We are in the middle of Hurricane Irma and will not be posting this week. Hope to be back next week to share our experiences. In the mean time, please follow me on Twitter @dkblattneratty where I am tweeting as often as possible.
An Indiana couple has struck back against Marriott and its profitable vacation club. Anthony and Beth Lenner filed a lawsuit against Marriott Vacation Club and others in Federal Court in Orlando last month under the RICO Act claiming Marriott tricked them into thinking that they were buying a timeshare interest in real estate. Instead, the plaintiffs only received a license to use real estate. The lawsuit alleges violations of both the RICO Act and the Florida Vacation and Timeshare Act.
The complaint seeks unspecified damages and will seek class action certification. Plaintiffs seek to abolish the points program which, attorneys say is unique among timeshare companies. Actually, that is not the case. I have to admit that my wife and I like to travel and often take advantage of “unique offers”. Over the last few years, we have accepted invitations to visit a few vacation club properties for ridiculously low prices. The clubs offer us hotel reward points, rental cars and other gifts. In exchange, we agree to attend a “brief” presentation. In the last year we visited 2 different clubs, a Starwood in Hawaii and a Hilton in New York. We have visited others over the years, but the pitch is always the same. For nearly the cost of our house, we could acquire an interest in the beautiful resort/club. We would receive several hundred thousand points so use each year at the dozens of club locations in exotic locales around the world. Each location “costs” different amounts of points. So, our total room nights would be between 7 and 14 each year depending on 1) which club we buy, 2) where we use the points and 3) when we use the points.
We would receive a deed. We would pay annual maintenance and taxes which would amount to about $250 per month in Hawaii and $350 per month in New York. And, best of all the pitch goes, we would be saving over $500,000 over our life time in vacation costs! But companies wanted our down payment that day or the deal was off. As an incentive, they offered several hundred thousand hotel reward points as well, meaning we would have over 4 weeks of travel in the first full year. Both companies would finance us for 12 months. Then, we could pay off the balance or refinance. The interest rate? 23.9%! What a deal!
As a real estate attorney, there was so much that I could say to the sale people about these offers. But I didn’t. My wife and I just wanted our gifts and to return to our vacation. But these were high pressure sales jobs. Remarkably, I did well not to argue. Much of what I would have said will come out in the Marriott lawsuit:
- There is no property interest to deed in the points program. There is not a legal description. While Marriott has created a trust and owners get some beneficial interest in the trust, that is not an interest in real estate. If this were an actual timeshare, the deed would be for a specific unit and a specific week, or a fractional interest in a unit. The trust ties to real estate, but the interest is a license interest.
- Marriott, through a title company (who is also a defendant), provides title insurance to the buyers at the buyers’ cost. There is no insurable interest because there is no interest in real estate. I don’t believe that the vacation clubs that I visited offered me title insurance, which goes to show that Starwood and Hilton recognize that they aren’t really selling real estate.
- Marriott implemented the points program as a means to quickly dispose of excess inventory which it acquired when the real estate marketed crashed. It took back thousands of units which were not being used. Their points program has now caused an over sale. Owners have great difficulty booking rooms less than 6 months in advance. If you “own property”, you should be able to show up and use it whenever you want. Starwood and Hilton and other like clubs use the program to finance construction of new properties. In fact, one resort we visited did not even offer us a “unit” in the resort we were visiting. They offered us pre-construction pricing in a resort that was still in planning stages in Mexico. In New York, we were offered a unit in the building we were staying in or one under conversion several blocks away. So, buyers buy interest in buildings that don’t exist. In theory, the closing can’t occur and the deed can’t be delivered until the building is completed. But the points are awarded upon payment. The buyer already has its license. In a true timeshare or other condominium, other than the down payment, no money is paid until completion.
- Maintenance is used to pay the hotel’s operating cost. Yet, the owner rarely, if ever visits the “home resort/club” and is encouraged to use the points to explore the system. The owner is paying to maintain a building he/she doesn’t really have an ownership interest in. But my personal gripe here is with the sales pitch. The sales people pitch on the annual cost savings on vacation. But if you are spending $2,500 or so per year on maintenance, there is not any real savings on the cost of hotel room nights. That’s 10 nights of hotel at $250 per night. Plus, the six figures spent for the right to stay there. Sounds like a license to me.
- What is going to happen when the Marriott/Starwood merger is complete? Will the programs combine seamlessly? Will they remain separate? Are the properties comparable? Do the point systems have parity?
This is a case to watch. The other clubs using points systems should be watching closely. Some clubs have better systems in their programs than Marriott. However, as this case progresses, lawsuits against the other clubs could and should follow.