After we published our interpretation of Florida HB 435, Inside Timeshare received the following Manifesto written by an Industry Insider. Part I examines the history of exit companies. Of note is the mention of the role private equity plays in today’s timeshare industry. Private equity firms played a major role in the junk bond debacle of the 80s and the subprime mortgage crisis of the 90s, so it is of no surprise to find private equity firms directing timeshare today. A junk bond or a subprime mortgage had some value for the borrower, but a timeshare contract, often adding up to $100,000 or more, is worth next to nothing should the borrower need to sell.
We look forward to Part II in which today’s author hopes to, “draw public comment for a new Business Proposal to remedy and resolve the issues.”
Florida HB 435 addresses timeshare exit services
Timeshare Exit Companies and the Future of Timeshare
WHAT DO THIRD PARTY TIMESHARE EXIT COMPANIES (“TPE”) TELL US ABOUT THE FUTURE OF THE TIMESHARE INDUSTRY?
- Are Third Party Exit (“TPE”) companies selling a product that is largely undeliverable?
- If the product is undeliverable are all remaining TPE’s simply exhausted Ponzi schemes awaiting implosion and bankruptcy?
- How many Customers in the last 12-48 months have paid thousands of dollars for services yet remain unresolved, un-exited, un-refunded, and are still on the hook for their timeshares?
- How large is this Exodus?
In this manifesto we shall attempt to break down into layman’s terms the causes and effects on the Timeshare Industry at the hands of the so-called third-party timeshare exit companies or “TPE’s” and eventually in Part Two, draw public comment for a new business proposal to remedy and resolve some of the issues.
We shall also reminisce at some of the more notable examples of earlier ill-fated timeshare exit businesses, all of whom reveal the starkest of similarities. In doing so, we will also be commenting on the chest-beater from the Industry in the form of a Sept 17th 2018 public release. Sadly, we shall also be debating the unconventional elephant that still sits in the room.
- Why is there such resistance to owners exiting a Timeshare?
- Why is there no organized, unionized, “brand supported” exit & secondary market offering that satisfies the disposal needs of owners who are aged, retired, unwanted beneficiaries of, no longer travel or are on Federal poverty levels?
“On Sept 17th 2108 the Timeshare industry, the American Resort Development Association (ARDA) and ARDA Resort Owners’ Coalition (ARDA-ROC), have united to stop the misconduct of those deceiving timeshare owners into paying for illusory timeshare exit services through fraudulent means”.
I applaud the Industry on the use of the word “illusory’ as defined as: “based on illusion; not real.” In what appears to be a long overdue case of karma, the timeshare industry is altruistically defending its long suffering, desperate “exiting and cancelling” owners from paying for illusory exit & cancellation services.
(We don’t know who is more naïve; the Resorts for expecting that no one can ever get out of a Timeshare, or the deluge of Owners who paid upfront to try to get out!)
We speculate that in the last 36 months a crescendo aggregating to millions of owners had the audacity to want to end their Timeshare experience and as a result many hired Lawyers and Advocates and spent tens of millions of dollars in an attempt to get rid of their timeshares. Most of these fees were paid upfront, and most were promised that fees were 100% refundable if the exit contract expires and one still owns one’s timeshare assuming the Lawyer or Advocate is actually still in business!
Customers are asked to pay $7500 or more ‘upfront’ to be represented or advocated. Most marketers claim that there are magical back passages into resorts that take back the timeshares quietly in a forbidden black market open to only the special few. Marketers support this notion by suggesting that if the resorts were to publicly announce that they take back timeshares there would be an immense exodus of cancellations. No present evidence supports this tall tale.
The Timeshare Industry is familiar with the exiting, canceling or generally getting out of a timeshare scam. As we can see Timeshares are complex and very sticky to get rid of. The Industry continues putting TPE lawyers and advocates out of business and into bankruptcy, yet the Industry cannot find a solution to the real problem – an evident immense Exodus.
Nothing, other than Moses leaving Egypt could be compared to the TPE Companies assault on popular branded timeshare owners in 2015 – 2018. All the major brands had rolled out vacation club programs with all types of new generation upsells and exchanges. Publicly traded companies in the hotel, recreation, leisure and timeshare industries had begun curiously separating their timeshare divisions into new public companies. Yet at conventions, the Resort Owners, Lawyers and Administrators all reported that their biggest headaches were the Exit firms. Their disruptive activities caused added administration issues, defaults, millions in lost revenues, angry customers all dealing with these flimsy cancellation letters from dozens of Lawyers and hundreds of Advocates interrupting contractual obligations and communication with the customers. They all knew where this would end…owners were paying thousands upfront for services that weren’t going to happen. Owners were routinely signing and notarizing Powers of Attorney to exit companies like they were signing Christmas cards! This wasn’t a cottage industry any more. It was an epidemic that had to be eliminated.
Apollo Global Management, owner of privatized Diamond Resorts (who as Merchant Bankers were possibly the first well-known brand to recognize the sudden disparity in results and the probable cause), began aggressively suing TPE Lawyers & Advocate Company’s in 2015. Apollo has made it known that they are preparing to re-IPO Diamond Resorts
- The cause; The Timeshare Developer/Owner HOA true concerns are the financial effect that an immense Exodus of Owners and the sudden loss of payment of residual annual fees would have on the bottom line.
- The effect; The Timeshare Industry has adopted a widely “illiquid” stance based on the capture of customers annual fees. The Timeshare industry survives in a very large part from customers annual maintenance fees.
Where did this idea of how to bilk the Timeshare Industry come from?
In 2004, Uri Fried, an Israeli businessman and so-called inventor of the Third-Party Exit (TPE) business sent millions of postcards to timeshare owners inviting them to get rid of their timeshares for an upfront fee. Uri had formed over 50 straw buyers LLCs and began transferring thousands of unwanted timeshares per month into his LLCs. For several years Uri’s activity went relatively unnoticed by developers and resorts. Along the way Uri sold timeshares on eBay for $1 thus cementing the perceived market value of second-hand timeshare at one-dollar. None of Uri’s LLC’s ever paid a cent in maintenance to any resorts. Uri ended up serving a couple of years for $1.9m tax evasion.
In 2017 Uri settled all misrepresentation charges with the State of Wisconsin for $132,000 and received a lifelong ban from ever handling timeshares again. None of Uri’s ill-gotten gains were ever recovered.
Uri Fried woke the Industry up to the vulnerability of the Viking Ship LLC exit scam. The Resorts & HOAs were so fragmented. Collectively, they had no clue what Uri was up to. Uri’s customers owned everything and anything. Uri knew he was never going to pay a penny in dues or maintenance, so he stuffed them all into his defaulting LLCs. If the Resorts grew suspicious of the LLC name(s) Uri would simply create new ones.
Eventually the resorts smartened up and unilaterally responded by refusing to honor or acknowledge transfers to certain suspicious names and eventually certain transfer companies. The Developers had falsely believed that some level of organic secondary market had been occurring. As the industry is so hugely fragmented the major developers were fooled for a while.
As we shall see, the Viking Ship LLC model grinds slowly to a halt when the resorts block or refuses customer re-registrations and transfers. However, the TPE’s marketing machines continue “in almost every case” to sell new Customers on getting rid of their timeshares, in order to continue to collect thousands in what surely become ill-gotten fees, thus becoming a Ponzi scheme; whereby new monies pay off older refunds.
After the failure of Uri Fried’s business, an alternative Viking ship business became strongly marketed; Attorneys claiming to ‘cancel’ a timeshare.
On behalf of Owners who retained the firm, Castle Law (and others similar) wrote to the HOA’s and Resorts and in some cases Lenders, a series of scalding, lawyerly stamped, heavily embossed, important looking letters accusing and maligning the Resorts with allegations of much malfeasance, misrepresentation and fraud in the inducement.
Owners were claiming any or all of the following:
- Told that this offer is good for today only.
- Told that timeshare is in hot demand
- Told that timeshare is a great investment
- Told that timeshare – like all real estate will appreciate over time.
- Told the timeshare presentation is only going to be 90 minutes.
- Told the timeshare is in such demand it could always be RENTED for a profit.
- Told that you are buying pre-construction and this timeshare can be SOLD for a profit after the next “phase.”
- Told that this week/resort is such a valuable week to all of the exchange companies that you can trade for “anytime, anywhere.”
- Told that this maintenance fee will not increase over time
- Told you will be attending an “update” to discuss questions (also called a policy change, owners update, etc.… – later it was actually a sales presentation).
- Told that this is not timeshare but Vacation Ownership or Vacation Property.
- (You) were subjected to high pressure sales tactics or felt that you could not leave the presentation without purchasing timeshare.
- The timeshare sales agents plied you with champagne (or other alcohol or drugs).
- The timeshare sales agents assured you, you could cancel if we had second thoughts/buyer’s remorse.
Attorneys and Advocates, armed with Limited Power of Attorney, filed cease and desists on behalf of owners. Attorneys were demanding that the Resort have no communication with the aggrieved customer (s). Simultaneously, customers were instructed not to communicate with their resort, and to forward any communication from the resort to the attorney or advocate.
It wasn’t long before far less scholarly ‘advocates’ caught on to the jolly wheeze and suddenly millions of timeshare data records were for sale and hundreds of thousands of robo dialed calls an hour were being made to every timeshare owner looking for people who wanted to get out of their timeshares.
Unbelievably, millions of owners wanted out.
In the words of ReedHein dba Timeshare Exit Team CEO & timeshare exit Advocate Brandon Reed;
“The reality behind the recent litigation is that resorts are leaving millions of consumers with no other options. Timeshare Exit Team exists because the resorts have created a problem without providing a solution. We hear countless stories from customers who were unable to even give back their ownership. Others have found that their timeshare investment was actually worthless when they tried to resell it. Owners must have a way to safely and legally end their ownership when it no longer fits their lifestyle. Until that happens, we want to make it clear that we will not be dissuaded from continuing to advocate for consumers.”
Reed Hein are the guys advertising on TV. Estimates show that ReedHein is now the largest timeshare cancellation firm in the USA. We wonder what ReedHein is doing differently from Uri Fried, The Macmillan’s, ACC and other notable predecessors.
Ok, why isn’t there a secondary market for Timeshare?
The Timeshare Industry publicly abhors any notion of a secondary market almost as much as the Wicked Witch of the West abhors water.
Why? …It’s so simple.
Let’s say you buy a Westgate ‘second hand’ at 90% off current Westgate prices from eBay.
- Westgate gets no new dollars from that exchange, Westgate gets a new Customer, the perception of “secondary market” timeshare true value is realized,
- Westgate takes on the risk that you will or won’t pay its annual fee’s.
Unlike the auto business, the timeshare core product is the same in “both Primary & Secondary Markets,” the most glaring disparity is price.
All the frontloaded exorbitant sales commissions, fees, marketing expenses and popping champagne are in the primary market versus a vast global array of venue choices at huge discounts available in the Secondary Market.
Sadly, developers use punitive measures to hamper and deter secondary market purchases of Points based/Club, Right to Use contracts by restricting further points accumulation (s), restricting booking access or exchange, restricting access to deed back and contract back programs, voiding visiting guest rental certificates and other contractual privileges. Certain developers’ restrictions have been described as downright draconian!
The Industry publicly states in countless SEC filings that a Secondary Market would cut deeply into the Industries profitability. We can see why they would be worried.
In SEC filings:
- “…the resale market for VOI’s (vacation ownership interests) could adversely affect our business” (Bluegreen)
- “the sale of vacation ownership interests in the secondary market could negatively impact our sales” (Wyndham)
- “the sale of vacation ownership interests in the secondary market by existing owners could cause our sales revenues and profits to decline” (Starwood)
Source – EDGAR.
In loosely translated SEC language that means the entire industry agrees with the notion that a secondary market should not exist, and they will stamp on the windpipe of any attempt to conjure a secondary market.
This cannibalistic, illusory industry has a bone through its nose! As the industry makes sweeping, ubiquitous, cannibalizing, business decisions we urge serious consideration to the real threat to the future bottom line. As the Industry has discovered, there is a serious flaw to timeshare. Having built these lavish, illusory, granulated palaces, one must continue to sell to new mug punters who are still naive enough to sit through a bruising several hours long presentation and then when sufficiently punch drunk, pick up a pen and sign complex contracts that one has never read nor had the opportunity to do so, nor to many if read would actually comprehend. This is the sales model of the Primary Timeshare market? Is this the best they’ve got?
Possibly that’s the reason behind the aforementioned public company players in timeshare creating new public companies for their Timeshare only assets. Maybe they also see the writing on the wall of this woeful sales channel and are protecting their other core assets from devaluation.
After all, how many mug-punters could there possibly be?
In a 2017 Orlando Sentinel News story, Mr. & Mrs. Morrison stated they are horrified by what they did on their last vacation to a Wyndham Resort in Orlando. They paid $25,000 to buy a timeshare, after a four-hour sales pitch that wore down the couple’s resistance and skepticism. Now they’re being hounded by people promising to get them out of the contract — if they pay an up-front fee. They don’t want to pay out any more money and aren’t sure who to trust. “We can’t afford this,” said Morrison, 69, who lives near Ottawa, Ontario. She says Wyndham offered to put them in a program that will eventually allow them to sell their timeshare, but they aren’t sure how long it will take. “Why won’t someone help us and put a stop to this?” she said. Wyndham didn’t respond to questions about the Morrisons’ case.
As if the Industry abandoning its aged, non-using, beneficiary owned and generally unwanted/unaffordable owners wasn’t bad enough, the Industry thwarts every attempt to stop an immense Exodus creating a need for Lawyers, Advocates and evidently miscreants and swindlers.
If Timeshare is an investment in making memories in people’s lives then shouldn’t it know when it has outstayed its welcome?
This of course is all karmically comical as the Timeshare Industry has cut its teeth on brutally sharp practices of high-pressure selling techniques, flogging its wares in well documented grueling four or five hour long “90” minute information breakfasts.
The Industry is undeniably infamous for pitching heat. Sales offices manned with trained professionals are often well trained in manipulative sales techniques. These timeshare hit-men pitch to the giddy, all too often inebriated, vacation-minded unaware prospects. It has been alleged that commission driven sales people often misrepresent overly complex customers contracts, agreements, loan documents, mortgage addendums all of which are tragically packaged by Closers, TO’s (Take Overs), Hail Mary’s and Managers at a table somewhere in a Timeshare sales room. Their only compensation is the commission from a sale.
Can you hear the champagne popping corks now?
The Supreme Court of Tennessee disbarred attorney Judson Wheeler Phillips, founder of the Castle Law Group, on a myriad of charges relating to consumer fraud complaints. In the past few weeks, Castle Law Group has ceased business operations following federal lawsuits brought by developers against Castle Law Group and those acting in concert with the firm.
Wyndham’s pursuit of American Consumer Credit (“ACC”), ACC’s principal, Dana Micaleff and attorney, Michael Saracco, resulted in ACC filing bankruptcy on September 7, 2018. Attorney Michael Sarocco, stated that Canadian entrepreneur Micallef always had “good intentions”, however things fell apart when developers and resorts wouldn’t allow ACC’s clients to break their contracts.
Castle Law & Judson Phillips were among the pioneers of the timeshare law firm and the cancellation business. Castle law had dozens of tertiary businesses who were marketing Castle Law services. These marketing firms fed Castle Law with thousands of desperate owners who were willing to pay $7500 or more “upfront” to exit their contracts.
In order to understand the scale of timeshare in the USA, the Timeshare Industry does about a $9billion a year in gross revenue. About 9.4million ownerships exist. There are approximately 1600 resorts. Average maintenance is approximately $900 a year. The Industry aggregates approximately $8.5billion from maintenance annually.
A typical single resort’s simple deed math would look like this:
- Typical Timeshare Resort – Individual Condo Units Per Resort: 500 units
- Weeks for Sale Per Unit: 50 weeks 500 x 50 = 25,000 Weeks for Sale
- Average sales price per week: $ 25,000
- 25,000 weeks’ x $25,000 = $ 625,000,000 developer receipts
- Plus 25,000 weeks x $900 maintenance p/a = $22,500,000 per year.
In a new improved version of Uri Fried’s Viking LLC scheme; David and Cindy Macmillan sent millions of solicitation postcards and letters to Timeshare owners enticing them to attend informational meetings that led to “exiting their timeshare with 100% money back guarantee.”
The MacMillans ran a bunch of Viking Ship LLCs and their own transfer company in a timeshare transfer operation that resort owners alleged was bilking the industry out of hundreds of millions of dollars over a period of about nine years.
In 2008, spurred on by a failing economy and the USA housing crisis, the MacMillans operated over 65 straw buyer LLCs claiming that in exchange for several thousand dollars upfront, owners could be released from any timeshare contract. The MacMillan’s prize-winning company based in Torrance, California held sales meetings for owners by the bus load. Hundreds would cram in waving their credit cards in readiness. The MacMillan’s charged $6000 or more and allegedly mishandled over 120,000 timeshare contracts before becoming the target of the Attorney General of California. RICO allegations from Plaintiff Wyndham Hotel & Resorts proved undefendable. The MacMillans were banned from the business. They didn’t pay a single cent to the resorts in maintenance. Most of MacMillan’s eager customers found they were still on the hook for their timeshares. David MacMillan filed bankruptcy in 2016. Once again millions of dollars in ill-gotten gains went unrecovered. In a karmic twist of fate, Macmillan’s own transfer agent transferred thousands of the Macmillan’s Viking LLCs timeshares back into the original owners’ names before leaving the scene of the crime and left the Macmillans to take the fall.
By 2014 Timeshare Exit marketing companies had mushroomed up all over central and south Florida, Tennessee and Missouri. Most of the new crops were marketing firms owned and run by seasoned telemarketing recidivists or by ex-timeshare sales people, some of whom had access to valuable owner data. The marketers, mostly acting as advocates, fed a variety of attorneys and both shared in the customer fees.
In call center parlance this new business represented a new ‘data’ vertical. Call centers that had previously run ‘data’ looking for mortgage consolidation or debt relief were suitably adaptable for Timeshare Exit marketing. The busted timeshare Resale/Rental telephone scams that had left many recently unemployed in south and central Florida simply redeployed themselves. Some sales people told sad stories of repenting for all the lies they had told while selling Timeshare.
In Phillips’ case, the Tennessee Supreme Court disbarred Phillips after reviewing upwards of 18 client complaints, many of which made similar allegations of fraud, highlighting a pattern and practice of misconduct. In its ruling, the Tennessee Supreme Court found that Phillips “poses a threat of substantial harm to the public.” Central to the series of complaints were allegations that Phillips and his business partners misled and/or defrauded consumers by taking exorbitant fees from timeshare owners for purported timeshare exit or cancellation services based upon fraudulent and misleading representations.
The ACC case is based on various legal theories, some of which are founded in Federal law, known as the “Lanham Act of False Advertising”. The case remains pending against Micaleff, individually, and Saracco, individually, although an automatic stay has been issued relative to ACC in the U.S. District Court action as a result of the bankruptcy filing. That, however, has not deterred the prosecution of the case. As of today, there is a motion pending against Micaleff and Saracco to punish them for, among other things, failing to appear for a deposition.
The Industries press release further commented;
“The constant pressure that our member companies, owners and federal and state agencies are putting on disreputable timeshare exit companies has again produced a positive result for the consumer,” said Robert Clements, ARDA Vice President of Regulatory Affairs.
“We are committed to protecting our owners to ensure they aren’t taken advantage of,” said Michael Brown, President and CEO of Wyndham Destinations.”
Diamond Resorts implemented an aggressive litigation strategy in pursuit of third-party exit companies for their nefarious and unlawful conduct in an effort to protect the interest of their members who were promised outcomes that could not be legally accomplished.
The number of customers who “wish to exit” an owned, fully paid up timeshare is an immense Exodus. Far higher than was ever imagined or projected by the industry. The elephant in the room is that there is still no safe exit from unwanted timeshares and no robust market with which to capture and reposition the unwanted timeshares.
In light of the recently filed Florida House Bill 435, one must question the fates of the remaining exit and cancellation firms including; Resort Release LLC, The Newton Group & Reed Hein AKA Timeshare Exit Team amongst others.
It is obvious by the recent advertising budgets expended on TV, Radio and all other assorted media, along with the number of employees and general expenses to run these TPE’s that there are probably millions of Owners who have already paid Fees to exit or dispose of a timeshare in the last 12-36 months that are as-yet unresolved and may begin actions suing for refunds. The Term of a TPE’s contract generally offered is 12-18 months. We are sure many contracts have now been extended far beyond their legal limits. All the previously named TPE’s and Law firms offered a 100% refund upon eventual nonperformance, assuming they were still in business.
By monitoring the largest TPEs on social media and by paying particular attention to present and past customers reviews, it is evident that satisfaction is extremely low and that refunds are aggressively being sought. How many hundreds of complaints like these does it take before another AG steps in or another exit company gets driven to bankruptcy by an aggrieved resort or the FTC?
Here’s what we know.
Exit firms can’t get rid of your timeshare unless the resort ‘wants them back.’ Most Timeshares are indeed worthless. All timeshares come with some form of annual cost. In light of 2018’s vacationing and travelling popular habits, the notion of paying an annual fee is not popular or appears economically attractive.
It may well be true to say that all TPEs charge upfront fees for truly illusionary services because they now know within a moral certainty that their customers will get nothing for their money.
One would have imagined that Timeshare Developers, being an enterprising bunch, would have figured out how to ‘selectively take in’ enough exits & cancels to quell this Exodus problem. This sensible move would have made the TPEs redundant and quickly ended the third party exit business by allowing worthwhile and fitting exits for owners, for a small fee.
This, however, further highlights the possible size of the immense Exodus problem.
Thank you to our new contributor, at some point he will reveal himself, but we look forward to Part Two of the Manifesto.
Remember if you are unsure about any company that has contacted you, or that you have found yourself on the internet or from an advert, then contact Inside Timeshare.
If you purchased your timeshare in Spain or upgraded after 5 January 1999 and would like to know if you have a valid and viable claim then Inside Timeshare can point you in the right direction.