Monday, May 9, 2016

Guest Blogger Irene Parker on Diamond Resorts and Inability to Resell


The Real Meaning of “Stay Vacationed!” at Diamond Resorts International

By Irene Parker, The Peasant of Venice ireneparker377@gmail.com                             

Diamond Resort’s telephone salutation, “Stay Vacationed!” becomes a chilling demand after reading internet complaints about Diamond Resorts. The following complaint was found on the legacy Monarch owner website started by Diamond owners, upset with Diamond’s Monarch acquisition:

I am at the Cancun resort in Las Vegas and went to a breakfast where they said they would simply update me about the changeover to Diamond. I was told that I should have been invited to a dinner where I would have been given options, decided by a judge in a legal ruling against Monarch due to their bankruptcy. They proceeded to show me a print out that said when my current term expires in August. I would have to pay $573 per quarter to Monarch. They said that due to the bankruptcy, I would have no equity. That was option one. Pay more, have nothing. The other option they said was to transfer into Diamond at a cost of $12,000 plus and pay a yearly maintenance fee of $1,700. Less than the $2,292 I would soon be giving Monarch. They also told me that I would then have equity of $41,000 that I could sell. I was in tears. I do not have any extra money. In fact I have been looking for ways to get out of Monarch for over a year now. They said that was not an option and that as an owner, I was now proportionally responsible for their debt. I felt trapped and signed all the papers to transfer, with no idea how I can pay. After reading the comments above I am even more scared. I am trying to start my own business and am already in severe debt. They claimed when they ran my credit though that it looked better than most and assured me I qualified for financing. I would have to pay off, basically transfer to credit cards, which I can barely make my payments on now before I could look to sell. One of the reps assured me that she would put me in touch with someone who could help me sell my points. She even gave me her cell phone number to call after the sale/transfer is finalized. I am really scared though. Please help! We have to do something. It seems as though they have no qualms about lying to and robbing people for their own benefit.

You can’t sell Diamond points through licensed timeshare brokers. I contacted licensed timeshare resellers Magical Realty in Orlando and Island Consulting Realty in Sarasota. They will not buy or sell, in good conscience, Diamond points, due to the restrictions Diamond has placed on the use of secondary points. They know of no licensed reseller who will. Unlicensed resellers, often described as advertisers or transfer agents, have no scruples concerning the sale of Diamond secondary points. The restrictions mean Diamond will not allow purchasers of secondary points to use THE Club. In effect, this represents the bulk of the Diamond program. The licensed resellers will sell Diamond’s competitor points, like Marriott Vacation Worldwide, Wyndham or Hyatt. They have restrictions, but not so severe as to prevent a secondary market. Diamond has done everything in its power to restrict the use and sale of secondary points. An “organized and fluid secondary market” is listed as a potential risk in Diamond’s annual report to shareholders.

FOX news aired a segment about selling timeshares on “Property Man” April 30, 2016. Florida Attorney General Pam Bondi appeared on the show warning viewers to stay away from listing and transfer agents. The show urged viewers to use licensed timeshare brokers. Diamond’s restrictions steer owners who want to sell Diamond points into the nets of the listing and transfer agents.

In a Barron’s article written by David Englander entitled “Diamond Resorts Is a Bargain among Time-Share Concerns”, written from a stock investor’s perspective, Diamond CEO David Palmer is quoted as saying, “We can perpetually resupply our inventories through inventory reclamations to support $800 million to $850 million in annual VOI (point) sales.” How is this achieved?

The goal can be achieved by not allowing a legitimate secondary market and being the gatekeeper for owners who want out of their contracts through voluntary surrender. In 2015, Diamond reported a 17.3% increase in Vacation Ownership Interest point sales to $624 million. This represents an increase of $115.9 million over 2014, offset by $23.6 million in Diamond’s provision for uncollectible vacation interests. In other words, 25% of the net sales increase is predicted to be uncollectible. For all of 2015 sales, $80 million is set aside as uncollectable. People falling on hard times are forced to own an asset they often can’t sell or give back, obligated to pay maintenance fees increasing at about 10% per year with an 18% interest rate beginning the day the maintenance fee is due until paid in full. If financed, an average 14% interest rate applies. Points foreclosed revert back to Diamond at no value to the consumer. It costs Diamond $1,500 to take back the points, which they resell at an average price of $27,434. The transaction is not subject to local real estate laws, so it is easy and profitable.

I used to give seminars at the University of Hawaii, Hilo, Kona and Maui campuses. My seminar was called, “Understanding Financial Statements for the Small Business Owner.” One of the reasons I have put so much time and effort pouring over Diamond’s financial statements and reports; is because I could not understand them. In Diamond’s 2015 annual report, it states a Diamond customer has a credit score of around 750. If this is the case, why a 25% provision for uncollectable vacation interest (point) sales? Why a 14% interest rate?

The answer lies buried in one of the 5,000 complaints I read about Diamond resorts. Basically, the complainant admitted he had a 600 credit score. After studying this complaint, I surmised there are two types of prospects. The first are people like me. People with a high credit score who become a client after being acquired by Diamond. We owned a week at ILX in Arizona prior to Diamond acquiring ILX. The second group represents people who respond to the telemarketing calls letting the consumer know they have won a trip, or a trip that can be taken very inexpensively. Often this person would not be able to afford a vacation without help. They may even be given a $100 gift card for attending the sales presentation or “tour” to help with expenses. At the presentation, the consumer is shown how they can own this vacation for life thanks to Diamond’s finance department and credit cards. In all likelihood, someone with a credit score of 600 to 700, financing a vacation package at 18%, will default. Good money people generally do not finance a vacation at 18%. According to SEC filings, Diamond’s default rate on its loan portfolio has increased from 6.6% in 2012 to 7.7% in 2015 for loans delinquent over 180 days. If figures were publicly available for loans delinquent for a shorter period of time, the default rate would be higher. Diamond’s 180 day delinquency period before foreclosure is the longest, or one of the longest in the industry. Diamond can foreclose in 180 days, pay $1500 to take back the points, and resell them at an average price of $27,000. Transfer agents, advertising a guaranteed deed-back, can bundle 25 to 50 properties and resell them. This is known in the industry as “The Diamond effect”. It typically costs the beleaguered time share owner $5,000 to $7,000.

Meanwhile, aging baby boomer clients like me are finding they can’t or don’t want to travel any more due to illness, age, or disappointment with Diamond’s acquisition. Mr. Palmer stated in his SEC K-8 rebuttal to Ms. Morgenson’s New York Times article about Diamond’s hard sell, “I wear the fact that 60% of sales comes from existing owners as a badge of honor.” At least three disgruntled owner websites, representing thousands of owners, have been launched by existing owners, including legacy Monarch, Hawaii at Poipu, and DRIP. DRIP stands for Diamond Resorts International Protestors and was launched by over 1,000 British owners trying to get out of their contracts.

My husband and I did not know Diamond timeshare was a lifetime commitment because the Diamond contract states that points can be resold. Christine Dargon, our Diamond “counselor”, told us that Diamond has a “hardship” department that would take back our points should the need arise. After consulting Finn Law Group, a law firm specializing in timeshare relief, we learned that, according to timeshare defendants, hardship is not considered a legal defense.

Front Four Capital and ADW own large blocks of Diamond stock. In a letter to David Palmer they recommend what translates to a leveraged buyout so that they and others will earn an expected 30% rate of return. I am not against venture capitalists or CEOs earning millions a year in compensation.  David Palmer earned $19 million in two years. However, consumers should be outraged by profits generated through exploitation. At least two law suits have been filed claiming elder abuse and senior exploitation.

It sounds like the subprime mortgage people have reinvented themselves in a new timeshare twist. The Consumer Financial Protection Bureau has issued a civil investigative demand (CID) against Westgate timeshare. While I’m encouraged by the CFPB Westgate investigation, I hope the Attorney Generals of all nine states Westgate operates in will initiate their own inquires. I hope the CFPB expands the scope of their investigation to include Diamond Resorts, because many of the issues that are likely to be uncovered in the Westgate investigation are also issues at Diamond. Sadly, from an owner’s perspective, the Diamond acquisition of Gold Key and Intrawest starts the whole process over again.

 

 

 

After retiring from Edward Jones, Irene Parker worked as a CASA supervisor, writing and editing court reports on behalf of children in foster care. She is a former Ombudsman Advisory Board Member, advocates on behalf of patients in nursing homes. Irene holds an MBA from St. Louis University and completed the Certified Financial Planner Professional Education Program.   

 

 

    

 

 

 

1 comment:

  1. informative! sad... insightful. the only way to empower the timeshare buyer is for them to become educated BEFORE making a purchase decision. In the case above, that empowerment option is a moot point. it is a riddle as to how an owner (who enjoys their TS, or not) can prepare for the tactics herein. bring your cell phone or other video device with a fully charged battery and empty memory and record the entire interaction at the update, do not sign anything, and write down everyone's name / tile / employee number / work phone / cell phone / email address and who they report to. If they do not want to share in the transparency then they must have something to hide or fear they themselves are armed with only part of the 'truth' from their superiors. Yes, salespeople are people too and they have a job and may be doing it as honestly as they are trained and have only the info to answer a limited set of questions. Go up the food chain - with camera and pen/paper and keep asking and keep climbing. Report what you find on sites like this one and other sites (tug?) on the side of the buyer / owner. call and ask your TS if they have a "buy back" or "deed in lieu of foreclosure" option. Remember - HUCA = hang up, call again - until you get the answer you want or someone who is helpful and willing to dig for answers and supply you with the info you need. If they cannot, request they go up the ladder. Look at the TS company website and if a public company, find the Investor Relations department and use them as another avenue. Actually always start at the top - call the CEO and the Presidents offices too! Question everything. Expect nothing. Also you can write to the government department in the state you own your TS which regulates and licenses the sales people / brokers / TS companies. Make your voice known. Band together with other owners... don't know who they are? Put out an ad online seeking owners from XYZ resort. Find ads of OWNERS trying to sell/rent their units at XYZ, write / call them, build an unofficial database of owners names / numbers / emails / addresses etc. It is lots of work! And yes you still need to pay your mortgage and your maintenance. promote your unit for rent to coworkers, neighbors, church, gym, online ads, TS groups, etc. See if the front desk can rent it out for you. Does your property offer DAY USE of the amenities and if free (and unlimited) do you live near by? If so, use the heck out of it - take entire groups for events. If not, promote it in the local market where it resides and maybe a local will buy it from you if the day use if more appealing than the condo itself. Well I've gotten onto a tangent but as the ideas of likely already known and tried suggestions popped in to mind I figured better to say them than not.

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