During the last month alone, 3 high-profile timeshare scams have been raided by police in Orlando, Florida. In at least twenty news pieces on these developments, the public has been treated to images of SWAT teams busting down doors, police confiscating computers and printers, and the ubiquitous ‘deal board’ being dragged from a shady office by regulators. Taken at face value, these images may be reassuring; certainly, scandalous Florida-based timeshare resale companies give the industry a bad name. But, it takes a timeshare industry insider to recognize these stories are not good news – not at all. Behind the headlines are regulatory follies that threaten the very existence of a secondary timeshare market.
Exactly one year ago, this blog warned of a timeshare scam designed to convince owners that their properties were ‘already sold.’ Of course, to complete the deal required payment of an enormous up-front fee. Despite our best efforts (and those of numerous other legitimate timeshare companies) to warn timeshare owners, some continue to fall for this obvious fraud. The effects of the ‘It’s Already Sold’ scam have been devastating to real timeshare resale companies: forcing them to become apologists for their now-tarnished industry.
Making matters worse for the industry, reporting on timeshare scams rarely draws a distinction between real timeshare resale companies and criminal fronts. A notable exception is Illinois Attorney General Lisa Madigan, who warns of “scammers posing as timeshare resellers,” describing them as “fake.” All too often, descriptions of timeshare-related crimes are so vague and subjective they border on misleading: The Orlando Sentinel quoted police Sgt. Amy Ameye, stating victims “were told If you send money… we will get the paperwork going, we will get your timeshare sold for you” – a statement that could conceivably apply to any timeshare resale company, legitimate or otherwise.
In a press release from July 2010, the Florida Attorney General describes “actively pursuing timeshare resellers as part of a statewide initiative” – a blanket statement that presumably includes all timeshare resale companies. Given Florida’s prejudices, should it really surprise anyone that timeshare scams there have exploded? The State’s witch-hunt regulatory environment leaves no room for legitimate timeshare resale companies.
The Florida Department of Agriculture and Consumer Services
The ‘It’s Already Sold’ timeshare scam is clearly a crime that should be prosecuted. Possible Federal and State charges include Grand Theft, Organized Fraud, Intentional False Advertising, Mail Fraud, Wire Fraud, and that’s just for starters. So what crimes were the Orlando timeshare scammers charged with? Unlicensed Telemarketing, a third degree felony in Florida.
In Florida, timeshare resellers fall under the authority of the Florida Department of Agriculture and Consumer Services (DOACS), where they are regulated as telemarketing companies. According to DOACS investigator Sasha Velez the problem of timeshare resale scams in Orlando is “huge… We have over 40 to 50 cases unlicensed right now that we are looking into.” Of course, no one asked Ms. Velez the obvious questions:
What if these Orlando timeshare scams had telemarketing licenses? Would you have allowed them to continue defrauding consumers across the country? What if they scammed people in person, or via email?
This is the down-side of excessive regulation; the need for regulators. Folks that may be well-meaning, but just don’t get it. Solutions put forth by the DOACS, and others in Florida, have sought to criminalize the entire timeshare resale industry. The problem in Florida is not timeshare resale companies, it is criminals. If your State has criminals committing wide-scale fraud, the solution is not issuing telemarketing licenses, it is criminal prosecution.
February 16th, 2011
State laws regulating timeshare sales have brought legitimacy to the industry; reassuring consumers by mandating rescission periods, and fostering an environment where flagship hotel chains could enter the market without risking their brand equity. It would stand to reason then, that state regulation of timeshare resales would have a similarly positive impact on the timeshare after-market. Although, on closer examination, many regulations aimed at the timeshare resale market actually make timeshares harder to sell, and place undue burdens on consumers. Attorney General Bill McCollum has been the point man in Florida’s fight to regulate timeshare resale, “actively pursuing timeshare resellers as part of a statewide initiative that started in 2009.” A March 2010 press release from McCollum’s office seems to indicate consumer complaints about timeshare resales actually increased during this initiative, surpassing “mortgage-related complaints as the most commonly reported complaint.” Ultimately, McCollum has failed Florida’s timeshare owners with his divisive approach to resale, just as his negative campaigning failed to win him the GOP primary in Florida’s 2010 gubernatorial race.
No one familiar with timeshare resales can deny there are some bad companies in the industry; some who simply lack the required skills or knowledge, and some that are basically just common thieves. These outfits should be dealt with, and they are. Free market forces are sufficient to eliminate most of them, and existing State and Federal laws already allow for prosecution of fraudulent companies of any kind. That said, the vast majority of timeshare resale companies want to succeed, which requires they actually do what they promise: As a timeshare resale company is simply an agent of the timeshare owner, success for one necessarily means success for both. The real tragedy today is that politicians like McCollum have distorted perceptions to the point timeshare owners find themselves aligned against the timeshare resale companies working to help them. (When observing stage magic or political theater, it’s advisable to watch the other hand.)
Some Background on Timeshare Resales
Timeshare is sold by developers with a basic premise: That if someday in the future the owner’s needs change, they will be able to sell the timeshare. Most developers do not infer “investment potential” when selling timeshare, except to say that “a deed is more valuable than a box of receipts.” Owners who eventually decide to sell their timeshares are confronted with a unique set of obstacles: no “for-sale” signs are permitted on the grounds of the resort, owners are allowed access to their unit only one week per year (making showings nearly impossible,) and demand for the product itself is driven by the developer sales team, not the free market. Further complicating matters, commissioned real estate brokers are only permitted on property after all on-site developer sales are complete – usually around 20 years, but potentially indefinitely for multi-resort chains conducting points-based sales and upgrades.
The only option left for an owner who wants to sell is to advertise the timeshare. While there are some no-cost options available, most advertising is pay-as-you-go. With no guarantees of success, the owner can quickly spend hundreds (if not thousands) of dollars on advertising before finding a buyer.
Enter the Timeshare Resale Company: By combining the advertising dollars of multiple timeshare owners, effective resale companies are able to advertise to a broader audience and for a longer length of time, and hopefully leave room for a profit. Many timeshare resale companies simply guarantee to advertise the timeshare until sold, effectively capping the cost to the seller. The less time a specific timeshare must be advertised, the lower the actual cost to the resale company – a model that rewards success and encourages timeshare resellers to advertise in a cost-effective manner.
Defining The Controversy
Until the recession, timeshare development experienced years of steady growth, peaking in 2007 with $10 billion in sales. The emergence of the timeshare resale market poses two distinct threats to timeshare developers:
- Since timeshare sales result from artificial demand created in a controlled environment, it is conceivable that no one would buy timeshare in the absence of these conditions. Should that prove to be the case, timeshare developers will have sold tens of billions of dollars worth of albatrosses – leaving millions of Americans with endless maintenance fees, and exposing themselves to both civil and criminal liability. The surest way for developers to protect themselves against this possibility is to discredit timeshare resales, and lobby sympathetic politicians like McCollum for legislation to thwart the timeshare resale market.
- If the timeshare resale market continues to grow, eventually most consumers will have at least a peripheral awareness that timeshares can be purchased from existing owners that want to sell, usually at a substantial discount. Timeshare developers have watched their sales decline around 40% over the past two years, with many now on the verge of bankruptcy (or in some widely publicized cases bankrupt.) Right now, for the developers every sale counts. The fear among developers is that widespread awareness of a credible secondary market would keep people from buying timeshare in the heat of the moment (on a timeshare tour.)
The Motivation Behind Timeshare Legislation
To borrow a line from Vanilla Sky, “What’s the answer to 99 out of 100 questions? …Money.” Not only is Florida home to more timeshare resorts than any other state, it’s home to more major developers than any other state. Among them: Wyndham Vacation Resorts, Bluegreen Corporation, Hilton Grand Vacations, Westgate Resorts, Marriott Vacation Club, Celebrity Resorts, Berkeley Resort Group, etc…
The ongoing assault on timeshare resale by McCollum may actually be a democratic one: While I could not find exact statistics (not surprisingly,) it’s possible there are actually more employees of developers in Florida, than there are timeshare owners in Florida.
Despite recent claims from the AG’s office, Florida has been after timeshare resale companies for a long time – the first legislation designed to crush the resale market passed in July 1989. Since, as mentioned above, advertising is the most integral component in timeshare resales, lawmakers have long sought to prevent timeshare owners from paying to advertise. Initially, a law was passed to force Florida’s timeshare owners to sell through a licensed real estate broker. Since commissioned brokers cannot charge advance fees in Florida, they lack funds for wide-scale advertising; making the sale of timeshares effectively impossible. A 1990 New York Times article specifically addresses the legislation’s unfair consequences for timeshare owners.
It’s worth noting that even after two decades of Florida lawmakers’ attempts to eliminate timeshare resale companies, consumer demand for resale services has remained strong.
Since 1989, Florida has passed numerous laws designed to discourage companies from entering the timeshare resale market. The culmination of these efforts is Sec 721.20; an over-broad piece of legislation, enforcing retroactive record keeping requirements, attempting to regulate the actual prices of resale timeshares, and effectively eliminating the timeshare resale industry in Florida.
The Legacy of Florida’s Timeshare Witch Hunt
Having grown up in the “Good-Old-Boy-Network” of the Sunshine State, politicians like McCollum shouldn’t surprise me. Largely due to his crusade against my career, I moved away from my native home with more than a little sense of betrayal. Though I’m now an ex-Florida resident, for the sake of argument, I’ve attempted to theorize what exactly would constitute a legal timeshare resale company according to McCollum, and the Florida statutes, in the scenario below:
- To begin with, a newly formed resale company would need to employ a Florida licensed real estate broker, and a staff of licensed real estate sales people. This presents a challenge, as licensed real estate sales people who want to sell timeshare usually work for developers, where both commissions and prices are much larger than the resale market. Since this is hypothetical, lets assume we can find these folks, and that they will agree to work for lower wages, and possibly for free, until the marketing kicks in and starts producing buyers.
- Unless the hypothetical timeshare resale company only wanted to sell Florida timeshares, more real estate licensees would be needed on the payroll; from each state where listings would be taken, and commissions would be paid.
- As potential timeshare buyers or sellers would likely contact the company on the phone, a Florida telemarketing license would be needed ($1,500) along with a bond ($50,000.) Also, as a condition of the license, all directors of this resale company of the future would need to disclose their personal financials to the State of Florida, and consent to periodic, unannounced audits and inspections of their financial records and bank accounts.
- Since no upfront advertising fees could be paid by the timeshare owner, a resale company could need at least a years’ worth of expenses for a website and advertising. On a shoestring budget, I’d estimate this at around $1.5 million.
- The last requirement would be exceeding thick skin, as the company would be forced to confront the literal maelstrom of negativity timeshare resale companies face every day.
So, to open and operate a timeshare resale company in Florida, one would need to be a thick-skinned, multi-millionaire that doesn’t value privacy, and has access to numerous licensed timeshare sales people willing to take a pay cut. Hmm….
If one were to be in that rarefied position, why wouldn’t he/she just become a timeshare developer, and make a lot more money? Hmm…
So, to own and operate a timeshare resale company legally in Florida, one would need to be a philanthropist, thick-skinned, multi-millionaire that doesn’t value privacy, and has access to numerous licensed timeshare sales people willing to take a pay cut. Hmm…
So really, all Floridians need to solve their timeshare woes is to find a philanthropist mutli-millionaire dedicated to the cause of helping middle-class suburban Americans sell their timeshares? Really? Really?
Timeshare developers are hard at work, lobbying for Florida-style timeshare resale legislation across the nation. If they are successful, over 4 million Americans will watch as their assets become albatrosses. The very same vilified timeshare resale companies are the only thing standing in the way of the developer’s goals – and there aren’t many of us left. If you own timeshare, it’s time to speak up or end up like the many Floridian timeshare owners who have no options left.
Mr. McCollum, in the words of Abraham Lincoln, “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”
September 1st, 2010