Are there adequate statutory safeguards in place for timeshare buyers? It all depends on the buyer’s ability and willingness to navigate through thick smoke and amusement park-style mirrors!
There are essentially two major consumer protection devices in play for today’s timeshare buyer:
1.) The statutory rescission period, which varies by state from five to ten days,
2.) The buyer’s receipt of a state filed copy of a Public Offering Statement (POS) or Prospectus. Either document contains all of the facts, figures, limitations and disclaimers that the state requires be disclosed to a prospective timeshare buyer.
Theoretically, these two consumer protection measures taken together should provide the necessary layer of protection that a purchaser of a relatively costly “investment” needs in order to make an informed purchase decision. At least that seems to be the prevailing legislative wisdom.
Let’s examine this premise a little more carefully – because certain strong psychological and behavioral tendencies may operate directly in opposition to these consumer protections.
In virtually all states that permit timeshares to be sold within their borders, buyers statutorily are entitled to be presented with an exact copy of the Prospectus/Public Offering Statement (POS) as prepared by the Developer and previously filed with the state. The receipt of this document by the buyer must be prior to, or at least contemporaneous with, the purchase. Timeshares are marketed as same day “impulse” buys.
Most states have statutes that provide that the rescission period is extended beyond the provided five to ten day period, until all of the disclosures provided in the POS have been provided in writing to the buyer. Therefore, the developers make every effort to provide all information required via the POS at the time of closing so as not to extend the rescission date.
A brief historical review of the Public Offering Statement or Prospectus:
Following the stock market crash of 1929, the Securities Act of 1933 was the first major piece of Federal legislation enacted to protect consumers from purchasing unregistered stock that had yet to prove its value. Virtually all states where unregistered stock is offered for sale have comparable “blue sky” laws enacted and modeled after the Federal Securities Act with the avowed purpose of preventing the sale of fraudulent and/or near worthless stock to uninformed investors.
The Public Offering Statement/Prospectus contains extensive data, facts and figures about the financial health of a stock offering. The timeshare Prospectus/Public Offering Statement is not intended as a statement of value and contains no market prices or valuation, those issues being reserved as the exclusive provenance of the developer.
As previously mentioned, the POS/Prospectus is delivered to the timeshare buyer on the same day of purchase. The Security Industry’s version is required to be in the buyer’s hands at least thirty days before the contemplated transaction! The significance of this difference, of course, is that 30 days provides the prospective buyer the opportunity to actually read and absorb its contents. At the timeshare closing table, there are a multitude of various other closing documents and persons sitting with the consumer, waiting for the execution of all of these documents, including a rather ironic written acknowledgment that he or she received and was provided an opportunity to plow through this voluminous booklet. And all of this occurs only after enduring an often hours-long sales presentation, involving usually two sales agents and a final “closer” (if needed). Unlike a stock purchase, the timeshare buyer has the added responsibility of paying annual maintenance fees instead of earning stock dividends.
So what’s the big deal about receiving this important document at the same time that you’re closing? After all, the buyer has the five to ten day statutory period to absorb it and cancel the deal if they read something that makes them hesitate. “Besides,” continues the developer’s pitch, “we can’t furnish the POS any time prior to the closing date because the consumer signs the perpetual contract the very same day they are introduced to the product!” That of course, is precisely my point!
The timeshare perpetual contract comes complete with annual maintenance fees and an underdeveloped resale market. How wise is it to rush into a product which is essentially the present purchase of a future use vacation product? Would the prospective timeshare buyer still be eager to buy thirty days after receipt of the POS? Query the wisdom of making a purchase decision the same day one tours the resort before taking the opportunity to seek professional assistance from a realtor, accountant, or attorney, none of whom are accessible with a same day closing.
Is it really a good idea to allow ‘same day see and sell’ timeshares?
One of the thornier and more nebulous nuances of timeshare consumer protection, in my opinion, is the psychological aspect underlying the one day ‘see and sign’ closing and the interplay of psychology and timing between the receipt of the POS and the minimal time allowed for rescission. Consider how we humans are psychologically programmed. Are we not accustomed far more to doing our due diligence before a purchase?
It’s fair to state that a comprehensive and meaningful reading of these would require several hours. Assuming this Herculean deed is done timely and a decision to rescind is made by all of the co-purchasers, a letter of rescission must then be composed and mailed to an address that can only be found by a careful review of the purchase agreement. It is often not the resort address. (Interestingly, there is no state law or rule requiring the resort to provide any separate rescission instructions at the closing, either oral or written; indeed, this is not a topic of conversation typically initiated by resort personnel at any time. Though the rescission procedure language, in fairness, is statutorily required to be in larger point type and located close to the signature block.)
How many timeshare buyers are of the mindset to go back and wade through their thirty-plus page Public Offering Statement or Prospectus along with their purchase contract, acknowledgements, disclaimers, exhibits and attendant schedules in an effort to perhaps undo their good feelings and vacation fantasy? The new timeshare buyer happily emerges from their closing clutching their newly obtained packet full of documents imagining future family vacations!
This second prong of timeshare consumer protection is the five to ten day state-mandated rescission period. During this period, the purchaser must accomplish any and all due diligence as to whether or not they stay with their purchase decision.
The psychological aspect underlying the one day ‘see and sign’ closing, and the interplay of the psychology between the two main consumer protections (i.e., the timing between the receipt of the POS and the relatively minimal time allowed for rescission) are some of the thornier and more nebulous nuances of timeshare consumer protection.
Even if the vacationers have started the process of wrapping up their vacation, they’re still busy packing and thinking of the reentry back to work and/or school upon their return home. Will they remember, or even give another thought, to wading through the inches thick closing packet within the minimal time period still remaining after unpacking the suitcases?
Considering further what we have been conditioned to accept as a given, is it really a good idea to allow ‘same day see and sell’ timeshares?
Michael D. Finn, Esq.