquarters in Florida, testified that it was Westgate's policy at that time to provide purchasers with the outdated POS on CD-ROM plus written copies of the amendments. The Overtons, however, never received such written amendments until after this litigation was commenced, even though Mr. Barton testified that all such written amendments had been transmitted to the Gatlinburg resort."
In summary, the appeals court said: "Based on all the proof adduced at trial, the Overtons demonstrated by clear and convincing evidence that Westgate engaged in conduct... that was intentional and fraudulent, and that it willfully violated the provisions of the Tennesee Timeshare Act."
In addition to evaluating Westgate's business practices, the courts examined Westgate's ability to pay punitive damages.
"The trial court opined that, with Westgate's appreciable assets and income, it would 'take a lot of money to make them feel it.' The court noted that in 2011, Westgate generated income of $545,568,329 while owning total assets of $1,389,788,000. In support of the punitive damage award, the trial court observed, 'How are you going to deter somebody with that kind of income? It takes more than a slap on the wrist. What is a lot of money to you and me is very little money to Westgate.'"
Westgate still has a couple of legal options to pursue an additional appeal, but they're not showing their hand. Neither the company nor its attorneys agreed to talk to RedWeek about the case.
" BREAKING NEWS "
HILTON HAS PURCHASED DIAMOND!!
Information coming Soon..
Hilton Grand Vacations to Acquire Diamond Resorts, Creating the Premier Leisure Operator With the Broadest Offering in the Vacation Ownership Industry
ORLANDO, Fla. (March 10, 2021) – Hilton Grand Vacations Inc. (NYSE:HGV) (“HGV” or “the Company”) today announced that it has entered into a definitive agreement to acquire Diamond Resorts Holdings, LLC. (“Diamond”) from funds (the “Apollo Funds”) managed by affiliates of Apollo Global Management, Inc. (NYSE:APO) (together with its consolidated subsidiaries, “Apollo”), funds managed by affiliates of Reverence Capital Partners (“Reverence”), and other Diamond stockholders, in a stock-based transaction with an equity value of approximately $1.4 billion. Under the terms of the agreement, the Apollo Funds and other Diamond stockholders will receive 34.5 million shares of HGV common stock, subject to customary adjustments.
The acquisition will combine the strength of HGV’s brand and culture with Diamond, the largest independent timeshare operator. Diamond’s 92 leisure resorts and nearly 400,000 owners uniquely complement HGV’s 62 upscale and luxury properties and over 325,000 owners, and the combination will create the premier vacation ownership company with the broadest offering in the industry.
“I’m excited to announce our transformational agreement to add Diamond Resorts to the Hilton Grand Vacations family, accelerating our next phase of growth,” said Mark Wang, president and CEO of Hilton Grand Vacations. “This strategic combination will leverage the strengths of each company, positioning us to drive significant Net Owner Growth while enhancing efficiencies of scale and generating significant shareholder value. Diamond’s extensive regional, drive-to network of resorts and expanded demographics uniquely complement HGV’s best-in-class lead generation, world-class hospitality, and premier destinations backed by the strength of the Hilton brand. For our valued team members, owners and guests, this combination creates new opportunities to provide exciting destinations and memorable vacation experiences while continuing to provide exceptional levels of service.”
“Through this agreement, HGV and Diamond will create a new global standard of vacation ownership hospitality,” said Mike Flaskey, CEO of Diamond Resorts. “Together, we will expand Diamond’s unique events and concert platform and deliver the broadest range of world-class experiences available in the industry, providing our members and owners with additional flexibility, unforgettable vacations and experiences of a lifetime. We are thrilled to join the HGV family and look forward to achieving new heights of excellence.”
Enables significant value creation from scale: combines the largest independent timeshare
company with Hilton Grand Vacations’ strong brand and culture
Expands and diversifies HGV’s resort portfolio into over 20 new markets.
The combined company will have 720,000 owners, 154 resorts and 48 sales centers.
Diversifies HGV’s portfolio: adds additional drive-to destinations and allows HGV to leverage the Hilton network to widen customer reach
Doubles the number of vacation options for the combined owner base.
Diamond’s complementary footprint will bolster HGV’s strong network of beach, attraction-based, and urban markets, while adding new regional drive-to destinations in outdoor, desert and ski locations.
Broader range of pricing and product options will widen customer reach, enhancing alignment with the 112 million Hilton Honors members.
Accelerates launch of HGV-branded trust product offering: rebrand Diamond’s properties over time to drive revenue growth in a new customer segment
Combining HGV’s points-based deeded product with Diamond’s points-based trust structure will allow the Company to cater to a wider audience, attract more new buyers and drive incremental growth in a capital-efficient manner.
HGV’s deeded product provides premium pricing, inventory sourcing flexibility, and the ability to pre-sell projects to support strong project-level cash flow, while giving buyers and owners the value of guaranteed availability.
The introduction of a trust product allows for lower barriers to ownership, reduced inventory delivery volatility and inventory recycling, enabling smoother sales and upgrades while providing buyers and owners network and pricing flexibility.
Integrates Diamond’s innovative Events of a Lifetime® experiential sales and marketing platform that drives strong engagement and Volume Per Guest (VPG) premiums with HGV’s owner base.
Generates over $125 million in run-rate cost synergies, expected to be achieved in the first 24 months following close
Significant future revenue synergy opportunities.
Increases recurring EBITDA streams and drives overall cash flow, with adjusted free cash flow per share accretion in year one
The combined company is expected to generate steady-state adjusted free cash flow conversion of 50-60%, driven by its realization of cost synergies, significant inventory pipeline, acquired inventory and reduced long-term inventory spending.
Adding new owners embeds additional value for the company over the life of their ownership.
The combined company is anticipated to generate approximately 50% of Segment Adjusted EBITDA from recurring sources, including club membership fees, property management fees and financing fees.
Compelling valuation and deal structure facilitate financial flexibility and deleveraging
Significant cash flow generation is expected to allow for rapid deleverage, returning to below 3.0x within 24 months.
Pro-forma liquidity of $1.0 billion at year-end 2020.
Under the terms of the agreement, the Apollo Funds and the other Diamond stockholders, including the Reverence Funds, are expected to receive 34.5 million shares of HGV common stock, valued at approximately $1.4 billion, subject to customary adjustments. Upon transaction close, existing HGV shareholders will own approximately 72% of the combined company and the Apollo Funds will own approximately 28% of the combined company.
The transaction, which was unanimously approved by the Board of Directors for both companies, is expected to close in the summer of 2021, subject to customary closing conditions and regulatory approvals. The issuance of HGV common stock in the transaction is subject to shareholder approval.
HGV’s management team, including President & Chief Executive Officer Mark Wang, Chief Financial Officer Dan Mathewes, and Chief Operating Officer Gordon Gurnik, will continue to serve in their current roles upon transaction close. HGV’s Board of Directors will be expanded from 7 to 9 members, and the Apollo Funds will have the right to appoint two directors as long as their equity ownership remains at or above 15% of the outstanding stock at closing and one director as long as their equity ownership remains at or above 10% of the outstanding stock at closing.
ARDA Supports Introduction of the Visit America Act
ARDA is proud to support the introduction of the Visit America Act in Congress (S.3831, H.R. 8480). This bill would create a new Assistant Secretary for Travel and Tourism at the Department of Commerce to elevate the industry within the federal government. The new position will be given the authority to develop travel and tourism goals and work across the federal government to develop strategies to accomplish them, with an emphasis on improving travel exports to the United States. The Act also would require the creation of a plan to help the travel industry recover from the COVID-19 pandemic.
Marriott Vacation Club Announces Reservations Start For Proposed New Resort In Costa Rica
Marriott Vacation Club has just announced that reservations will begin for a proposed new resort in Costa Rica in January 2021. This new resort, Marriott Vacation Club at Los Sueños, will be the first in Central America for the brand and will feature 24 two-bedroom lock-off villas and many luxurious offerings and amenities.
Marriott Vacation Club at Los Sueños will reside within the 1,110-acre Los Sueños Marriott Ocean & Golf Resort complex. Owners will be able to stay at Marriott Vacation Club at Los Sueños through the Marriott Vacation Club Destinations Exchange Program as an exchange option. And interested guests will be able to make reservations for guest rentals through the Marriott Vacation Club website. Additionally, timeshare sales at this property are set to launch in January 2021.
“We are excited to offer the highly sought-after destination of Costa Rica to our Owners and guests,” said Brian Miller, president of Vacation Ownership, Marriott Vacations Worldwide. “The villas at this stunning resort will provide the comforts of home with authentic architectural touches that bring the rejuvenating landscape of the region indoors. Additionally, in early spring we plan to debut an innovative sales gallery concept that uniquely complements the area’s natural surroundings while also delivering another important sales distribution center to support our growth strategy.”
Amenities available to guests staying at Marriott Vacation Club at Los Sueños will include:
Free-form swimming pool
Miniature golf course
Tortuga Kids Club
18-hole championship golf course
Owners and guests will be able to walk and explore the local area with plenty of shops, restaurants, and other services nearby. Area favorites include:
Jaco – a beach town with surfing, restaurants, bars, and boutiques
Manuel Antonio National Park
Boating and sport fishing through the marina
Marriott Vacation Club at Los Sueños, is being developed through a partnership of CPG Hospitality and Enjoy Group, two of the leading hospitality investment and management companies in the region. This affiliation and occupancy are subject to Marriott Vacation Club completing the purchase of the new resort from CPG Hospitality and Enjoy Group.
Nature-themed resort will be built at Walt Disney World
LAKE BUENA VISTA, Fla. (AP) — Walt Disney World says it’s going to build a new nature-themed resort.
The Florida-based theme park resort said Thursday that the as-yet-unnamed resort will open in 2022. It will have 900 hotel rooms as well as villas for Disney’s timeshare program.
The new project joins three other resort construction projects underway at Disney World.
The 27,000-acre tourist destination already has 36 resorts on its property, as well as four theme parks.
Timeshare Developers Are Throwing Consumers to the Curb Amid COVID-19 Crisis.
The need for consumers to exit their timeshares is more relevant now than ever, yet their ability to exit is stifled by red tape put up by the timeshare industry – or even worse, new deceptive practices aimed at making more sales in the guise of COVID-19 relief:
In a dazzling display of insensitivity and greed, Orlando Sentinel reported that an executive at Westgate Resorts "offered to use coronavirus relief money from the federal government to give short-term jobs to travel bloggers to write stories promoting the company's resorts."
Diamond Resorts sent out an email to customers in April stating that they've "identified ways to provide financial relief to members through refinancing options," but the true purpose of the solicitation becomes clear in the email's fine print: "This advertising material is being used for the purpose of soliciting timeshare sales."
In Wyndham Destinations' Q1 earnings call, CEO Michael Brown said that the developer will have to focus more on "owner sales" to keep earnings afloat amid COVID-19 – in other words, pushing upgrades on existing members.
"The way timeshare developers are treating their customers right now, in the middle of an unprecedented medical and economic crisis, is downright cruel," Brandon Reed, Timeshare Exit Team founder and CEO, said. "We're seeing so many businesses throughout the country put their profits aside and reach out to help consumers, but developers are still demanding the payment of sky-high maintenance fees and refusing to reimburse consumers who are unable to travel. Americans need help, but instead of taking this opportunity to help their customers, the timeshare industry has largely decided to throw them to the curb."
"It's also worth noting that out of the 100,000+ timeshare owners who have come to Timeshare Exit Team seeking relief from their timeshare, the vast majority of them are over 65 years old," Reed added. "They're being left to decide between continuing to pay for a timeshare they cannot use because they don't feel safe traveling, or to feel pressured into traveling despite the health risks because of what they're paying. It's infuriating and unacceptable."
Below is a sampling of recent Tweets from timeshare owners frustrated with developers' policies amid COVID-19:
"@RCI_Timeshare we have a vacation booked, but the resort and amenities are now closed due to #Covid_19. Why are you not allowing us to cancel or reschedule without huge penalties? This is absurd." - @imsowilde
"Don't book with Diamond Resorts. They refuse to refund our cruise during COVID-19. My husband is immunocompromised. Do not purchase a timeshare with them."- @independentpup
"@RCI_Timeshare needs to meet the times and address this situation. Not allowing members to change dates due to #coronavirus is archaic. Terrible customer service. My mother is stuck now and has been a loyal customer for over 20 years. @WLWT @WCPO @Local12 @FOX19" - @chrislenhof
In response to pleas like these, Timeshare Exit Team founder Brandon Reed sent two open letters to major industry players, including one pledging to work directly with the American Resort Development Association (ARDA) on finding a path out for frustrated consumers and another urging ARDA's Resort Owners Coalition (ARDA-ROC) to join them in championing consumers, which is their stated mission. Sadly, neither of these letters received a response.
There have been some encouraging signs, including Disney Vacation Club committing to extending the life of points at risk of being lost due to the COVID-19 closure, while temporarily limiting members' ability to borrow future points. Timeshare Exit Team has outlined few specific areas that it recommends as a starting point for helping timeshare owners in distress:
Waive fees associated with rescheduling vacations or rolling over points to the following year
Extend timeframes for point usage without penalties
Reduce management fee profit margins for developer-managed resorts
Offer truly responsible exits without excessive fees or upgrade sales pitches for owners facing financial or medical issues caused by COVID-19
To those who have followed the timeshare industry for years, their latest actions – or inaction – amid COVID-19 unfortunately should not come as a large surprise. In a lengthy feature, Forbes.com recently highlighted comments from Ken McKelvey, chair of the American Resort Development Association-Resort Owners Coalition (ARDA-ROC), which claims to fight for timeshare owners.
"The best thing we can do with exit (is) judicial foreclosure, ruin the credit and enforce the contract," said McKelvey, according to minutes from the industry's ARDA World conference in April 2019. "Each developer should have an exit strategy office with (their) call center, also can be opportunity to upsell. Only 40-50% (of owners) actually exit after reaching the office of exit."
Travel Bans During COVID Crisis Fuel Call For Timeshare Reform
In the wake of COVID-19, a flood of timeshare owners have tried to cancel their reservations or even their contracts, citing travel bans and health fears that make them untenable.
Disastrous as it is, the pandemic alone is not a valid reason to exit a timeshare, according to timeshare exit companies. However, there are plenty of valid reasons to cancel a contract for a timeshare, including exorbitant maintenance fees, false advertising, and fraud, according to Brandon Reed, the CEO and founder of Timeshare Exit Team and a founding member of the Coalition to Reform Timeshare.
Reed points out that timeshares – a shared ownership in a resort or vacation property – were different in the early years. “When timeshares first appeared in the 1970s, they were less expensive and allowed people to visit the property on certain dates each year, so owners could plan around it,” he says. But fast forward to 2020: “The sellers are promising this beautiful property which you can visit any time you want, and often that’s not true at all,” says Reed, a former timeshare owner, noting that owners today may have to compete with the general public.
On top of that, timeshare companies have recently gotten more competition from home-sharing behemoths AirBnb and VRBO, and they’re trying to squeeze more money from people who buy or already own timeshares, according to Reed. “They’re expensive now, with the average price at nearly $21,455,” he says. “If you take out a timeshare mortgage at a high interest rate, you could end up paying nearly double that over a 10-year period. And on top of that, you have yearly maintenance fees. But what’s worse — and what people rarely understand — is that nearly two-thirds of these are sold in perpetuity, meaning that you can’t get rid of them! You can try to sell them, sure — eBay has dozens of timeshares selling for a dollar, and even then no one will buy them.”
Many buyers have learned about this the hard way, including Frank and Betty Lusk, who were almost in their nineties when they went on a Caribbean cruise in September 2018 and were approached by a Diamond Resorts salesman on the voyage. (A timeshare industry association claims the Lusks had agreed to attend a presentation as part of the trip.) Using high-pressure tactics, the salesman persuaded them to buy a $150,000 timeshare that billed them for thousands of dollars each month – landing Betty Lusk in the hospital several times with stress-related illnesses – before they were finally able to cancel it.
For its part, Diamond Resorts told reporters in a written statement that it believed in “accountability and transparency” throughout the sales process — a commendable goal, since in 2017 it had had to pay $800,000, cancel dozens of timeshare contracts and pledge to reform sales practices to settle a fraudulent practices case brought by the Attorney General of Arizona.
(Update: After this article appeared, the PR/crisis management firm Goldin Solutions sent a letter to the Forbes.com author on behalf of a Diamond Resorts spokesperson saying, among other things, “The vast majority of our members enjoy their vacation ownership with Diamond Resorts but we also understand that life circumstances can change. That's why we provide options for members seeking to safely modify or leave their vacation ownership behind without losing thousands of dollars to timeshare exit scams.” Diamond Resorts, the letter added, has already won more than ten permanent injunctions against these companies.)
In the wake of the COVID-19, Reed’s Timeshare Exit Team has proposed joining forces with the American Resort Development Association (ARDA) – which represents the timeshare industry — to relieve the burden on struggling timeshare owners during the coronavirus crisis. On April 14, the exit team sent a letter to ARDA proposing that the association:
— Give timeshare owners a one-year hiatus on all maintenance fees (“if they can’t safely use the property, please do not charge them for it”).
—Help both ARDA’s customers and the exit company’s customers by providing Responsible Exits for all timeshare owners facing a hardship, whether medical, financial or for another reason.
—Establish a mortgage forgiveness program.
—Make it possible for all paid-in-full timeshares to be transferred back to the resort at no cost.
“In return, and in good faith, we will work with you; no attorneys, no third parties,” the exit team proposed, adding that they would help with the paperwork and walk customers through the exit to ensure a good experience.
On April 17, the Timeshare Exit Team sent another letter — one published on its website — urging cooperation to the chair of ARDA-Resort Owners Coalition, noting timeshare owners’ panic and anger over the industry’s “hardline tactics” during the crisis.
ARDA did not respond to questions by publication. But in a letter to Forbes after this story was published, the industry association says that it has no record of this letter.
“Unfortunately, 'timeshare exit businesses' are unregulated and often deceive consumers by promising something they cannot deliver without the help of a developer or resort,” said Jason Gamel, ARDA’s president and CEO, through a letter from the association’s PR firm. “These empty promises come with extremely high upfront fees as well as promises of money back guarantees for their services. Owners must be weary of any offer that is too good to be true, especially when these companies attempt to capitalize on the current coronavirus pandemic to market their services.”
A barrage of lawsuits
The powerful resort industry has long warned consumers about timeshare exit and resell operations, some of which are fraudulent. However, Timeshare Exit Team’s successes helping consumers who want to end their timeshares also appear to have attracted its ire.
Diamond Resorts, for example, is currently suing Timeshare Exit Team in Nevada for “tortious interference” in its business, among other things. Reed’s timeshare exit company has also been sued in Florida by Holiday Inn Club Vacations, which won damages and barred the company from contacting its clients; however, the HICV company (now Orange Lake) later settled with the timeshare exit company this January rather than have a jury trial and agreed to provide a “pathway to exit” for 1,200 frustrated timeshares owners.
And in a setback for the timeshare industry, a Florida district judge dismissed a claim by the Westgate resort company against Timeshare Exit Team, which it had accused of false advertising and unfair business practices. (Westgate’s claim of “tortious infererence” against TET is still alive, however, and after this story was published, Westgate also won permission to proceed on its unfair busines practices claim.) “Major timeshare developers like Westgate are trying to fool the public by lobbing these frivolous complaints,” said Reed.
More worrisome is a lawsuit by the Attorney General of Washington state, which charged that Reed Hein and Associates LLC, doing business as Timeshare Exit Team, had engaged in unfair or deceptive business practices in all parts of its process. Among other things, the consumer protection lawsuit says that Reed Hein advertised a 100 percent money-back guarantee to some 32,000 clients, but that many did not get refunds even if the timeshare was foreclosed on or if the dispute went on for several years.
In a written statement to reporters, Reed wrote that since 2011, the Timeshare Exit Team had successfully helped more than 20,000 consumers exit their timeshares and is working on the others:
“The vast majority of Timeshare Exit Team’s customers choose to continue with the exit process and are adamant that they do not want a refund because it’s a much better option to wait a little longer to obtain an exit and get out from under overbearing pressures of the lifetime financial burden that is put on them by their timeshares,” Reed wrote.
Responding to the allegations about foreclosure, Reed said that his timeshare exit company was “extremely clear” to consumers that they should remain financially responsible for their timeshare until the exit is complete.
“We do not settle out consumer debt,” Reed stated. “Third-party attorneys hired by Timeshare Exit Team for our customers may negotiate directly with the resort to settle their clients’ debts, but that is a service that is lawfully provided by the attorneys, not TET… We have complied with the AG’s inquiry from day one and will continue to do so until it’s clear to all involved that these accusations are entirely baseless.”
Predatory sales, few protections
The real problem, according to Reed and the Coalition to Reform Timeshare, is that there are far too few protections for timeshare owners and potential buyers. The Federal Trade Commission offers extensive cautions for people thinking of buying a timeshare, and the Consumer Federation of America warns of “reseller” scams that may await consumers who want to unload their timeshare.
However, timeshare companies’ offers to take back unwanted timeshares are disingenuous at best, Reed charges, noting that his clients who had tried to “surrender” their paid-off timeshares were pressured to upgrade instead.
The timeshare industry disputes this. "Developer members of the American Resort Development Association (ARDA) have longstanding programs in place to help timeshare owners facing financial and medical hardships, including the deferment of maintenance fees and loan payments for owners affected by the coronavirus pandemic,” said ARDA CEO Gamel in a written statement. “Our members understand this is a challenging time for individuals and families across the nation, and they are creating solutions to help ease financial stress.
“ARDA also offers information to timeshare owners who are looking to safely and responsibly exit their timeshares through ResponsibleExit.com. These programs are offered by developers and give consumers multiple options to exit their timeshare, almost always at no cost whatsoever.”
However, the Coalition to Reform Timeshare has published minutes from a meeting of the American Resort Development Association’s resort owners discussing the industry’s Responsible Exit program that raise questions about its strategy. Rather than offering a way that consumers could exit a timeshare intact, an industry leader apparently suggested the opposite.
“The best thing we can do with exit (is) judicial foreclosure, ruin the credit and enforce the contract,” said Ken McKelvey, chair of the American Resort Development Association-Resort Owners Coalition, according to letterhead minutes of the April 10, 2019 ARDA-ROC meeting at the industry’s ARDA World annual conference.
“Each developer should have an exit strategy office with (their) call center, also can be opportunity to upsell. Only 40-50% (of owners) actually exit after reaching the office of exit,” McKelvey added, according to the minutes.
Contacted about the meeting notes, ARDA did not dispute their authenticity but said that in the minutes, McKelvey’s quotes were taken out of context.
“It’s hard to imagine another industry that is so unregulated,” says Reed, explaining that the Coalition for Reform Timeshare is pushing for a Timeshare Bill of Rights to protect more than 9 million timeshare owners in the United States.
The Timeshare Bill of Rights contends that timeshare companies “should be subject to a strict code of ethics and transparency in their sales techniques.”
Among other things, the document calls for the right for consumers to record a timeshare company’s entire sales presentation; a cooling-off period prior to signing a contract; freedom from high-pressure sales tactics (including salespeople demanding people hand over their credit cards or drivers’ licenses before a sales presentation); disclosure of a timeshare’s costs and true market value; and the right to unilaterally terminate “an unencumbered, non-deeded” timeshare interest.
Consumer anger over hard-sell tactics
The ability to record an entire sales presentation would have come in handy for a Tennessee couple who resisted a Wyndham properties hard-sell pitch to buy a timeshare and discovered that the company subsequently opened a $15,000 credit line for them — without their permission.
In a story reported by local television news, the couple – Doyle and Mindy Campbell — were lured to a Wyndham resort a couple of years ago on what they say were false pretenses: They had entered a shopping mall drawing for a Range Rover, only to receive a phone call telling them they had won a “very expensive prize” and inviting them come to an 1 ½ hour presentation and pick it up.
Upon arrival, the couple was forced to sit through 3 ½ long hours of salespeople haranguing them to buy a timeshare. Finally, they said, they were told to fill out some forms in order to get their prize, which the Campbells say Wyndham secretly used to open a credit line in their name.
And the prize? It turned out to be four airline tickets with so many restrictions that the couple would have had to shell out thousands of dollars to use them. They promptly threw them away.
For its part, Wyndham – currently the target of a class-action suit alleging timeshare fraud and a mass whistleblower suit brought by former employees – told reporters that the couple received their prize and that if they didn’t want the credit line, all they had to do was close it. However, just opening a credit line can interfere with a consumer’s ability to buy a home or other major purchase for up to two years. “It was a scam,” Doyle Campbell told the television
Even some timeshare owners who enjoyed their timeshares say the annual fees, relentless sales pitches, and perpetuity clauses led them to sever their contracts.
Brent Campbell, a father of six and a salesman by trade in Buckeye, Arizona, remembers resenting the hard-sell pitches by salespeople each time he and his wife visited their timeshare.
“They invite you to members’ meeting and then pressure you to buy more points,” Campbell told Forbes.com, remembering that even once when he and his wife were enjoying a quiet dinner in their vacation suite, a timeshare salesman came pounding on the door. “They try to squeeze more money out of you each time. It feels like a shakedown.”
Worried that the soaring annual maintenance fees would eventually be passed on to their children, the Campbells contacted Reed’s timeshare exit team for help.
“The timeshare industry is trying to pretend they’re selling real estate, but they’re not,” says Reed, whose company helped the Campbells get rid of their timeshare. “If it was real estate, their children could just sell it and even make a profit.” But the problem is that even if the timeshare mortgage is paid off and their children don’t use the property, he says, they would still be responsible for escalating annual maintenance fees.
This is a major point of contention for ARDA, which provided Forbes.com with an ARDA handout entitled “Don’t Want Mom and Dad’s Timeshare? No Problem!” To legally prevent inheriting a timeshare, the handout suggests that all heirs need to do is to file a Disclaimer of Interest, avoid using the timeshare after their parent’s death, and have the executor notify the timeshare corporation and mortgage holder about the death. (Note: send a death certificate.)
It sounds straightforward, but even taking these steps don’t guarantee that heirs can easily get rid of a timeshare, according to a leading website devoted to real estate deeds. State laws vary, and heirs usually have only nine months to file the disclaimer after the death, according to deeds.com. If the children use the timeshare in the meantime, they are out of luck.
Meanwhile, since the devil is in the details, the disclaimer may have to be filed several places and recorded in the county where the timeshare is located. If the timeshare is deeded, as many are, the children may then have to make sure the timeshare corporation takes the deed back. “Note that a resort company, whether unaware or aware of the death of a timeshare owner, can bring a foreclosure suit for lack of payments,” warns the deeds.com website. “If no one accepts the deed, it is still in the estate. Meanwhile, the burden of taxes and fees continue. An executor might have no choice but to pay them out of the estate.”
Given the potential difficulty with inheriting a timeshare, some parents have decided to head off that problem at the pass.
“I didn’t want to put this albatross around my kids’ neck,” says Wayne McClellan, a former Dupont senior executive in Houston, Texas, who had bought a timeshare from Grand Vista that was later sold to Westgate.
McClellan and his wife Carol, an X-ray technician, were high school sweethearts. Attracted by the theatre and comedies in the tourist town of Branson, Missouri, they were convinced to buy a timeshare there in the mid-1990s. The McClellans found the timeshare company “very accommodating” in terms of scheduling and loved staying at the resort with their friends and family. However, it grew continually harder, after an 11-hour drive, to sit through the obligatory 1 ½ to 2-hour sales presentation each time they visited. In addition, the maintenance fees had doubled over time.
McClellan could easily withstand a hard-sell timeshare pitch to buy more —“As a former purchasing manager, I had a lot of training on how to deal with boisterous salespeople,” he laughed. But although still active, he and his wife had developed some health problems and needed to cancel their timeshare contract. No one at Westgate wanted to do that, he said, but they were able to get out of his contract with the help of Timeshare Exit Team.
“It wasn’t cheap, but I realized [the exit payment] would pay for itself in a couple years,” McClellan said. “We had a lot of good times at the property, but ultimately we did not want to burden our kids with it.”
For his part, Reed says he has been encouraged by timeshare bills in various state legislatures in 2019, including recent pro-consumer legislation signed in Arizona. “The industry is in desperate need of reform,” he said. “We’ve had people in our office tell us they are contemplating suicide because they cannot get rid of a timeshare that is ruining them financially. It’s so important to get some basic protections in place.”financially. It’s so important to get some basic protections in place.”