How does a Home Owners Association Stop Sales to LLCs?

[theo]

As a go forward position, would a resort be able to institute ROFR instead? I know this is usually used by high-end resorts to keep resale values up, but could it be a way for HOA to block sales to the VS LLCs?

If they don't want the new owner, they can exercise ROFR and take the deed themselves, paying the original owner basically nothing (as the owner actually paid the VS, not the reverse). I doubt this would create a flood of owners taking this path; they would still have to pay the VS significant $$ to take the ownership. This would not affect normal sales, just those to VS. <snip>

An interesting idea in concept, but it is doubtful that ROFR could (lawfully) just be suddenly and selectively instituted as "our new policy" by an independent timeshare property's HOA (with the original developer long gone) --- unless such ROFR is already overtly addressed within the resort's CC&R (declaration) documents.

A directly relevant question (...and one to which I cannot offer a well informed or knowledgeable answer), is whether or not resort CC&R's could be amended "after the fact" to adopt a ROFR option. I frankly don't know, but will speculate that if it is possible, a formal effort would surely require obtaining a sufficient owner majority vote --- as is required to approve and adopt any amendment to filed CC&R's.

 

[BobSc]

Currently our timeshare has more than 100 weeks owned by Limited Liability Companies who are more than a year delinquent in terms of paying maintenance fees and the assessment.

That's an unfortunate bit a news. Sorry to hear about another resort that is in this situation. It sounds like you are looking for resources to help you understand and deal with the problem. The good news is others have had to deal with this issue in the past. Your resort is not alone.

At Sharket, we have an early warning tool that we developed out of our data to help resorts perform due diligence prior to the transfer occurring. But that won't help solve your resort's issue of already delinquent owners so I won't say any more about that.

Instead, I'd like to suggest that your board get in touch with the Timeshare Board Members Association. I recently attended their meeting in Orlando and met a number of board members who are running legacy resorts that are dealing with or have dealt with the same issues in the past, many are running successful legacy resorts and have managed to navigate through the tricky waters.

And there is an article from a few years ago in Vacation Ownership World magazine from 2011 that discussed the very issue you raise and it mentioned the UFTA or Uniform Fraudulent Transfer Act which many states have adopted.

It's well worth reading. I forget if it's ok to post links here on TUG but you can find the article by searching for the title in quotes:
"postcard companies and viking ships play havoc with timeshare association
finances"

Key ideas mentioned in the article:

- Communicating with owners to discourage the transfer of their weeks
to postcard companies (perhaps too late, but might be a good idea to avoid future issues)

- Demanding detailed paperwork to ensure a legitimate transfer (maybe not too late to go back and get from the delinquent LLCs and certainly going forward)

- Relying on the Uniform Fraudulent Transfer Act (UFTA) to define fraudulent
transfers to non-dues paying entities that exhibit no characteristics of timeshare ownership (definitely some possibilities here)

 

[raygo123]

That's an unfortunate bit a news. Sorry to hear about another resort that is in this situation. It sounds like you are looking for resources to help you understand and deal with the problem. The good news is others have had to deal with this issue in the past. Your resort is not alone.

At Sharket, we have an early warning tool that we developed out of our data to help resorts perform due diligence prior to the transfer occurring. But that won't help solve your resort's issue of already delinquent owners so I won't say any more about that.

Instead, I'd like to suggest that your board get in touch with the Timeshare Board Members Association. I recently attended their meeting in Orlando and met a number of board members who are running legacy resorts that are dealing with or have dealt with the same issues in the past, many are running successful legacy resorts and have managed to navigate through the tricky waters.

And there is an article from a few years ago in Vacation Ownership World magazine from 2011 that discussed the very issue you raise and it mentioned the UFTA or Uniform Fraudulent Transfer Act which many states have adopted.

It's well worth reading. I forget if it's ok to post links here on TUG but you can find the article by searching for the title in quotes:
"postcard companies and viking ships play havoc with timeshare association
finances"

Key ideas mentioned in the article:

- Communicating with owners to discourage the transfer of their weeks
to postcard companies (perhaps too late, but might be a good idea to avoid future issues)

- Demanding detailed paperwork to ensure a legitimate transfer (maybe not too late to go back and get from the delinquent LLCs and certainly going forward)

- Relying on the Uniform Fraudulent Transfer Act (UFTA) to define fraudulent
transfers to non-dues paying entities that exhibit no characteristics of timeshare ownership (definitely some possibilities here)

With your due diligence program, in how many situations do you find that the transfer of the deed has been recorded before any communication from the LLC? Or, as Brian has pointed out, there has not been any communication at all, as the LLC really doesn't care if you recognize the transfer or not.

As in ronparise post, you can bill the owner of record, ie according to the HOA, but would not be productive, as it is no longer recorded in his name.



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[BobSc]

With your due diligence program, in how many situations do you find that the transfer of the deed has been recorded before any communication from the LLC? Or, as Brian has pointed out, there has not been any communication at all, as the LLC really doesn't care if you recognize the transfer or not.

As in ronparise post, you can bill the owner of record, ie according to the HOA, but would not be productive, as it is no longer recorded in his name.

I agree once transferred in the resort's records it's late in the game. Resorts should look before the new owner leaps.

As to what else the resort should do before the transfer, there are a couple of things they could do. Resorts can set policies and procedures requiring advanced notice of any transfer to identify who the new owner is going to be.

With the name of the new owner in hand before the resort's ownership records are changed, the resort is in a better position to identify and learn something about the new owner. The new owner will either be someone who is already known to the resort or not. If known, then checking the MF payment history is easy. If not known, then checking to see if they are known to already own multiple weeks across other resorts, and if so how many and at which resorts could be useful to know, but even so will still require some further due diligence by the resort. After all the new owner may be a good citizen that faithfully pays their MF for all their weeks. There are several such multiweek owner good citizens here on TUG. But we know there are many other entities acquiring weeks out there who clearly are not paying.

And by the way, the resort is not the only entity that should be looking at the ownership history of the incoming owner. Transaction helpers to the transfer such as title and closing companies, transfer companies, and to a lesser extent brokers, also have a role and I would even say a responsibility in this.

 

[theo]

I agree once transferred in the resort's records it's late in the game. Resorts should look before the new owner leaps.

As to what else the resort should do before the transfer, there are a couple of things they could do. Resorts can set policies and procedures requiring advanced notice of any transfer to identify who the new owner is going to be.

With the name of the new owner in hand before the resort's ownership records are changed, the resort is in a better position to identify and learn something about the new owner. The new owner will either be someone who is already known to the resort or not. If known, then checking the MF payment history is easy. If not known, then checking to see if they are known to already own multiple weeks across other resorts, and if so how many and at which resorts could be useful to know, but even so will still require some further due diligence by the resort. After all the new owner may be a good citizen that faithfully pays their MF for all their weeks. There are several such multiweek owner good citizens here on TUG. But we know there are many other entities acquiring weeks out there who clearly are not paying.

And by the way, the resort is not the only entity that should be looking at the ownership history of the incoming owner. Transaction helpers to the transfer such as title and closing companies, transfer companies, and to a lesser extent brokers, also have a role and I would even say a responsibility in this.

I don't disagree in concept with anything stated above, but it is worthy of note (as was pointed out earlier in this thread) that, realistically speaking, a HOA generally learns for the very first time of a new deed having been recorded in a new name only after the fact --- well-intended resort "policies and procedures" notwithstanding. Unless the transfer is overtly and demonstrably fraudulent (i.e., the new grantee is a completely bogus LLC or a fraud-by-design "Viking Ship" entity), what retroactive leverage or recourse does a HOA really have with a "bailing" owner / grantor?

Stated differently, how exactly do you propose to forcibly insert HOA involvement between an exiting owner and his / her grantee, if underlying CC&R documents are completely silent on the subject of HOA approval being required for changes in ownership? To cite "adopted policy and procedure" is just words that may ultimately ring hollow, legally speaking, without supporting language of a "HOA approval requirement" being very clearly expressed within long-ago recorded resort CC&R's.

Not seeking to argue, just expressing doubts about the legal strength of your stated position. I am also not at all sure that closing / transfer companies can ever really "have their feet held to the fire" in any meaningful legal way for performing the limited role of deed prep / recording. I certainly support the spirit of virtually everything you've said above, but I'm nonetheless quite dubious about what I frankly perceive as a very wide gap between stated good intentions and harsh legal reality.

 

[dougp26364]

Currently our timeshare has more than 100 weeks owned by Limited Liability Companies who are more than a year delinquent in terms of paying maintenance fees and the assessment. More than half of them owe between $5K to $7K for an individual week and some owe about $50,000 for all the weeks they have. It seems like there should be a way to prevent sales to these organizations but in doing so, are are we limiting the legal rights of owners to sell their timeshare to whoever is willing to buy it. I personally can think of no reason other than a "Viking Ship" issue for a LLC to buy a timeshare. What I would like to know from someone who has done it is: HOW TO PREVENT THE SALE OF A TIMESHARE TO AN LLC? Please provide some detail on this and indicate the state in which it was done. Thank you in advance.

Spinnaker Resorts now requires a rather hefty upfront fee that will be applied to future MF payments to transfer a title. It's been a while since I looked into because the week we wanted to transfer ended up being managed by a company other than Spinnaker (original management company went bankrupt, Spinnaker managed in in the interim but didn't want it permanently). I'm wanting to say they required $750 or maybe $1,500 up front, plus transfer fee's, before they'd allow the new owners to register their week. That money was paid to Spinnaker an applied as a credit towards future MF's.

I'm assuming this was to discourage the transfer to an LLC that would eventually declare bankruptcy and leave the resort holding the bag, or at least get some money up front to mitigate losses once the LLC bankrupted itself.

 

[dioxide45]

Spinnaker Resorts now requires a rather hefty upfront fee that will be applied to future MF payments to transfer a title. It's been a while since I looked into because the week we wanted to transfer ended up being managed by a company other than Spinnaker (original management company went bankrupt, Spinnaker managed in in the interim but didn't want it permanently). I'm wanting to say they required $750 or maybe $1,500 up front, plus transfer fee's, before they'd allow the new owners to register their week. That money was paid to Spinnaker an applied as a credit towards future MF's.

I'm assuming this was to discourage the transfer to an LLC that would eventually declare bankruptcy and leave the resort holding the bag, or at least get some money up front to mitigate losses once the LLC bankrupted itself.

This might be one solution. Increase the transfer fee. It would either keep the foreclosed weeks in a private individuals hands where it is cheaper and easier to foreclose, or it would at lease get the seller engaged with the HOA to deed it back for the same price as the transfer fee and the owner then doesn't have to pay the "relief company" their hefty fee and the transfer fee.

 

[raygo123]

Spinnaker Resorts now requires a rather hefty upfront fee that will be applied to future MF payments to transfer a title. It's been a while since I looked into because the week we wanted to transfer ended up being managed by a company other than Spinnaker (original management company went bankrupt, Spinnaker managed in in the interim but didn't want it permanently). I'm wanting to say they required $750 or maybe $1,500 up front, plus transfer fee's, before they'd allow the new owners to register their week. That money was paid to Spinnaker an applied as a credit towards future MF's.

I'm assuming this was to discourage the transfer to an LLC that would eventually declare bankruptcy and leave the resort holding the bag, or at least get some money up front to mitigate losses once the LLC bankrupted itself.

I don't see where a vikingship cares if the HOA accepts or registers the sale. Again, they may never even contact the HOA. The high fee will just be added to the amount owed.

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[elaine]

It's my understanding that the resort has to accept the transfer to the new owner before the old owner gets off the hook for annual fees. Maybe the procedure it is in the documents when you buy a timeshare? This is how it was for 3 of my TS in 2 different states.
I also own Spinnaker in HHI, SC. They charge a $500 or so transfer fee, but also $1500 prepayment of annual fees/$750 for EOY to ensure that the new owner is legitimate. We got a letter about 5 years ago. IMHO, it was a good idea. Any legit new owner was going to have to pay the annual fees in the next 2 years anyway.
Maybe they just put in up for a vote (which they likely controlled via proxies) at an annual meeting? I am guessing that Spinnaker had a legal review of that policy. Can't covenants of HOA's be amended with a proper vote?

 

[raygo123]

Yes, in most cases. But, it still has to be within personal property laws.

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[TUGBrian]

The problem I have with this argument is that in nearly all cases (at least ones I read about personally via email or phone calls from owners)....is that the owner did make an effort to contact the resort about selling or getting out beforehand. I have to believe that a far larger % of individuals that end up in the jaws of these viking ship corps all have done the same at some point in time, only to be given a "less than useful" answer from whoever they reached on the phone or thru email.

now granted, many of these situations end up with the owner just calling the resort directly and speaking to someone at the front desk or the resort manager who we can all admit is not the person responsible for dealing with this situation...but thats no excuse for these people to at least have some sort of default reply they can give to these owners looking for help other than "we dont take back intervals" or some other less than helpful reply that doesnt really give the owner any more options than they had before they called.

owners will take the path of least resistance, but somewhere along that path (at least from our experience in dealing with owners)....the resort is contacted...and when little to no help is provided...they seek out alternatives and are literally funneled into these upfront fee companies as they bombard social media, print media, radio media, and google search results with everything these owners want to hear, which in essence is "we guarantee we can get you out of your timeshare" or similar.

 

[Tia]

Yep, agree here. I know the one resort we used to own the front desk can be less then helpful , island time mind set . I personally hounded my HOA board re setting up resales and included reasoning that included per TUG people were paying $$$$ to post card companies. There were rude replies and foot dragging but one former realtor broker saw the benefit and there is now a program! SPM managed resort. ( the retired broker corrdinates it)

The problem I have with this argument is that in nearly all cases (at least ones I read about personally via email or phone calls from owners)....is that the owner did make an effort to contact the resort about selling or getting out beforehand. I have to believe that a far larger % of individuals that end up in the jaws of these viking ship corps all have done the same at some point in time, only to be given a "less than useful" answer from whoever they reached on the phone or thru email.

now granted, many of these situations end up with the owner just calling the resort directly and speaking to someone at the front desk or the resort manager who we can all admit is not the person responsible for dealing with this situation...but thats no excuse for these people to at least have some sort of default reply they can give to these owners looking for help other than "we dont take back intervals" or some other less than helpful reply that doesnt really give the owner any more options than they had before they called.

owners will take the path of least resistance, but somewhere along that path (at least from our experience in dealing with owners)....the resort is contacted...and when little to no help is provided...they seek out alternatives and are literally funneled into these upfront fee companies as they bombard social media, print media, radio media, and google search results with everything these owners want to hear, which in essence is "we guarantee we can get you out of your timeshare" or similar.

 

[Saintsfanfl]

Yes, in most cases. But, it still has to be within personal property laws.

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Only if contested and that could be costly. Resorts and HOA's are doing what they want to do.

The ROFR option is interesting. Condo's almost always have this written into their bylaws whether or not they utilize it. It is a standard Condo practice. It makes sense for timeshares to be the same way.

 

[theo]

<snip> Resorts and HOA's are doing what they want to do.

The ROFR option is interesting. Condo's almost always have this written into their bylaws whether or not they utilize it. It is a standard Condo practice. It makes sense for timeshares to be the same way.

Agreed. However, the logistical obstacle would likely be obtaining sufficient voting timeshare owner majority approval for the necessary timeshare CC&R amendment. Said majority voting percentage is usually (...but certainly not always) specified within the filed declaration documents. Then again, as you note, a resort might very well opt to turn a blind eye to legal proprieties and associated details and just attempt to "adopt" their own "policy", skirting any formal CC&R amendment process or vote.

It's often hard to get a significant number of owners to even bother to vote for HOA candidates --- with a self addressed, stamped envelope provided with the ballot.
I'm guessing that the "voting enthusiasm level" would be even lower (and perhaps well below declaration identified minimum) for an issue like ROFR which few would likely bother to fully understand and fewer still would likely care much about, although I'd be delighted to be completely mistaken about that speculation.

Another potential wrinkle / unintended consequence would be at "independent" resorts (...we own intervals at one such place) where outfits like BlueGreen are buying up weeks and significantly increasing their presence (and Board influence). I'd be willing to bet that an outfit like BlueGreen would be more than happy to acquire additional intervals (and influence) on the cheap, utilizing a ROFR avenue, if available to them at resorts where they have a "presence". Not sure whether that would be a good or a bad thing, but I'm at least reasonably sure that the on-site agenda would soon become BlueGreen-dominated, even at a formerly "completely independent" resort.