Resources for HOAs ARDA-ROC : Transfer Company Info : What HOAs Need to Know

What HOAs Need to Know

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Are your owners' association and board fully aware of transfer company activity?

What are the keys to resolving and preventing transfer company problems?

What can we do if we already have transfer company problems?

What is the effect of too many maintenance fee delinquencies?    

  


Are your owners’ association and board fully aware of transfer company activity?

ARDA-ROC developed this website to educate owners, management companies, and HOAs (homeowners’ associations) on the problems caused by fraudulent transfer companies. Sometimes transfer company activity does not come to the attention of the HOA or board until it has been occurring for some time. Transfer companies will often accumulate a number of interests (weeks) at a resort and then ask the resort to buy them back. This usually catches the HOA off guard as it is not prepared to handle the resale or rental of what might be hundreds of timeshare interests. Also, if the HOA accepts these weeks—even if they come at no cost—it may increase the incentive for the transfer company to continue with these transfers because they can make so much money on the front end. Other unethical transfer companies have tried to force a purchase of the weeks on resorts by threatening to let the assessments go delinquent.

In order to detect transfer company activity, you should be diligent in reviewing your resort membership lists and recent transfers looking for individuals who own multiple timeshares. It is often the case that fraudulent transfer companies will transfer dozens if not hundreds of timeshare interests into one person’s name, when that person has no intention of paying maintenance fees. In one example of this fraudulent activity, a management company reported that 763 interests located in Florida were transferred with the assistance of one or more transfer companies. By early 2012, all 763 transferred timeshares were delinquent representing more than $540,000 in unpaid maintenance fees.

Also, look for transfers into LLCs, trusts, or family trusts as transfer companies use these structures to hold numerous timeshare interests. Just because a transfer takes place into one of these entities does not mean it was a fraudulent or improper transfer. However, additional caution should be taken with these types of transfers as they are good indicators of questionable transfer company activity.

HOAs should consider enacting specific rules and regulations with respect to the transfer of all of timeshares in the association. These types of rules can help an HOA identify transfer company activity before it becomes a serious issue. However, an HOA must balance the need for rules to protect itself from fraudulent transfer activity with the ability for an owner to transfer his or her own interest into the hands of a dues-paying individual. We recommend that you consult with your management company or local legal counsel to discuss your options for creating a system of rules and regulations that will accomplish this goal.

 

What are the keys to resolving and preventing transfer company problems?

Awareness  

If you haven’t done so, alert your association board of directors and owners to the tactics and problems with transfer companies. ARDA-ROC has been collecting samples of owner communications used by some resorts.

Education  

To be successful, associations must educate owners on the scare tactics transfer companies are using to get owners to spend thousands of dollars to transfer ownership out of their names. 

Policies  

Each resort should consider amending the transfer sections of their legal documents or adopt policies to protect the financial security of the resort. A word of caution: what is legally permissible in each state may be different, so be sure to discuss any proposed changes with your association attorney before you adopt them.  

Help owners resell  

One way to thwart fraudulent transfer company activity is to provide your owners with timeshare resale assistance. It is obvious that many owners are looking for this kind of assistance or transfer companies wouldn’t exist. This could be as simple as giving owners the name of a licensed real estate broker that sells timeshare. Other resorts have in-house resale programs for owners. If you can’t handle an internal resale program on your own, establish a partnership with other resorts in your area that are similarly situated.  

Expand your rental program  

Owners wanting to resell would certainly appreciate some rental income going toward paying their annual assessments. Be sure owners get the maximum benefits from rentals. In addition, rental of association-owned inventory should help bolster annual income for the association budget and help off-set delinquencies.

Create exit programs  

While most resorts may not be able to "take back" all of the inventory that owners might wish, providing options for the most desperate owners may help. For example, if owners will pay a stranger thousands of dollars, they will probably pay the resort two or three years of maintenance fees to have their timeshare deeded back to the resort. The resort can then use the inventory as income-producing rental property, allowing time to sell it to a dues-paying buyer. There are many models available from other resorts that have exit programs. Don’t, however, go into an exit program without properly vetting its effect on your resort, the legal requirements, and your ability to resell it. 

 

What can we do if we already have Transfer Company problems?

Assuming resorts find that a number of timeshares have been transferred to individuals or corporations that are delinquent on their maintenance fees, resorts have some options available to help recover that inventory. The first is foreclosure. While this process can be expensive and take many months to complete, recently enacted state laws providing for a non-judicial foreclosure process have helped to reduce costs and the time it takes to foreclose.

Even so, the goal of the owners’ association and its board of directors should be to keep delinquencies and foreclosures at a minimum as the eventual cost to the association and paying owners can be high. Unfortunately, transfer companies that cause assessment delinquencies can seriously harm the owners’ association. Whatever the reason for the delinquencies, the effect is the same—the association has to spread the outstanding costs among a decreasing number of paying owners.  

 

What is the effect of too many maintenance fee delinquencies? 

Under most state laws and in project documents, the owners’ association or its board of directors has the right to file a lien against a non-paying owner for annual assessments that are past-due. Then the association or board has the right to foreclose on that lien, usually after a certain period of time has passed. The costs incurred by the association to pursue a judicial foreclosure against a single timeshare can sometimes be more than the amount of the assessments due and, sometimes, the value of the timeshare being forfeited. These costs—including filing and court expenses, publishing costs for legal notices, and lawyer fees—frequently cannot be rationalized on a year-to-year basis. 

Due to prohibitive costs, associations sometimes cannot afford to foreclose. Unfortunately, the longer an association delays foreclosure of assessment liens, the worse the financial situation becomes for the association and the remaining timeshare owners. An increasingly smaller number of the timeshare owners may pay 100% of overall assessment obligations. As each owner’s individual share increases, it may force the association to reduce expenses by deferring maintenance and repairs—thus decreasing the value and desirability of the entire resort. It may also cause more owners to simply "walk away" as they are unwilling to subsidize a disproportionate share of assessment obligations. These owners then become prey for the transfer companies.

If this situation continues to snowball, it could result in the financial failure of the resort. Below is a simplified example of what can happen to an association’s annual budget when delinquencies accumulate and the association cannot find the delinquent owners (especially if the timeshares are held by a defunct shell corporation).   

 

Cumulative Effect on Owners and Association Income with Unpaid Assessments*  

Year 

 

Number of owners of record 

 

Amount assessed per owner / total budgeted income† 

 

Percent/number unpaid 

 

Annual revenue loss to association 

 

Accumulating bad debt 

 

2007 

 

2,000 

 

$700 / $1,400,000 

 

5% (100) 

 

$ 70,000 

 

$ 70,000 

 

2008 

 

2,000 

 

$735 / $1,470,000 

 

6% (120) 

 

$ 88,200 

 

$ 158,200 

 

2009 

 

2,000 

 

$779 / $1,558,200 

 

8% (160) 

 

$124,640 

 

$ 282,840 

 

2010 

 

2,000 

 

$841 / $1,682,840 

 

11% (220) 

 

$185,020 

 

$ 467,860 

 

2011 

 

2,000 

 

$934 / $1,867,860 

 

15% (300) 

 

$280,200 

 

$ 748,060 

 

2012 

 

2,000 

 

$1,074 / $2,148,060 

 

20% (400) 

 

$429,600 

 

$1,177,660 

 

*A highly simplified example, but not atypical of the negative spiral that can affect each paying owner as well as the entire resort association—even when the resort manager and HOA board make all reasonable efforts to fulfill their fiduciary responsibilities under the project documents and state law.  

† To keep the example simple, it has been calculated without any projected increase in annual expenses such as taxes, labor costs, etc. 

 

 

 

 

 

 

 

 

Resources for HOAs

Transfer Company Scare Tactics

 

Transfer companies may use various “scare tactics." Some of their tactics are exaggerations—and some are total lies. See some of the frequently reported misrepresentations that we have heard from consumers and directly from representatives of transfer companies.