Timeshare Listing Fees Spark Suit

Florida Regulators, responding to complaints from sellers of timeshare condos, are suing a Texas real-estate company that collects advance fees to list timeshares for sale.

The State Department of Business and Professional Regulation sued Stroman Realty, Inc. in Leon County Circuit Court in January, charging the Conroe, Texas Company with breaking a 1995 Florida law that prohibits collecting advance fees to list a timeshare for sale.  The lawsuit also accuses the company of operating without a Florida broker’s license, and is asking the court to stop the company’s activities in the state, order it to pay restitution to customers who paid the fee and pay the state a penalty of $10,000 for each advance fee collected.

The suit names nine people who claim they paid the fee and didn’t get any results, but state regulators allege hundreds more probably also paid.  The suit is seeking reimbursement for any consumer who paid the fee for advertising of a Florida-located timeshare.

Broken Promises

“We fell for the sales pitch.” says Myna Luse, a widow from Michigan who paid $489-Stroman’s standard fee to list her Daytona Beach Timeshare in 1994.  It hasn’t sold yet.  “They led you to believe they had a lot of buyers,” says Ms. Luse who’s trying to sell the timeshare on her own.  “But I’m not planning on anything happening anymore.”

Under a timeshare, purchasers buy long-term rights to vacation resorts for a specified period each year.  Owners who look to sell their timeshares say they are often unable to occupy them during the timeshare period.  They also cite hundreds of dollars in annual maintenance fees.

At issue in the case is the question of whether a resale market exists for timeshares, and whether customers who pay third-party brokers a few hundred dollars to tap into that market are getting their money’s worth.

“To take money from someone on the promise of a sale when there isn’t a resale market is questionable.” says Laura Glenn, chief of the bureau of timeshare within the Department of Business and Professional Regulation which is in Tallahassee.

Stroman defends its practice and says its fee is necessary to maintain its computer network, which gives it access to potential buyers world-wide.  “Not all the properties sell,” says Wayne Stroman, President of the Company.  “There’s no guarantee and we don’t have a crystal ball.”

Florida Is Also Sued

Stroman also says Florida Regulators sought out the few Floridians who have complained against the company, and has filed its own lawsuit against the state, in U.S. district Court in Houston in February.  The company alleges Florida’s statute is “an unconstitutional burden on interstate commerce.”

The company argues that because its business involves buyers and sellers from all states, it shouldn’t be required to be a licensed broker in every state, nor to abide by the local laws of each state. Instead it should be enough that it abides by Texas law, where it is licensed as a broker and where its fees are permitted. (Stroman only has its offices in Texas, but it does business in other states by marketing through the Internet and through direct-mail and newspaper advertisements.)

The dispute is erupting at a time when the timeshare industry is booming, thanks in part to the new timeshares being built by reputable hotel chains such as Marriot International, Inc. and Hilton Hotels Corp.  Industry spokesman say the dollar volume of timesharing has increased an average of  13.8% annually from 1992 through 1996.  Florida’s 284 timeshare condos account for one fourth of the total U.S. market.

But the industries boom hasn’t eliminated all its problems.  Many sellers of timeshares have found that they typically have to settle for far less that what they paid for them. “It’s not something we sell as an investment.” says Christopher Larsen, Spokesman for the American Resort Developer Association, a Washington D.C. trade group that represents the timeshare developers.

Problems in Other States

Stroman’s lawsuit also names as a defendant the state of California.  In September, that states Department of Real-Estate filed an administrative order compelling Stroman to stop its practices there. “In our view there’s a violation of state law,” says Larry Alamo, attorney for the department.  California law allows companies to collect advance fees only after they have all relevant advertising material and paperwork approved by the state, and the state impounds the collected fees until they’re expended for the benefit of the people for whom they were collected.

“State regulators have run amok and are trying to impose their laws on people throughout the country.” says Mr. Stroman.  But Stroman is having problems in its own home state of Texas as well, where the attorney general is investigating the company for complaints from “consumers dissatisfied with misleading and deceptive statements regarding the effectiveness of the company’s services,” a spokeswoman for the attorney general says.

“We do what we tell people we’re going to do, and that’s to market the property in the most effective means there is,” responds Mr. Stroman. The people who complain, he adds, are those “whose expectations are too high” about the price or the speed at which the property will sell.

The Florida legislature outlawed collection of timeshare listing fees in 1995, in response to numerous complaints from owners who had paid such fees to third-party brokers, but weren’t getting any buy offers.

The lawsuit against Stroman will be the first case to test the Florida law and its applicability to an out-of-state broker, but the state may follow with more lawsuits against other brokers who collect fees from would-be sellers, even if the fees are collected for purposes other than the listing itself, says Ms. Glenn.

For example, some brokers charge owners an advance fee to appraise their units and determine how much it is worth in the resale market.  The state is investigating such companies to determine whether the appraisal fee is just another name for an advance fee, says Ms. Glenn.

Brokers who charge such appraisal fees say they are tired of getting questioned and subpoenaed by the state, and one of them last month filed suit against Florida in Orange County Circuit Court, asking the court to stop the state from demanding documents.

“They’re saying you can’t take a fee to appraise a timeshare,” says Jim Gillis, an Orlando attorney who represents Tom Lugen, a broker who operates Daytona Beach based Century 21 Timeshare resale’s, and Carol Tennant, owner of Vacation Destinations, Inc., a timeshare exchange club that refers would-be sellers to Mr. Lugen.  “There is nothing to say you cannot pay somebody to appraise a timeshare.”

Caught on the middle of such technicalities are people like Christopher Teti, an Orlando engineer who concedes he wasn’t a fan of timeshares until he bought a timeshare in Daytona Beach only to realize later the resort didn’t rent it out for him when he couldn’t use it, as it had promised- and then subsequently paid $495 to list with Stroman, only to get no results.

So when he received materials from Century 21 Timeshare Resale’s, and called to inquire, the appraisal fee just made him skeptical and he decided to not use the broker.  “I figured I was better off doing it myself,” says Mr. Teti.  “We’ve lost enough money.”

Resources: Florida Journal, Wednesday, March 11, 1998. Alina Matas, Staff Reporter of the Wall Street Journal