Baker Hostetler Denver partner David Waller authored, “Thoughts on Timeshare Resales and Relief Companies,” in the December 3, 2010, issue of The Resort Trades.
In the article, Waller cites an American Resort Development Association International Foundation study that found that some 21 percent of timeshare owners “are now finding it more challenging to use their timeshares, whether due to the economy, age, change in family circumstances, or other reasons,” Waller wrote. “[T]he study suggests that the industry’s greatest opportunity may be to help these owners exit their ownership as quickly as possible so as to limit the market and regulatory effect of their negativity.
“Unfortunately, many timeshare home owner associations (“HOAs”) are not in a financial position where they can accommodate this exit by simply accepting a conveyance of these timeshare interests in lieu of assessments. These owners are therefore forced to explore other options,” he added.
Waller discussed two timeshare-related issues that are particularly relevant in this economic climate: advance fees for resales, and relief companies.
While advance fees for resales have long been a concern for regulators, Waller suggests that “Rather than condemn the practice of collecting advance fees, these agencies should recalibrate their efforts to further the consumer’s ability to identify companies that purport to be timeshare resale companies, but actually have no business purpose other than to collect advance fees... However, the warning should not equate advance fees with fraud. Rather, the warning should explain that consumers have a choice: they can pay an advance fee, or they can choose to pay a commission that, in the event of a sale, will typically exceed the amount of the advance fee,” he explained.
As for relief companies, he explained that they are successful “when they market themselves to timeshare owners who, as a result of failed attempts to sell their timeshare on the secondary market, believe that it has become a liability rather than an asset.”
He continued: “Some HOAs are attempting to deal with this market dynamic by attacking it on the front end. They are exploring, creating and implementing more effective resale strategies for their owners and identifying and endorsing supplemental third-party resale options, sometimes on advantageous terms. They are talking to their owners about their experiences with and attitudes about resale and why relief companies appear attractive. They are advocating on behalf of their owners for better regulation of resales and are conducting their internal affairs in such a way as to enhance resale values. While this is hard work, it promises to bear fruit, especially as the HOAs learn from their efforts and the efforts of others.”
Waller also pointed out the potential pitfalls involved when HOAs attempt to use the Uniform Fraudulent Transfer Act to execute a “prevent and frustrate” strategy with respect to relief companies. As he explained, “HOAs must also understand that, ultimately, offense is superior to defense when dealing with relief companies.”
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