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Developments - October 2008
Developments - October 2008 Additions and Deletions
The following text was deleted from the published version of the article. Additional text not submitted due to space limitation is also included after sidebar
Is a Real Estate Broker Necessary?
If one questions the concept of timeshare being regulated as real estate, one must consider what the Federal Trade Commission says about timeshare resales:
- Selling a timeshare is a lot like selling any other piece of real estate.
- Ask if the reseller's agents are licensed to sell real estate
- Deal only with licensed real estate brokers and agents
Is Third Party Escrow and Title Necessary?
Internal escrows and partial transfer companies provide limited protection (if any) for the resort, HOA, buyer and seller.
The potential liability that could be incurred is avoided by using a "national" title company and title insurance.
What to Watch Out for in Today's Market
Internet Bulletin Boards have enabled Unlicensed Individuals, Dealers and Postcard Companies to practice real estate without a license. Bulletin Boards have encouraged the unknowing consumer to believe a timeshare transaction is like buying a book from amazon.com. Bulletin Boards prefer to be non-licensed to avoid the requirements of fiduciary relationships and mandatory disclosures. As a result, they have no responsibilities or consequences for their unregulated activities.
The current, but wrong, practice of transferring timeshare property like a book, without proper escrow and title, allows for non-licensed entities to thrive. It is mandatory that developers sell the property correctly with escrow and title the First Time - why would anyone consider and believe it's okay to transfer the property without all the same regulatory protections and safety nets the Second Time?
Timeshare was originally regulated and sold as real estate. Timeshare should be treated as real estate in the secondary marketplace. Entities practicing real estate without a license cannot survive in a regulated environment. .
The Economy and the Effects of Non-Licensed Entities on Resorts
As you know, you can almost always sell a desirable week, even in a downturn market. However, less desirable weeks are getting harder and harder to sell and/or transfer back to the resorts. This is a direct result of "no cost" inventory dumped into the marketplace for $1.00.
Economic downturn is not the culprit. Yes, prices in past downturns have dropped slightly, but never before has it been a result of the marketplace being overwhelmed with "no cost" inventory, and under siege by non-licensed entities. These non-licensed entities place "no cost" weeks into the marketplace for pennies on the dollar because they have no original cost, causing prices to plummet.
In addition, resort transfer departments are now dealing with the problems and title defects that the non-licensed entities have created by circumventing normal real estate practices like abusing the intended purpose of a limited power of attorney. This rampant abuse of limited power of attorneys with "no cost" inventory by non-licensed entities has hurt the consumer. It devalues timeshares and at the same time creates substantial title defect problems resulting in increased workload for the resort transfer departments. Bulletin Board sales without proper transfer procedures have caused the rapid increase in the number of title defects and transfer problems - now as high as 40% at some resorts.
Timeshare is Real Estate
Clearly our product is real estate and should be treated as such.
Practicing real estate without a license is not only against the law, it damages the consumer, devalues the product and compromises our industry.
When we create consumer confidence and protections thru fiduciary agencies, full disclosures and regulatory remedies, we achieve our goal of enhancing product value and protecting the consumer.
Consumer Risks part of side bar (right side) was deleted from final version
Real Estate Sidebar -- Consumer Protections and Consumer Risks
||Timeshare as Real Estate - Protection
||Not Real Estate - Risk
||Proper presentation of product.
||Fiduciary relationship between agent and principal
||No binding relationships
||Protections thru full disclosure during sale process
||No mandatory disclosures are required
||Protections thru proper transfers with full service escrow companies
||Unlicensed transfer companies and dealers not regulated. Resort transfer fees sky rocket to cover cost of processing defective transfers
||Protection from title defects thru proper Title Insurance
||Title defects make propertyunmarketable
||Lender Protection encourages secondary financing
||Financing limited, costly and risky for lenders
||Continuing protection and assistance thru licensed agent customer care and service
||No responsibility or consequences for non-licensed activities
||Consumer remedies thru the state department of real estate
||Consumer protection thru licensed real estate agents
||Non-licensed entities abuse consumers thru false and deceptive advertising, misrepresentation and fraud
||Real Estate Brokers are required to be visible to the public and are held accountable
||Non-licensed entities hide behind internet bulletin boards not requiring any regulation or disclosure
||Real Estate Brokers maintain and enhance product value
||Values plummet with "no cost" inventory liquidated on internet bulletin boards
||Full escrow and title insurance policies protect consumers and resorts
||Title Defects Sky Rocket
||Third Party broker, escrow and title companies reduce resort workload and increase protection
||Management and Operational Cost (including maintenance and transfer fees) increase to meet Customer Service Demands
||Fiduciary agency, full disclosures and remedies create consumer confidence
||Consumer Confidence drops
||Licensing and Regulation sets the guidelines for proper standards of practice in the timeshare industry
||Industry Integrity is Compromised
The following text was not submitted in initial article due to 1500-word size limitation
How is my Timeshare Transferred Properly?
What type of Escrow Transfer provides me with the maximum protection?
- Third Party Escrow: The most professional type of transfer. Handled by an independent, licensed escrow company with expertise in the transfer of timeshare properties. Provides the most protection for all parties. Buyer funds are held in a trust account and are not disbursed to the Seller until all terms of the transfer are completed. Seller's property is not transferred to the Buyer until all terms are met. The Third party escrow is Not a party to the transaction,
thereby providing an independent, unbiased transfer. For a very moderate fee, Buyer and Seller receive the most protection through a Third Party Escrow.
- Internal Escrow: Typically, this type of escrow is handled by either a real estate broker that is party to the transaction, or internally by the resort or management company itself. The biggest problem with this type of transfer is that there is no independent, disinterested party involved, no unbiased entity that reviews the documents, hold funds, and prepares transfers. Buyer and Seller receive limited protection through this process, and have no protection from a disinterested party that would alert them to problems or discrepancies.
- No Escrow: Buyer and Seller assume full responsibility for the transaction, and have no independent entity reviewing the transaction for accuracy. No Trust fund for holding funds.
A Third Party Escrow Company will properly:
- Document the transaction.
- Request preliminary title information.
- Request loan, taxes, waivers and HOA status.
- Prepare necessary recording documents.
- Collect sale proceeds/costs from buyer.
- Pay off loan or set up new loan.
- Bring taxes and HOA fees current.
- Prorate all income and expenses.
- Obtain title insurance.
- Comply with all state and federal transfer requirements.
- Request deed recording.
- Notify management company of transfer.
- Provide exchange company transfer/membership forms.
- Disburse net sale proceeds to seller.
A Third Party Title Insurance Policy will:
- Verify that the seller is the legal owner.
- Verify the legal description of the timeshare.
- Identify any liens against the property.
- Insure buyer against any recordings not identified in title policy (i.e. loans, taxes, CC&RSs).
- Insure buyer that the chain of title is proper.
TRI West Real Estate
Mario Collura, President and Broker
Viccie Mac, Sales and Rental Manager
13353 Washington Blvd.
Los Angeles, CA 90066