Trouble In Paradise

How To Navigate The Turbulent Timeshare Market

If you're looking for a vacation spot, the economic tough times might mean that someone else's pain is your gain. You might be able to buy a timeshare week for as little as $1. But if you own a timeshare week, trying to sell your vacation week might expose you to shady operators.

From: "Consumers Digest" June 2010 Edition
Article by: Pallavi Gogoi

Whether you crave the caress of a tropical breeze as you lounge on a golden beach in Hawaii or Florida or the bite of fresh snow under your skis in the Rockies or New England, the dream of owning a timeshare week might be closer than ever.

Today's economic tough times mean that you can find vacation weeks online for less than what you paid for your last cup of coffee, but like the lines that keep you tethered to the parasail above your beach paradise, there are strings attached.

You might face unexpected opstacles to swapping your timeshare for another location. And higher fees that are passed along by timeshare operators are the rule of the day.

BUY, BUY, BABY. The worst recession since the Great Depression makes it a buyer's market for many timeshare locations. Particularly those resorts that are in areas that have seen the worst of the real estate downturn, such as Arizona, Florida, and Nevada.

Deals that are offered online by private owners might save you hundreds of dollars when compared with what you would have paid for similar properties in the resale market just a few years ago.

And these deals are thousands of dollars less than what you'd typically pay for a direct purchase from a resort owner. "I paid less than $1000 for my timeshare on eBay in 2006," says Robert Donathan, who is a retiree from Austin, Texas, and has vacationed several times at his one-bedroom, 1-week timeshare in Orlando, Florida.

He says owners who live next door might have paid $10,000 or $15,000 for their units. But more recent can top Donathan's deal: A glance at eBay in early March listed timeshare weeks in such places as Orlando, Florida, and Branson, Montana that sold for $1 each. Sometimes without closing costs.

We also found high-profile vacation weeks in the Rockies and Hawaii that sold for $100 or less.

That's really an eye-opener when you consider that the average price of a timeshare in 2008 was $20,150, according to a survey by American Resort Development Association (ARDA), which is a trade group for the timeshare industry.

But before you decide to snap up low-price timeshares to sell at a profit, you should keep in mind that the initial purchase is far from the only expense that you'll encounter. This is why we agree with the routine advice that you should buy a timeshare because it is a vacation spot that you want to revisit regularly and not as an investment.

No matter how much that you paid, you still will owe the annual maintenance fees ( typically from $464 for a studio apartment to $739 for a two-bedroom unit, according to ARDA), and you're subject to any fee hikes.

Maintenance fees aren't set amounts that you ca budget, and they never go down, industry observers say. "What starts out as a $400 annual fee could grow to over $1,000 in 10 years, at which point, it doesn't seem so cheap anymore," says Brian Rogers, who runs tug2.net, which is a web site that has 41,000 registered users and one that consumer advocates point to as a valuable resource for timeshare owners. The site allows owners to exchange ideas on how to get better deals, call out scams and swap timeshare weeks.

"When you purchase a timeshare, you are under contract, and there is no recourse whatsoever if maintenance fees go up, because it's contractually legal," says Martin Brees, who is a timeshare consumer advocate at TimeshareMortgageRelief.com "a timeshare rescue company that will help troubled timeshare owners who want to get out of their contracts to legally get out of their timeshares." (The group charges a flat fee that totals about 10 percent of the mortgage balance on the property for canceling your timeshare contract.)

State laws allow a recission period of 3 to 15 days - most typically 5 to 7 days - which is when people can get out of their contracts if they have second thoughts about their timeshare purchase. But buyers sometimes get a run-around from developers until that period is up, Brees cautions, and he says that they're all variations of stonewalling: For instance, consumers are promised verbally that their contacts will be terminated within the recission window, but nothing gets done and consumers don't find out that they are stuck with a timeshare that they don't want until they get their monthly bill. "Many people won't fight back, and they end up getting stuck with the timeshare," he says.

Another thing for you to remember: If you buy a timeshare week in a private resale, some resorts charge fees to transfer ownership, which range from $50 to $150 depending on the state and county in which the timeshare is located.

PAY, PAY AGAIN. Ellen Luchette, who is a 50-year old elementary school teacher from Limerick, Pa., paid $15,500 in 2005 for a 1-week, two-bedroom timeshare at the Marriott Ocean Club in Aruba. "I bought it for the beautiful ocean-front view," she says.

Luchette says her timeshare's annual maintenance fee was about $1,000 when she bought the timeshare, and it moved up steadily thereafter. But, in October 2008, she got a letter from her timeshare operators that informed her that her maintenance fee would increase that year by a whopping 38% to $1,616.

But that wasn't all. Luchette also was hit with a special assessment of $1,413 partly because of hurricane damage to the property. "It was so outrageous that I decided that I had to get rid of it," Luchette says of her former dream vacation location. She sold her timeshare for $11,000 - a loss of $4,500.

Ed Kinney, who is Marriott's vice president of corporate affairs, confirms Luchette's double whammy in fees. In addition to the hurricane damage, he says, there were higher taxes and utility costs to pay. (Fuel costs since have gone down, and the maintenance fee for 2010 has been reduced to $1,458, he says.)

"Unfortunately, the homeowners have to share the increased costs," Kinney says. Marriott's "have to share" stance is typical practice when it comes to timeshares. When your timeshare operator's costs rise, you can expect to see your fees go up.

But in these tough economic times, it might be more than higher maintenance fees that timeshare owners must cover. As more people lose their jobs and household incomes decline, many timeshare owners are finding it difficult to make their payments. Who covers for those who can't pay? Other timeshare owners are discovering that it's them.

For example, at the Pollard Brook resort in New Hampshire, timeshare owners in 2009 had to pay a special assessment of between $250 and $500, depending on the size of their unit. This was levied to share in the company's losses that resulted from the rising number of defaulting owners and also from the company's inability to sell or rent it's units. Ouch!

Scott MacGregor, who is chief financial officer at InnSeason Resorts, which runs Pollard Brook, says it's the first "and hopefully the last" time that the company added such a supplemental assessment. But, of course, there are no guarantees.

Pressure Points: The Pitch Remains the Same.

In 2009, timeshare sales fell by almost 45 percent, according to Fitch Ratings, which is a financial analysis firm. The latest drop came after an 8 percent decline in 2008, which was the first period during which sales fell since timeshares started to appear in the 1960's.

Fitch says it doesn't expect sales of timeshares to rebound in 2010; instead it believes that the industry's sales declines will start to level off this year. That means that good deals on timeshare weeks likely will be available for the forseeable future, no matter what a sales rep tells you. And, they'll tell you just about anything.

Because of today's economic tough times and the lack of sales, we're not surprised that some companies still use the same high-pressure sales tactics that have been part of the timeshare industry's reputation for decades.

The good news is that state attorneys general are going after timeshare operators for deceptive practices. For example, Pennsylvania filed a lawsuit in October 2008 on behalf of more than 5,700 consumers against Bluegreen, which is a Florida-based timeshare operator.

Pennsylvania accused Bluegreen of a litany of advertising, real estate and telemarketing violations. The Pennsylvania attorney general said in a statement that the company used deceptive contests, relentless sales presentations and misleading contracts.

"Consumers were pressured into paying thousands of dollars for vacation packages that don't meet their needs or their budgets." The two sides were negotiating a settlement, and the case had not been resolved as of press time.

Although experts' advice on how to avoid falling into a timeshare trap is not new, it bears repeating: Treat a timeshare purchase like the purchase of a home or any other significant commitment. That means you should check the value of the vacation property and investigate the seller, the developer and the timeshare operator, and don't be shy about asking for references and contacting current owners to gauge their satisfaction. In other words, being patient takes the steam out of high-pressure pitches.

The hotel chain Starwood, which runs timeshare resorts under the Sheraton and Westin brands, reported that timeshare sales were down 39 percent for 2009. As a result, Starwood levied special charges and increased the annual maintenance fees of it's owners. (Starwood didn't respond to our requests to address their fees.)

Rogers says many timeshare owners won't fight rising fees. Timeshare companies are well aware of this attitude, which emboldens them to increase fees further. Kinney says cases where timeshare fees are raised for illegitimate reasons are isolated.

The homeowners' association and board of a timeshare property must approve any fee increases at Marriott properties, he says. Because these groups include timeshare owners, they presumably wouldn't raise rates without cause. "Its a straight pass-through of increased costs such as insurance or tax or fuel costs, rather than anyone taking advantage of the situation," Kinney says.

SWAP THING. Part of the lure of a timeshare is that it can be used in trade to check out different exotic locales for no extra money. At timeshare presentations, salespeople will tell you that if you don't want to go to your timeshare vacation spot or use the week that you reserved during a particular year, you can exchange it for a different time at any of the hundreds of resports around the world.

Howard Nussbaum, who is CEO of ARDA, touts that as another value for the timeshare owner. In any year you don't want to use the timeshare, he says, you have the ability to exchange it. Unfortunately, there's no guarantee that you will get an equitable exchange, the same size of accommodation at a resort that has similar amenities, or even the week that you want.

You should be aware that when you make a timeshare exchange, you don't deal with the developer who markets or owns the property but an independant company that the developer has contracted to handle exchanges. (RCI and Interval International are the two major players in the timeshare-exchange market.) But some timeshare owners are unhappy with this arrangement. They claim that the exchange companies rent the prime vacation weeks to the general public to whom the developer can then charge premium resort rates and add to their bottom line.

Disgruntled timeshare owners filed a class-action lawsuit against RCI in 2006 over it's practice of deleting weeks from the exchange pool, so it could rent them and leave timeshare owners with less appealing choices. A settlement, which is enforceable only for 3 years, was reached in December 2009 but was being contested at press time.

Under the terms of that settlement, RCI agreed to substitute weeks that are equal in quantity and quality with those that they pull for rentals. But RCI gets to decide what's "equal," and there is no such protection for owners who put up their weeks for exchange within 90 days of their desired vacation slot.

For those owners, the choice might be take it or leave it. And companies that offer vacation exchanges aren't doing it for free, not even close. There's a fee, as much as $199 to actually exchange your week, and many charge an initiation fee. Typically $200 just to open an account (a few companies now are forgoing that charge) plus another $89 for an annual membership. Forget those souvenirs for Grandma!

HARD SELL. Regardless of whether it's because of burdensome fees, lack of access to prime vacation weeks or a downturn in your financial fortunes, if you must sell a timeshare and want to list your property online, you should know that scammers are out there.

They ask for a marketing fee upfront that typically ranges from $500 to $2,500 to sell your timeshare, and they might lure you in with a claim that buyers are lined up. Here's how it typically plays out, experts tell Consumers Digest: After you pay the fee, the scammers report that the purported deal fell through.

They will tell you this after a 60-day period, because people typically cannot dispute credit-card payments after that period has elapsed. At that point, people find that they lost their money and still haven't disposed of their property.

Florida Attorney General Bill McCollum has investigated and sued several companies in the past two years for charging "exorbitant upfront advertising fees" of as much as $2,500 to list customers' timeshare properties.

The only thing that those hefty fees bought was a posting on the companies' website, which - no surprise - attracts a fraction of the visitors who frequent other online sales sites that cost far less money. (For example, eBay, which is one of the largest sites for timeshare transactions, charges $35 for a 10-day listing.)

Although the outcome of some of these Florida cases was pending at press time, two companies agreed to pay more than $190,000 in restitution in April 2009. The threat of being taken advantage of, sadly, seems to be as much a part of the timeshares landscape as a walk on the beach, and that means you still need to watch out for the undertow.

Regulation: Wish You Were Here

If you own a timeshare, you might find that you have a few places to turn if a problem develops. The timeshare industry, like any real estate industry, is regulated at the state level, although most timeshare owners don't live in the same states as where they own their vacation week. This fact prompts some industry observers to argue that timeshares should be federally regulated.

"Timeshare is an interstate commerce, and there should be a uniform system where all owners are covered," says Andy Sirkin, who is an attorney with Sirkin & Associates and who has written "Guide for Fractional Ownership Regulation," which details the various laws and regulations that govern timeshare ownership.

Although many state legislatures annually consider bills that deal with such things as real estate licensing and insurance issues that primarily affect timeshare operators, there are few regualtions that benefit timeshare owners and prospective buyers.

In fact, American Resort Development Association has worked in the past 3 years to get legislation passed in Arizona, Illinois, Nevada and Utah that allows or retains nonjudicial foreclosures of timeshares when owners don't pay maintenance fees.

This means that foreclosures can be initiated by timeshare operators without having to go through the court system as typically is required of other real estate proceedings. That no doubt saves court and legal fees for timeshare operators (and other timeshare owners who must share the operators' expenses), but we wonder if such rules deprive consumers of due process protections that the courts might provide.

We worry that if a timeshare operator doesn't have to prove it's case to foreclose on a property, it could act capriciously. Sirkin assures us that that isn't a big concern. All states already are oriented toward consumer protection, he contends, so nonjudicial is not a high risk for a defaulting owner. We remain unconvinced.

But a few recent changes in law appear to benefit the consumer. For instance, Missouri in 2009 passed a law that requires timeshare companies to reveal upfront that tours of a property are a condition of a prize that people are promised as part of a marketing pitch.

And, also in 2009, illinois legislators required that any timeshare resale listings in the state include details, such as whether the property can be exchanged and also what are its fees and taxes. The latter law, Sirkin says, is clearly in reponse to recent resale scams.

Connecticut also changed timeshare laws in 2009, so consumers' deposits are protected in an escrow account until the timeshare is built, all fixtures and promised modifications are complete, and the furniture is delivered. The goal is to prevent your money from being spent on shoddy work or incomplete promises.

And Florida provided a tax benefit that helps consumers particularly during the economic downturn. That law provides that timeshare owners or their guests are not subject to Florida's sales and tourist development taxes.

Sirkin says more laws aren't the issue. Instead, it's enforcement. There aren't enough people to regulate timeshare companies, he says, and he worries that a lack of enforcement will become even more of a problem as states increasingly work with dwindling budgets.