NON-JUDICIAL ENFORCEMENT OF TIMESHARE CONTRACTS

When people approach our law firm with legal concerns about their timeshares, generally it’s not just a matter of addressing some “inconvenient,” or bothersome but incidental expense. In reality, these cases are usually ones in which the funding of some illusive vacation interest is actually jeopardizing life’s essential needs. Particularly where the timeshare owners are elderly and living on a fixed income, expenses equating to hundreds of dollars with each passing month, not uncommon[1], may well be eating into routine living expenses necessary to subsist.

So, it naturally follows that one of the first questions our clients have is whether or not to continue making payments on their timeshares. We would like to address this issue from two perspectives, one strictly legal, and the other from a more practical standpoint.

As a matter of technical legal advice, we generally do not counsel our clients to default on their payments, at least until we have a resolution of our demands on a particular timeshare developer. If the developer accedes to our demands and agrees that our legal position is compelling enough to warrant termination of a given contract, then of course payments on the account will come to an end as the contract is canceled or rescinded, as the case may be.

Having said this, by the time that many of our clients come to us, they’re already delinquent on installment payments and simply seek to make the best of an already difficult situation. In other instances, these clients are facing compelling medical and/or financial hardship jeopardizing their ability to meet life’s essential needs. Recognizing that these needs may be of a higher priority than continuing to pay for access to some remote resort destination that they are often not even using, we are sometimes forced to temper our advice to account for life’s practical realities.

Particularly in cases involving sales transactions procured through fraudulent representations or otherwise deceptive sales practices, at the very least we owe our clients and explanation as to the likely consequences of a default on payments^[2], and what we can do in order to ameliorate those consequences. In this regard, we are prepared to do three things: 1. Establish and maintain a line of communications with the timeshare developer that is channeled through our office. We articulate their legal position so as to preserve their claims and defenses in the event that a formal legal challenge is necessary. This eliminates the need for our clients to field and address harassing phone calls and correspondence seeking to intimidate the client in extracting more money on an obligation that is already of questionable validity; 2. We invoke anti-deficiency legislation and any other non-recourse provisions endeavoring to protect the client from personal liability; and 3. We invoke credit-related protections under 15 USC Section §1681^[3], et seq., in order to minimize or eliminate any derogatory reporting that may otherwise affect our clients’ creditworthiness.

Referencing anti-deficiency legislation: No creditor, including a timeshare developer, can enforce any obligation by compulsion, except through the judicial process. Specifically, the creditor must sue the debtor in a court of law, obtain a judgment, and then execute upon that judgment through a properly issuing writ.^[4]

Overwhelmingly, in our experience, this is not the path that timeshare developers have taken, for one, primary reason: Expense. It costs significant money to prosecute a civil action, even a relatively simple one. Compound this with legal claims and defenses that a consumer could assert in connection with common irregularities occurring in connection with many timeshare sales, and certainly in cases where the consumer is represented by legal counsel, litigation in a court of law is generally not a cost-effective proposition. Note that this is not necessarily the case where a timeshare owner has unwittingly hired a timeshare ‘exit’ team or other outfit masquerading as cancellation experts.[5] Thus it is critically important that the individual has competent legal representation – meaning a licensed attorney – throughout this process.

If so, rather than to sue, in most jurisdictions a timeshare developer will engage in power of sale foreclosure through a third-party trustee – generally a law firm – whereby the firm issues a statutorily compliant notice and opportunity to redeem, baring which title to the timeshare is recovered by the developer upon expiration of the proposed sale date. Because the timeshare has no intrinsic value to a third party, invariably the unit is ‘purchased’ by the developer, which is credited for the purchase price in the amount already owed. In this fashion, the timeshare is generally reclaimed without the exchange of money.[6]

The downside of all this from the consumer’s standpoint may involve a hit to the credit score of the timeshare owner. Most developers now report to at least one of the three major bureaus. A diminished credit score can be a significant problem for anyone seeking to finance or refinance the acquisition of an asset, particularly while interest rates are at historic lows. Thus, this ability to adversely impact the creditworthiness of a defaulting timeshare owner is a significant, non-judicial enforcement mechanism.

This ability can also be abused, in spite of the codification of the Fair Credit Reporting Act, 15 U.S.C. 1681i, designed for consumer protection by allowing for the dispute of any false or flawed credit reporting by the bureaus. This dispute-related legal process requires an ‘investigation’ into the consumer dispute by the bureaus once having received such a grievance. However, the credit bureaus share a proprietary software platform with the creditors, enabling the creditor to digitally transmit coded responses deemed to pass for statutory compliance under 15 USC § 1681i(a)1 – as opposed to an actual “investigation,” within the meaning of any commonly understood definition of the word.

Moreover, neither this coded ‘response’ nor any results of the ‘investigation’ are published to the consumer, in violation of 15 USC § 1681i(a)6. Indeed, the coded nature of this ‘response’ does not and cannot address, in any meaningful sense, the underlying basis for the dispute in many instances – i.e., the deceptive sales practices misleading the consumer into signing the account documentation.

Indeed, the very existence of a shared software platform allowing for essentially clandestine digital communications by the creditors, the bureaus, and even the Consumer Financial Protection Bureau (CFPB) – the very agency that’s supposed to serve as the “watchdog” over this process, speaks to a degree of collusion that belies the very intent of the entire arrangement.

In summary, these cases reflect the following violations on the part of the creditor and the credit bureaus involved:

15 USC Section 1681i(a)1, requiring an investigation into

the dispute;

15 USC Section 1681i(a)4, requiring a review and

consideration of ‘all relevant information supplied by the

consumer;

15 USC Section 1681i(a)5 requiring deletion of the account entry

and notification to the consumer if the debt is not validated within

30 days;

15 USC Section 1681i(a)6 requiring notification to the consumer

of the results of the investigation;

15 USC Section 1681i(a)8(c) requiring a notation that the

respective obligations are dispute, bearing information about

the basis for the dispute.

Efforts to address these grievances at a systemic level can be frustrating, given the politics and institutional inertia intrinsic to it all. As of this writing, and by way of example, the confirmation of the current administration’s nominee to head up the CFPB has been held up in committee for months.[7] Our office continues to monitor the situation to the extent that it affects those we represent.

[1] https://money.usnews.com/money/personal-finance/family-finance/articles/2018-07-20/what-you-need-to-know-about-buying-a-timeshare

[2] ABA Model Rule of Professional Conduct 1.4:(b), https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_4_communications/

[3] https://www.law.cornell.edu/uscode/text/15/1681i

[4] https://www.justia.com/trials-litigation/representing-yourself-in-legal-proceedings/collecting-a-judgment/

[5] https://insidetimeshare.com/fridays-letter-from-america-timeshare-foreclosure/

[6] See, e.g., Fla. Stat. § 721.20, et. seq., http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0721/0721PARTIIIContentsIndex.html

[7] https://www.jdsupra.com/legalnews/warren-suggests-potential-cfpb-6273461/