Timeshare Annual Dues Abuses

 

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An evaluation of the ‘accounting’ rendered by a large timeshare developer leads to interesting inferences. The developer purports to document annual dues in excess of twenty million dollars ($20,000,000) for one, 576 unit resort. Of course, this number defies credulity, so we took a close look at the figures. This is what we found out:
1.The resort is overbooked – we surmise that all deeded interests have been sold and yet the Developer continues to sell ‘points’ interests in the Resort; 2. Apparently the developer is replicating claims for ‘management’ fees and possibly other items; 3. The Developer is even renting rooms in the resort for less money than the owners pay to be ‘members’; 4. The Developer continues to control the Association and thus the management group, which is itself an arm of the developer, even though the accounting indicates that the resort is substantially sold out to private individuals. The rationale justifying this conflict of interest, as given in the developer’s annual report, is nothing short of preposterous:

HOAs. Each of the Diamond Resorts managed resorts, other than certain resorts in the European Collection, is typically operated through an HOA, which is administered by a board of directors. Directors are elected by the owners of intervals at the resort (which may include one or more of the Collections) and may also include representatives appointed by the Company as the developer of the resort. As a result, the Company is entitled to voting rights with respect to directors of a given HOA by virtue of (i) its ownership of intervals at the related resort, (ii) its control of the Collections that hold intervals at the resort and/or (iii) its status as the developer of the resort. The board of directors of each HOA hires a management company to provide the services described above, which in the case of all Diamond Resorts managed resorts, is the Company. The Company functions as an HOA for two resorts in St. Maarten, collects maintenance fees, earns management fees and incurs operating expenses at these two resorts.

In reality, it is apparent that the interval owners simply do not contest the proxy proposals indicated in the annual meeting notices. The proxies are all stooges of the developer, and thus management control by the developer persists with no meaningful cross-checks and balances allowing for the kind of financial abuses reflected in the ‘accounting’. Indeed, this developer’s annual report with the SEC reflects that seldom if ever has it been supplanted from management of its ‘own’ resorts. Please call us if you are concerned about developer abuses and are interested in cancelling your timeshare.

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