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