Timeshare companies and exit companies are blaming each other for rising default rates.
Since they depend so much on new sales, timeshare developers have little interest in furthering a robust secondary market. However, they do turn to the secondary market when they need to pick up inventory at depressed prices. And the industry works to keep owners of less desirable timeshares in their properties so they’ll continue paying maintenance fees, which in turn fund the management fees that timeshare companies charge for managing timeshare resorts. Wyndham alone made $300 million from management fees last year.
Timeshare developers have worked to restrict the secondary market for years. Marriott Vacations, for instance, prohibits owners who bought their timeshares on the secondary market from exchanging them for stays in other Marriott properties. Disney doesn’t let Disney Vacation Club owners who purchased on the secondary market use their points toward Disney Cruise Line.
In 2012, with timeshare exit companies aggressively marketing to owners, the timeshare industry lobbied the Florida Legislature to create regulations restricting advertising and beefing up penalties for misleading claims. A year later, the industry persuaded state lawmakers to make it harder for secondary companies to dump unwanted timeshares into asset-less shell companies known as “viking ships.”
Two years after that, timeshare lobbyists were successful in getting legislators to make it harder for attorneys to get owners out of their contracts based on minor “errors and omissions” in the paperwork.
The latest tactic, timeshare executives say, typically involves resale or exit companies that partner with attorneys. The exit company solicits owners and persuades them to stop making payments, and the attorneys send “cease and desist” letters that prevent the timeshare company from making any further contact with the owner.
In retaliation, timeshare developers are suing exit companies and law firms, arguing, among other claims, that they are illegally interfering in private contracts and fraudulently marketing to owners. The suits have had mixed results so far; one targeted law firm in Tennessee went out of business, while another large exit company filed for bankruptcy. Other suits have languished.
Timeshare lobbyists are again talking to lawmakers about further legislation and to state attorney general candidates about potential enforcement actions.
Meanwhile, demographic issues continue to drive the dynamic, which has seen an army of exit companies and attorneys emerge — and grow rapidly — since the recession. Baby Boomers make up the largest group of timeshare owners. Many can no longer use their timeshares or are dying and passing them down to children who don’t want them.
Those on the exit side of the business say the timeshare industry is deliberately trying to lump a few bad actors together with companies and law firms that use aggressive but above-board tactics.
“They’re really going after everybody that is trying to help consumers,” says Michael Finn, founder of Finn Law Group in Largo, which specializes in helping timeshare buyers get out of their contracts. Orange Lake sued the firm in 2015 in a case that has yet to be resolved. “We dig really deep into the contracts. And we find things. We’re really good at findings things.”
Even if the industry succeeds in clamping down on the newest exit strategies, it must still confront the underlying problem of why so many owners are eager enough to be rid of their timeshares that they’ll pay to get out.
Some sophisticated third-party investors see opportunities. Late last year, Tritium Partners, an Austin-based private equity firm, announced an undisclosed stake in Orlando-based Vacations Innovations, one of the largest secondary market timeshare companies with a portfolio that includes SellMyTimeshareNow.com and Timeshare Broker Services. Tritium was the primary early investor in HomeAway, an Airbnb-like business for vacation rentals that Expedia bought in 2013 for $3.9 billion, and RetailMeNot, an online coupon marketplace that Harland Clarke Holdings bought last year for $630 million.
Timeshares have “to figure out how to deal with the secondary market and how individuals who want out can get out,” says Professor Gregory. “It’s going to be a big problem for a long time.”
Read more in the November issue
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