In 1974, the timeshare industry took off in the United States. It has since become fraught with malevolent business practices and consumer abuse. Timeshare resale scams have topped the Consumer Federation of America’s top ten list of consumer complaints. Owners are saddled with rapidly expanding costs when companies charge for maintenance fees and then those same companies refuse to buy back properties once sold. This article will evaluate the illegal tactics that timeshare companies use and the dangers these properties represent to particular demographics.
When 95-year-old Harold Spencer first purchased a timeshare, it was with the expectation that he could pass along a financial investment and vacation experience to his descendants. Little did he realize the financial burden this would become to himself and his family. “I was originally told that for $329.76 a year, I could own a beachfront property for me and my family. Five years later, I owe over $60,000 in fees to the timeshare company. My credit has been ruined and I can’t even use or sell the timeshare.” Sadly, Mr. Spencer’s experience is not atypical.
1974 marked the birth of the timeshare industry in the United States, an industry that was to become fraught with malevolent business practices and consumer abuse. This new market revolved around one simple premise: while previously only the most affluent members of society could afford to vacation at luxury resorts, now the average individual and her family could as well. Rather than be saddled with the responsibilities and costs of buying a vacation estate, an owner could take advantage of the same vacation property for one week out of the year, at a fraction of the cost. This innovation meant that, instead of selling a condo unit at Disney World or Niagara Falls to a single buyer, a developer could market the unit based for a specific time, called an “interval”. While a family could guarantee their stay at a vacation destination for a fraction of the cost associated with buying the entire property, a developer could capitalize on the idea of marketing a single unsold condo during an era of overdevelopment and high interest rates, for 52 weeks and sell to as many as 52 owners, each responsible for paying a share of the overall price. It appeared to be a win-win for all involved.
Wherever a market exists, deceptive or fraudulent activity can also be present. This proclivity also applies to the timeshare industry. Timeshare fraud is one of the most rampant issues in the timeshare marketplace and has gained notoriety from an escalating number of consumer complaints. In fact, timeshare resale scams have topped the Consumer Federation of America’s top ten-list of consumer complaints. In 2016, problems with timeshares were the fastest growing complaint to the New York Department of State Division of Consumer Protection and among the worst complaints for the nation as a whole. Timeshare fraud is perpetrated in varying ways: from the millions of dollars of unwanted timeshares sold to consumers through high-pressured and over-aggressive sales presentations, to deceptive business practices. Timeshare contracts often contain nondisclosed hidden fees that are coerced upon timeshare owners. These problems are compounded by unregulated increases in annual maintenance fees, negligent upkeep of properties, and misrepresentation of the product. Unfortunately, timeshare companies use fraudulent devices or perform illegitimate acts in an attempt to mislead timeshare owners for their own financial gain.
As of 2017, there exist more than 1,600 timeshare properties, 9.2 million owners, and over $10.2 billion invested in the United States timeshare industry alone, as reported by the American Resort Development Association (ARDA), a timeshare development trade group. As the industry expands, many timeshare companies are clamoring to reinvent themselves. The original timeshare company model, centered on development, directly sold a share of a property to a consumer, managed the property, and arranged for project financing. As this model evolved, the timeshare company assumed the role of a broker, which specialized in negotiating exchanges between timeshare interval owners, in the event a consumer wanted to exchange their week for a different time period or location. In addition, some timeshare companies became exit companies to assist consumers in unloading unwanted timeshares. Rather than occupy one segment of sales, many companies are expanding horizontally, to entice buyers at all levels of the industry.
Today, the two main timeshare conglomerates are Resort Condominiums International (RCI) and the smaller network, Interval International (II). Originally founded in 1974 by Jon and Christel De Haan, RCI is the world’s oldest holiday timeshare company. It began as Resort Condominiums International until it reorganized in 2010 to Group RCI. After Group RCI, the company again reorganized to RCI and has since branched out to include Silverleaf, Wyndham Exchange and Rentals, Wyndham Destination Network, and Wyndham Vacation Club. RCI has reorganized to become a timeshare exchange broker, wherein a customer can become a paid member through a timeshare exchange. Yet, its subsidiary, Wyndham Vacation Club serves as the arm of the RCI empire which develops and sells timeshares. Effectively, RCI is involved at every aspect of timeshares: from the development to sales to brokerage, to resale. As former Wyndham Sales Representative, James S., states, “Since RCI now owns Wyndham and the most properties in the business, you don’t have much choice,” regarding timeshare company options. Although many potential clients have heard malicious feedback from former Resort Condominiums International and Group RCI customers, they are much more likely to purchase from a timeshare company they do not realize is part of the RCI family, companies like Silverleaf or Wyndham. Because of its many reorganizations, it is unclear to potential timeshare buyers that they are purchasing from the RCI brand.
Many owners appear happy with their purchases and routinely vacation in their time shares during their prearranged week. However, the timeshare industry has long held a reputation for fraudulent and malicious sales practices. Owners often encounter unforeseen challenges including increasing annual maintenance fees and being saddled with an asset that has little resale value and no equity. Increasingly, reselling a timeshare is notoriously difficult, as many timeshare companies are often unwilling to buy back sold units.
Following the 2007 recession, the timeshare industry was hit especially hard. The steep economic downturn caused timeshare sales to decline sharply, leading to the layoffs of hundreds of salespeople. At the same time, the resale market became flooded with owners desperate to unload their units.
One major burden timeshare owners realize is the mandatory contractual requirement to pay an annual fee for property maintenance. For example, the timeshare association will use fees to pay for things like landscaping, security, pest control, repairs, and maintenance of amenities (such as pools, golf courses, workout rooms, and clubhouses). As described in one Silverleaf contract, “Buyer or buyer’s successor will be required to pay a monthly membership assessment to the Club. The membership assessment is based on the common expenses and costs of the Silverleaf Resorts, including, but not limited to, ad valorem property taxes, utilities, maintenance, management, and administrative expenses reserved for deferred maintenance and the like. The monthly membership assessment may be increased by the Club from time to time and the Club is also authorized to make special assessments from time to time.” Timeshare maintenance fees vary from place to place, but they are often as much as many hundred dollars per year. Unfortunately, maintenance fees are required, even if you choose not to use your timeshare. These fees have recently made a sharp increase. In the case of Mr. Harold Spencer, his original 2004 RCI contract stipulated that fees were $329.76. However, thirteen years later, the property’s annual rates recently surpassed $850.00. As timeshare collectives begin to lose value, the maintenance fees are likely to rise every year, as is shown in Figure 1. According to the American Resort Development Association, timeshare average maintenance fees increase 8% per year. Some collectives, including RCI and Wyndham, have been known to raise yearly maintenance fees as much as 20% per year. However, the initial contract leaves no room to refuse payment of the annual maintenance charges or to exit the contract. The rights and financial obligations of ownership are passed on to the heirs of the estate, obligating the estate heirs, throughout their lifetime and beyond.
(Figure 1) “Timeshare Ownership Costs.” Timeshare Specialists, timesharespecialists.com
In many cases, consumer questions are met with assurances that are untrue, including false guarantees regarding the use and cost of the timeshare. Sales teams want the buyer to believe that, when purchasing a timeshare, the timeshare will not pose a burden to their budget. Sales team members guarantee that maintenance fees will increase slowly, or in tandem with low cost of living increases nationally. Yet, in reality, a timeshare owner is responsible for any increase in maintenance fees. In other words, there is no limit on the amount maintenance fees may increase. These fees are not regulated or capped by law and are legally enforceable per the original contractual agreement. As an RCI contract stipulates, maintenance fees, “are subject to increase from time to time.” Because it is inherent within the contract, consumers make little, if any progress, when they protest against the timeshare for aggressive fee spikes.
There are many aspects to property management which can reduce profitability for potential timeshare investors. From natural disasters to broken appliances to guest damage, clients are charged for any unforeseen fees at any time. As timeshare owner Debbie Kovak recalls, “When we arrived at our timeshare in the Bahamas, we informed the property manager and maintenance staff that the air conditioner was not working. The entire week we were there, the air conditioner was never fixed, despite asking every day. On our last night, the manager informed us that we would be held responsible for repairs to the air conditioner. We were billed, but the air conditioner was never fixed for the duration of our stay.” There is often little oversight to ensure repairs are made on timeshares, despite charging customers for broken appliances or damage due to other guests.
When Mr. Spencer purchased a timeshare through RCI in Gulfport, MS, he was never given the option to purchase insurance on his timeshare. Moreover, RCI refused to allow Mr. Spencer to purchase external insurance on his property. When a hurricane hit Gulfport seven years later, Mr. Spencer’s timeshare began to flood. RCI charged Mr. Spencer and each of the other timeshare owners an unforeseen $59,000 per timeshare interval for weather-related damage, in addition to the already crippling increase in maintenance fees. As a result of the repairs, Mr. Spencer and other Gulfport timeshare owners were unable to use their timeshare for 1-3 years, during the repair period, despite having paid for the repairs. “In the Gatlinburg/ Pigeon Forge Wildfires last December, hundreds of properties were destroyed, including some timeshare resorts. Consumers complained that timeshare companies were still demanding that they pay their annual and maintenance fees even though the properties were unusable. One couple that bought a timeshare… never even got a chance to use it before the resort was consumed by fire. They asked to cancel, but the company insisted that they could use other timeshare properties- if they upgraded for an additional fee.” Timeshare owners also report unforeseen regular charges for normal wear and tear or damage stemming from other tenants. Often, clients fail to realize that these contracts can cause financial hardships, binding owners to pay unexpected special assessments – extra fees paid to the collective association to offset unexpected expenses. These fees are charged on top of standard maintenance fees, utility fees, and taxes, and can come at any unexpected time during the length of ownership. For example, a resort may levy a special assessment to pay for a new roof for the community clubhouse or to pay for new tennis courts. These assessments are required to be paid whether you choose to use those facilities or not.
Timeshare property owners are also expected to pay time share companies for utilities. Some companies base this on the electricity utilized and bill owners for it at the end of the week. This can get expensive in tropical beach locations where owners run the air conditioning all week or in cold locations (like at a ski condo in winter) where it is necessary to generate heat. Property taxes may also be assessed against the time an owner occupies the timeshare. Alternatively, some places impose a timeshare tax for each night an owner stays in the timeshare. All in all, these costs (collectively referred to as “assessments”) can add up very quickly.
Timeshare fraud is aimed at a range of demographics, but the largest majority of victims are senior citizens. Promises and emotional selling are deliberately designed to entice seniors into an expensive, and potentially catastrophic financial obligation. Timeshare companies often use lengthy sales presentations to wear seniors down and convince them to buy. Many seniors are told that extra, unused weeks would be eagerly used by other family members. Seniors are swayed by emotional sales tactics including perpetuating the belief that a timeshare would draw the family to vacation together, the same time every year, to build a warm tradition and memories. One former Wyndham employee, who prefers to remain anonymous, stated that he was routinely urged by the corporation to sell the idea of family involvement to seniors. “We were told to gloss over the fact that contracts contained a perpetuity clause. Usually, we relied on customers to not read or question the contracts. In fact, we intentionally wedged this part of the contract between other clauses, so that people wouldn’t ask. When customers did question the perpetuity clause of the timeshare contracts we sold, we were pushed to sell senior customers on the idea that the next generation of family members would want to inherit the timeshare.” Seniors are often targeted because of failing eyesight which means they are unable to read the contracts, thus relying on the verbal promises of the timeshare salesman.
In addition to deceptive and emotional sales tactics sales teams employ to unduly influence senior customers, they also intimidate victims through threats. Senior timeshare owner, Victoria Templeton, recounts her experience of being promised tickets to Epcot Center and a free lunch if she would only, “listen to a short presentation”. After two hours of presentation and sales pitch, she said she wanted to leave with the promised tickets, whereupon she was told that, “the doors were locked.” When she tried to leave, sales team members blocked the door and threatened her that if she left, her credit card would be charged for the tickets and lunch. At this point she felt pressured to sign the contract, in order to leave. Like Ms. Templeton, many seniors fall prey to this undue pressure.
Timeshare contracts are unique in one major regard: the binding contract, which obligates owners and their families to the terms of the contract, extends beyond the death of the original owner. This ‘perpetuity clause,’ endemic to timeshare contracts, means that the ownership of a timeshare property extends indefinitely. Contracts involve a legal exchange of promises to complete an action, meet terms, or complete an agreement. Parties breach a contract when the person fails to perform the duties assigned by the agreement, yet death makes the performance of duties impossible. While death voids many contracts, the perpetuity clause within timeshare contracts is one of the few circumstances where a contract remains in force, even when one party to the agreement dies. Not only do the perpetuity clauses in timeshare contracts fail to provide the original consumer an exit strategy, but they obligate future generations to an increasing debt without their consent or free agency. Like other contracts, according to the Federal Trade Commission Act, individuals should be able to exit these collective contracts if they believe they were deceived or if the timeshare association breached the contract. However, perpetuity clauses apply to a transfer of rights or articles that survive contract termination. They are described as contracts that last forever or for an indefinite period of time. This clause requires you to pay the associated costs of owning a timeshare for the rest of your life. When you pass away, the timeshare becomes part of an estate. This obligation is then passed to your designated beneficiary or next of kin. Such contracts offer pre-printed terms and conditions, within which the consumer is not permitted to make any alterations, whatsoever. As a result, dissatisfied owners cannot expect timeshare collective companies to release them from their contracts; the clients and their dependents are responsible for meeting the demands of these companies, without a way to exit the contracts. Although no current federal legislation prohibits perpetuity contracts, several states, including Texas, have legal doctrines discouraging never-ending contracts.
In all other aspects of contract law, a legally recognized contract is one in which each party has the free agency to consensually enter into the contract. Without this free agency, contracts are considered null and void for reasons including possible coercion, breach of contract, or fraud. Fundamental contract elements include the capacity to contract and the legality of the contract, which forbids contracts made by people without the legal party present to commit to the action. At no point should descendants be obligated by the perpetuity clause of a contract which they, themselves, did not enter. For example, it is for this reason that a non-owner is not permitted by law to sell another person’s car or house without the consent of the owner. Federal, state, and local laws typically void a contract when any of the principle signers die. Timeshare contracts should not be exempt from the common contract parameters as established by rule of law. Yet, timeshare companies oblige clients to sign on behalf of future generations to purchase a property. RCI contracts specifically state, “This Contract and the agreements and promises herein set forth shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, assigns, successors and personal representatives, and the provisions of this contract shall survive the closing of this transaction.” Furthermore, RCI requires clients to certify that the contract,” does not represent a financial burden to me or my family.” It is not possible that a potential client may be able to attest to the financial solvency of future generations. Timeshare companies are effectively coercing clients into signing this clause by making it mandatory to agree to these terms, in order to obtain the product.
As it stands now, the U.S. has yet to illegalize perpetuity clauses. Several of these timeshare companies are under investigation by Attorney General’s offices in Florida, Tennessee, Wisconsin, Colorado, New York, Minnesota, and California. The U.S. Attorney General’s Office and Consumer Protection Agency are also evaluating fraudulent timeshare claims. The Federal Trade Commission (FTC) announced 191 law enforcement actions to spotlight timeshare scams, including three FTC cases, 83 civil actions in 28 states, and 25 law enforcement actions brought in ten countries. Other nations, including Israel, South Africa, and Spain have already made perpetuity clauses unlawful.
The only exit strategy for dissatisfied timeshare owners is to sell their interval, however timeshares do not have a resilient resale market, meaning clients often cannot find buyers to take over the contract, so they are left owing monthly maintenance fees, which continue to increase. As the timeshare depreciates in value, the fees will likely increase. When payments are not made, this can lead to the accumulation of late fees. The timeshare buyer will ordinarily be responsible for maintenance fees, special assessments, utilities, and taxes pertaining to the property. If she becomes delinquent in paying those fees and assessments, the timeshare association (the governing body that is responsible for the operation of the timeshare project) will be able to get a lien on the timeshare that could lead to a foreclosure. On some occasions, the resort will foreclose and take back the timeshare. Or, alternatively, they may opt to send the debt to a collection agency or hire a lawyer and pursue legal action in court against the timeshare owner.
What people often fail to realize is that even if they are current in their deeded timeshare mortgage payments or the timeshare purchase price has been paid off, they could still face a foreclosure if they fail to keep up with the assessments (or they could also be sued for the amount of the indebtedness). The rules of the timeshare are set forth in what is called the Declaration of Covenants, Conditions, and Restrictions. The Declaration usually provides that if there is any default in the payment of fees, costs, and assessments owed by an owner of a timeshare interest, the entire unpaid assessed sum with accrued interest and other charges shall become a lien against the timeshare interest of the non-paying owner. A real estate foreclosure or lien can be extremely detrimental to an individual’s credit report and may impact their borrowing ability in the future. However, if the estate has assets at the time of death, the assets must be used to satisfy the debt. Some assets are exempt, such as homesteaded property, but assets subject to probate are often unprotected.
Generally, timeshares and collectives cannot be donated or written off as a loss. Because the Internal Revenue Service (IRS) revoked the ability of nonprofit organizations to receive tax-exempt status if they accept timeshare donations, most non-profit companies will not accept timeshare property donations. Not only would it require recipients to pay federal taxes on the property, but the non-profit companies would be required to pay the annual maintenance fees. Contractual perpetuity clauses are especially nocuous to the dependents of clients, who inherit these debt obligations without the ability to donate or resell the timeshare interest. As a result, the credit scores and future borrowing capacity of dependents and beneficiaries may be adversely impacted.
In addition to the lack of exit strategies, timeshare owners may be subjected to fraudulent and deceptive practices by the timeshare company. There have been instances timeshare companies, including Silverleaf and RCI, refuse to give clients a written copy of the original contract for reference. Instead clients are given shortened versions of the contract, which do not include all provisions of the original contracts. These shortened contracts are designed to reference the full contract and original declaration, without providing the client with the ability to review the original contract or present it to others for help or consultation. Failing to provide customers with a complete copy or concealing provisions of the signed contract is a deceptive trade practice, currently prohibited by several state laws, including those in California, Maine, and New York.
Many timeshare companies, such as Wyndham and Disney, offer timeshare packages in the form of “points”, in which an owner enters into a legally-binding contract to exercise the use of these “points” by going on vacation annually or on a bi-annual basis. There are many undisclosed disadvantages that result from the use of these “points.” Most timeshare owners are required to book a vacation nearly a year ahead. What most timeshare sales teams fail to mention is that the points system is skewed. Points depreciate, requiring individuals to purchase more points every new year to obtain the same initial promise. Timeshare units are often not available during the time period clients look to reserve units. If this is the case, clients cannot use the points, which results in the devaluation of their initial investment. While timeshare companies propagate the idea that timeshares are quality investments for clients’ futures, timeshares can instead be major liabilities.
In the instance that timeshare owners are unable to use their purchased week or are powerless to sell the week to others, they may not seek compensation for the unused investment. A Silverleaf contract notes that the “Buyer is purchasing the Vacation Ownership Interest for his own use and not as an investment.” There is, however, no clause stipulating that the property management company cannot rent out the unit and profit from the property as a result. Yet, the timeshare owner receives no compensation from or notice of this income. Typically, property management companies will inflate the cost of the week and sell it through last minute timeshare rental companies or 3rd party sites, including Hotels.com or Ebay, retaining all of the profit derived. In 2006, a class action lawsuit against timeshare mogul, RCI, alleged that RCI rents the most desirable and high-demand vacation weeks from the space bank, thus depleting the most desirable options available to Weeks Program members who seek exchanges. The lawsuit was settled in favor of the Program Members.
In most cases, timeshare resorts are managed by a board of directors, which votes on any increase in maintenance fees. Although a timeshare owner may determine through a vote who is elected to the board of directors, in almost every case, the candidates either work for or are involved with the timeshare sales team, in some capacity. According to a former Wyndham timeshare employee, “It doesn’t matter who is voted in. The candidates all have the same prerogative: to raise maintenance costs for clients as often and as much as possible.” Maintenance fees tend to increase anytime the board of directors feels that revenues are falling short of annual targets. Many timeshares have been legally accused of radically increasing expenses, without providing evidence or justification for the fee spike. There is little or no remedy for the timeshare owner as their only recourse is to complain to the board of directors that was responsible for the rate hike in the first place.
Timeshare sales companies intentionally utilize a strategy to promise everything and deliver very little, except for years of frustration and escalating costs to their clients. If affordability of vacations was the lead motivation for purchasing, many companies are confident that members will not want to spend more for legal counsel, to fight terms of the contract. To help guarantee that this is not the case, companies build in binding arbitration clauses to every contract, prohibiting clients from attempting to sue them for damages. The standard RCI contract is one example of this.
Laws prohibiting unfair and deceptive trade practices in consumer transactions have been enacted in every state. They apply to almost all consumer transactions and are extremely flexible and potent. They are in place to help prevent fraudulent behavior practiced by a business, including timeshare companies. If the timeshare company fails to fulfill its contractual promise, for example by reorganizing to change its obligations to the client, there may be cause for breach of contract. Additionally, many timeshare sales companies are also guilty of misrepresentation and duress- false statements of fact and threats made to clients, which have the effect of inducing that party into signing the contract. There are many of these fraudulent activities that should and would fall under the deceptive trade practice laws for which timeshare companies should be held accountable.
It is important that clients and future clients are made aware of these potential risks. These deceptive and fraudulent practices are prevalent in all aspects of the timeshare industry. From sales tactics to perpetuity clauses to unregulated maintenance costs and credit risks, there is a potential for devastating consequences to timeshare owners and their families. Timeshare fraud should be a civil law violation and should invalidate the contract of those clients intentionally deceived or cheated by timeshare companies. Many original timeshare clients are passing away and only now are their descendants realizing the debt obligations they have inherited. It is important for prospective buyers and current timeshare owners to understand the growing risks these investments pose to themselves and their heirs. Timeshare investment should be regarded as a liability, not an asset.
**If you believe you have been a victim of a timeshare scam and incurred financial losses, the U.S. District Attorney’s office recommends that you file a report with the Federal Bureau of Investigations (FBI) immediately.