WHAT DO 3rd TIMESHARE EXIT COMPANIES TELL US ABOUT THE FUTURE OF TIMESHARE?
• Are Third Party Exit (“TPE”) companies selling a product that is largely undeliverable?
• If the Product cannot be successfully delivered, are all remaining TPE’s simply exhausted Ponzi Schemes awaiting bankruptcy?
• How many Customers in the last 12-48 months have paid thousands of dollars that are 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 laymen’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 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 “exiting and cancelling” owners from paying for illusory exit & cancellation services.
(*I 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 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 are 100% refundable if the exit contract expires and you still own your timeshare assuming the Lawyer or advocate is actually still business.
Customers today are asked to pay $6000 or more to be represented or advocated. Most lawyers and advocates claim magic back passages into resorts that take back timeshares quietly in a forbidden black market open to only the special few. 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 will see Timeshares are complex and very sticky to get rid of. The Industry continues putting rogue exit lawyers and advocates out of business and into bankruptcy, yet the Industry cannot find a solution to the real problem of an evident Exodus.
Nothing, other than Moses leaving Egypt could be compared to the Exit 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. Public Company’s 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 rogue Exit firms. Their disruptive activities caused added administration issues, defaults, millions in lost revenues, angry customers all dealing with these flimflam cancellation letters from dozens of Lawyers and hundreds of Advocates. They all knew where this would end…Owners 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, began aggressively suing Exit Lawyers & Advocate Company’s in 2015. Apollo has made it known that they are preparing a re-IPO for Diamond Resorts.
• The cause; The Timeshare Developer/Owner HOA true concerns are the financial effect that an Exodus of Owners and nonpayment of consistent, increasing annual fees would have.
• The effect; The Timeshare Industry has adopted a wide “illiquid” stance based on capture of customers annual fees. Fees that are deemed unattractive by current, popular markets, ease of rental booking etc.
Where did this idea of how to bilk the Timeshare industry come?
In 2004, Uri Fried, an Israeli businessman and the so-called inventor of the Third-Party Exit (TPE) business was sending millions of postcards to timeshare owners inviting them to get rid of their timeshares for an upfront fee. Uri had formed over 50 straw buyer LLC’s and began transferring thousands of unwanted timeshares per month into his LLC’s. For several years Uri’s activity went unnoticed by developers and resorts. Along the way Uri sold timeshares on eBay for $0.01 thus cementing the perceived market value of second-hand timeshare at one-penny. 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 exit scam. The Resorts & HOA’s are so fragmented, they had no clue what Uri was up to. Uri’s customers owned everything and anything. As Uri knew he was never going to pay a penny in dues or maintenance he stuffed them all into defaulting Viking LLC’s. If the Resorts grew suspicious of the LLC names Uri would create new ones.
Eventually the resorts smartened up and unilaterally responded by refusing to honor or acknowledge transfers of certain suspicious names or certain types of transactions. The Developers had believed that some level of organic secondary market had been occurring. As the industry is so hugely fragmented the major developers were suitably fooled for a while.
As we shall see the Viking Ship model pretty much stops working when the resorts block or refuse customer re-registrations and transfers. After the failure of Uri Fried’s business, an alternative Viking ship business became strongly marketed; attempting to ‘cancel’ a timeshare.
On behalf of Owners who retained the firm, Castle Law (and others similar) wrote the HOA’s and Resorts and in some cases Lenders, a series of scalding, lawyerly stamped, embossed letters accusing the Resorts of much malfeasance & misrepresentation also 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
It wasn’t long before far less scholarly ‘advocates’ caught on to the wheeze and suddenly millions of timeshare data records were for sale and hundreds of thousands of robodialed calls an hour were being made to every timeshare owner looking for people who wanted to get out and might pay thousands.
Unbelievably, millions of owners wanted out.
In the words of Exit Firm 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 it 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.
ReedHein 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 ‘secondhand’ at 90% off current Westgate prices.
i) Westgate gets no new dollars from that exchange, Westgate gets a new Customer ii) the perception of that “secondary market” timeshare’s true value is realized.
ii) Westgate takes on the future risk that you will/won’t pay its annual fee’s.
(The timeshare product is the same in “both Primary & Secondary Markets” apart from price. All the frontloaded, exorbitant sales commissions, fee’s, marketing expenses and popping champagne in the primary market versus a vast global array of venue choices at huge discounts available in the Secondary Market)
The Industry publicly states in countless SEC filings that a Secondary Market would cut into the Industries profitability. I 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 industry has bones through its noses! As the industry makes sweeping, ubiquitous, cannibalizing, business decisions we urge serious consideration to the real treat 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 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 market? This is the best you’ve got?
Possibly that’s the reason behind the aforementioned public 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…..How many mug-punters could their 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.
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 Exodus creating a need for Lawyers, Advocates and evidently swindlers. If Timeshare is an investment in making memories in people’s lives then it shouldn’t it know when its outstayed it’s welcome?
This of course is all Karmically hilarious 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 infamous for pitching heat. Sales offices manned with trained professionals, timeshare hit-men pitch to the vacation-minded public and it’s said they often misrepresent overly complex customers contracts, agreements, loan documents, mortgage addendum’s all of which are comically 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 champagne popping corks now?
Recently, 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 AConsumer 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.
In 2010 Castle Law & Judson Phillips were among the pioneers of The Timeshare law firm and the cancellation business. Castle law and dozens of tertiary businesses who were marketing Castle law services. These marketing firms fed Castle Law with thousands of Owners who were willing to pay $7500 or more to exit their contracts. Timeshare Exit was still a cottage business with possibly a few dozen participants around the USA.
In order to understand the scale of Timeshare in the USA, the Timeshare Industry does about a $9billion a year in sales:
A typical single resort’s math would look like this:
• Typical Timeshare Resort - Individual Condo Units Per Resort: 500 units
• Weeks for Sale Per Unit: 52 weeks 500 x 52 = 26,000 Weeks for Sale
• Average sales price per week: $ 12,900
• 26,000 weeks’ x $ 12,900 = $ 335,400,000 total developer receipts.
In a copy of Uri Fried’s Viking scheme, millions of solicitation postcards and letters were being sent to Timeshare owners everywhere enticing willing Owners into attending informational meetings and eventually “Exiting their Timeshare with 100% Money back Guaranteed”.
Cindy and David MacMillan ran a bunch of Viking Ship LLC’s 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 9 years.
In 2008, spurred on by the US housing crisis, David and Cynthia MacMillan began sending owners millions of postcards and operated over 65 straw buyer LLC’s 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 $5000 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 MacMillan’s 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 Karmic twist of fate, Macmillan’s transfer agent; Pacific Transfer transferred thousands of the Macmillan’s Viking LLC’s timeshares back into the original owners’ names before leaving the scene of the crime and the Macmillan’s to take the fall.
By 2014 Timeshare Exit marketing companies had mushroomed all over central and south Florida. Most of the new crop were owned and run by seasoned telemarketing fraudsters & criminals or by ex-timeshare sales people, some of whom had access to valuable Owner data.
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 business were suitably adaptable for Timeshare Exit marketing. The Timeshare Resale telephone scams that had left many recently unemployed in south and central Florida redeployed themselves. Some 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." 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.
ARDA’s comments below endorse the position of the Industry including Diamond and Wyndham Resorts.
"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 “wished to exit” an owned, fully paid up timeshare is an Exodus. Far higher than was ever imagined by the industry.
The elephant in the room is that there is still no safe exit from unwanted timeshares and no robust repositioning of the timeshare, so it may make its economic annual liability.
One must question the fates of the remaining Exit and cancellation firms; Newton Group & Reed Hein AKA Timeshare Exit Team.
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 that there are possibly hundreds of thousands of Owners who have already paid Fees to exit or dispose of a timeshare in the last 24 months that are as-yet unresolved and may begin actions suing for refunds. The Term of a Timeshare Exit contract generally offered is 12-18 months. I’m sure many have now been extended far beyond their legal limits. All the previously named Exit company’s and Law firms offered a 100% refund upon eventual nonperformance.
By monitoring the largest Exit firms 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 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?
Here’s what we know now. 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 does not appear economically attractive.
It may well be true to say that all the Exit Company’s charge upfront fees for truly illusionary services because they 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 the Exodus problem. This sensible move would have made the lawyers and Advocates redundant and quickly ended the exit business by making worthwhile and fitting exits ‘free’ for owners.
This however further highlights the size of the Exodus problem.
True Economic Temporary Ownership.