BY: GINA B. BLISS I took my summer beach vacation last week. We rent a house on the beach, and just relax. I look forward to it all year. The rental company we used this year sent me an email before we left for vacation to let us know about an open house they were having during our week to showcase some new properties. It said that if we’ve ever considered owning at the beach instead of renting we should attend. I wondered if the open house would really be a timeshare sales pitch. We didn’t attend, so I never found out. If timeshares have such a negative reputation, why do people buy them? The idea of owning property in Mexico, Hawaii or another exotic vacation locale has vast appeal, even if it is only for one week a year. There’s nothing wrong with buying a timeshare, as long as you do your due diligence just as you would do with any other large purchase. In my opinion, it’s not really an investment. It’s a decision about where to spend your vacation dollars. Real estate developers love to sell timeshares because it’s extremely profitable for them. You and other people are all buying one property and sharing the use of it. The price of a timeshare includes premiums of up to 40% to cover sales costs. If you finance the purchase, the interest rate will often be much higher than a traditional mortgage. Once you own, there are maintenance fees and assessments to pay. A timeshare is definitely a luxury item. In this economy, many timeshare owners would like to sell. The problem is that as a timeshare ages, it becomes less desirable. Resale price is generally a fraction of original cost, and there’s a substantial commission to pay when you sell. The resale market for timeshares is generally poor, and right now it’s terrible. It’s the perfect environment for fraudsters. There’s an epidemic of scammers preying on timeshare owners who can no longer afford their timeshares. Online postings of timeshares for sale by owner are just one way of locating victims. The most common fraud is a telemarketing scheme. Telemarketers offer to sell the timeshare, and may even claim to have a buyer. They just need an upfront fee ranging from a few hundred to a few thousand to start the process. At that point, the timeshare owner gives a credit card number. The fee is paid and no sale ever happens. As if that’s not bad enough, in some cases the same scammers call again claiming to be a fraud recovery company. They promise to assist in recovering the sales fee, for another fee. Another fraud involves the mortgage on the timeshare. A telemarketer or email claims that it’s possible to pay off the mortgage balance at a fraction of the current balance. The timeshare owner sends the reduced payoff but the payment doesn’t go to the mortgage. It goes to the fraudster. Some timeshare owners are so desperate to get out from under their timeshare that they will fall for the donation scam. The fraudster claims to be a donation company representative able to facilitate the donation of the timeshare, for a fee. Of course, the donation is not legitimate. As always, if it sounds too good to be true, it is. In this economy, there is no buyer on the other line waiting to buy your timeshare once you pay the fee. The market is not “hot.” The number of sellers far exceeds the number of buyers of timeshares right now. These types of fraud are generally handled by local law enforcement and each state’s attorney general’s office. The FBI may get involved in cases crossing state lines involving mail or wire fraud. Timeshares aren’t for me, but they might be right for you. If you think they are, you need to weigh the costs and benefits. You must rely on the contract, not the sales pitch. Always consult an attorney before signing the contract.
Gina Bliss, CPA, CFE, is a senior manager at EFPR Group, Certified Public Accountants and Business Consultants, who specializes in internal audit, fraud audit, and forensic accounting. She may be reached at (585) 295-0536 or by e-mail at firstname.lastname@example.org