The Real Meaning of “Stay Vacationed!” at Diamond Resorts International
By Irene Parker, The Peasant of Venice firstname.lastname@example.org
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:
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.
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.