The Timeshare Hard Sell Comes Roaring Back

For more than 25 years, Mary Ann Gutierrez, 77, has spent several weeks a year at on the southern shore of Lake Tahoe, Calif., often playing host to her children and grandchildren at one of two timeshare units she owns.

When she checked into one of the properties last year, she was stopped at the front desk. A $100 gift card would be hers if she attended a presentation by Diamond Resorts International, the company that owns the resort. But first she had to fill out some papers and supply her credit card information.

The gift card came with a cost, as Ms. Gutierrez soon learned. For five hours, she said, Diamond representatives pushed her to give up both of her timeshare deeds, including one at the nearby Tahoe Beach & Ski Club, a resort that Diamond does not own. With the upgrade and membership in Diamond’s ownership points system, they said, she would keep her maintenance costs low and could use her points at other resorts in the company’s network. It would cost just $30,000 upfront, they said.

Even when representatives suggested her maintenance fees would rise if she didn’t switch, Ms. Gutierrez kept declining, saying that the cost was too high. Undeterred, the Diamond representatives suggested that she ask her children to pay for the upgrade. She continued to say no and, at last, they let her go.

“They weren’t going to let me out that door,” Ms. Gutierrez said. “I was shaking, I was so nervous.”

The feeling turned to shock, however, when a Diamond representative handed her a record of a voided charge in the amount of $4,840 on her credit card. The representatives had been so certain that she would agree to the offer that they had charged her card for the down payment — even though she had not given approval.

After crashing in the financial collapse, timeshare sales are rising again, and with them high-pressure sales practices such as those Ms. Gutierrez described. Perhaps acknowledging these problems, some in the industry have cautioned in recent months that regulators from the Consumer Financial Protection Bureau could increase their oversight. New rules would affect all operators, including big players like Diamond, Interval Leisure Group, Marriott Vacations Worldwide and Wyndham Worldwide. But tighter regulation might have an especially big impact on Diamond, because its business is devoted solely to timeshare sales and management.

Interviews with timeshare owners, lawyers and other specialists in the arena, moreover, suggest that Diamond’s sales practices can be especially forceful.

Jeff Weir is a Diamond timeshare owner and journalist who writes about the industry for RedWeek, an online timeshare site, and regularly attends sales presentations to keep tabs on tactics employed by timeshare companies.

“In my experience, Diamond is much more ambitious, aggressive and downright nasty in their sales presentations compared to Marriott and Westin,” he said in an interview. “Diamond just has an amazing reputation of being tough on people.”

David F. Palmer, Diamond’s chief executive, sees its sales methods in a very different light. In an interview, Mr. Palmer described how Diamond tries to bring fun to its customer interactions, both before an initial sale and once a member buys in. “The industry didn’t quite realize that you have to engage and create intimacy and pervasiveness with somebody that you don’t really know,” he said. “Our lifetime subscription model creates a series of systems where you can track that engagement and make sure you are constantly providing a series of experiences that exceed their expectations over many, many years.”

Neither Mr. Palmer nor the company’s spokeswoman would discuss Ms. Gutierrez’s experience. But on the topic of high-pressure sales tactics, Mr. Palmer said, “I have belligerently zero tolerance for anyone who goes off script.”

Diamond has had great success in the industry. In less than 10 years, the company’s revenue reached $845 million last year, more than double the 2010 figure. Its average timeshare transaction price was $21,700 last year, up from $12,510 in 2012.

But while Diamond’s growth has benefited its executives — Mr. Palmer received a total of $19 million in compensation in the most recent two years for which figures are available — the company’s business practices seem to have alienated some customers.

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Jacob Bercu, a retired Silicon Valley software engineer and a timeshare owner and board member at Tahoe Beach & Ski, has fought efforts by Diamond Resorts International to control the board.CreditPreston Gannaway for The New York Times

In lawsuits and in interviews, customers complain not only of high-pressure sales, but also of sky-high maintenance fees and frustration at procedures that block club members from taking vacations where and when they want. Perhaps most distressing to owners is the fact that once you buy into a timeshare it is almost impossible to get out.

Larry Vicks, a retired engineer in upstate New York, is a disgruntled Diamond resort member who read the transcript of a Diamond conference call with Wall Street analysts and investors. “It made me laugh how they are making boatloads of money,” he said in an interview. “The reason I’m laughing is that it’s all at my expense.”

‘We Love to Say Yes’

About nine million households in the United States own timeshares, and sales have increased about 25 percent since 2010. In a typical timeshare deal, a buyer pays for an interval at a resort condominium, maybe one or two weeks a year, and agrees to pay homeowners’ association dues covering maintenance and taxes on the property. Some buyers pay upfront, while others finance their purchases often through the company selling the units.

In the early years of timeshares, owners received deeds specifying their ownership. Now, the industry has moved to a system where buyers receive a certain number of points they can use for time and amenities, rather than a deed.

Many timeshare buyers say they like being assured time at a resort they enjoy without the hassle of owning a second home. Using their points for a vacation at a different location managed by their timeshare company is another potential benefit.

Diamond, which was created in 2007 by Stephen J. Cloobeck, a veteran of the vacation ownership industry, has its headquarters in Las Vegas. The company operates 99 resorts worldwide and has associations with an additional 255 resorts and four cruise itineraries that it says its members can use. The company’s tagline: “We Love to Say Yes.”

But two lawsuits filed against Diamond suggest a less solicitous attitude, one that reflects the experience of Ms. Gutierrez in Lake Tahoe. One case was filed in October 2014 in California. In it, 11 timeshare owners said they had agreed to pay to upgrade their membership in the Diamond resorts. After the upgrade, the lawsuit says, the members were unable to use the resorts they had hoped to and their maintenance fees rose even though Diamond’s representatives had told them they would fall.

A Florida lawsuit filed in March 2015 said that Diamond tried to pressure the plaintiffs to upgrade to what amounted to “programs to fleece more and more money out of the plaintiffs.”

The two suits seek cancellation of the contracts, money back and unspecified damages.

Diamond declined to comment on the California case; it said that the litigants in the Florida suit “never made a purchase from Diamond” but were owners in a resort company it had purchased without assuming such liabilities.

Not all of Diamond’s customers are unhappy, of course. Six members whose names were supplied by Diamond were all complimentary.

Walter Hunter, a retired chemist who lives in Fort Collins, Colo., is one. A member of the homeowners’ association board at Daytona Beach Regency, a Diamond resort in Florida, Mr. Hunter, 94, said in an interview that he was happy with the company’s management. With Diamond, “we’ve been more pleased, the resort is better managed,” he said. Although he acknowledged that maintenance costs rose significantly after Diamond came in, he said, “We are convinced that they are doing a good job.”

A Potential Liability

Owners of timeshares in desirable resorts with unusual attributes, like a private beach, can often sell their ownership interests on the secondary market. But in areas glutted with condos for sale or rent, selling a timeshare can be almost impossible. In these cases, timeshare ownership can become an almost perpetual liability.

A recent search on eBay, for example, showed more than 700 timeshare listings for sale. Many, from Pennsylvania to Hawaii to Florida, can be purchased for $1. In its financial filings, Diamond acknowledges that “generally, members of the clubs do not have the right to terminate their membership.”

Rubén Peña’s experience is a case in point. An engineering consultant with Pro Data Inc. in Jersey City, Mr. Peña has never been inside the Las Vegas timeshare he bought 15 years ago. After spending roughly $42,000 to buy and maintain the property over those years, Mr. Peña stopped paying his loan, which had an original interest rate approaching 17 percent, and maintenance fees. He bought the timeshare from a company called Pacific Monarch Resorts, which went bankrupt. Diamond now owns and manages the resort.

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Rubén Peña of Jersey City has spent about $42,000 on a Las Vegas timeshare in a property Diamond now owns. He has tried unsuccessfully to deed it back to the company. CreditYana Paskova for The New York Times

“I wanted to deed back the property to Diamond and get my equity of about $27,000 out,” Mr. Peña said in an interview. “But I got no response whatsoever.”

Before he stopped paying his loan in 2014, Mr. Peña was being charged $3,262 a year in interest, taxes and maintenance fees for his ownership interest in the timeshare. Expedia.com offers a week at the propertyfor, at most, a little over $2,000.

Diamond declined to comment on Mr. Peña. But the company said that one reason it doesn’t buy back members’ stakes is that it would create accounting problems related to how Diamond had booked the revenue.

Don Nelms is a Diamond member and longtime owner of an insurance agency in Sedona, Ariz. In an interview at the company’s suggestion, he said that he was pleased with Diamond’s resort management. But he added that he was troubled by the company’s refusal to buy back timeshare holdings from customers who can no longer afford them or just want out. Acknowledging that this practice is industrywide, he said changing it would be an “owner-friendly” move by Diamond.

“If it’s paid-up on the principal, they could purchase that from an owner at maybe a reduced market value that helps the person who wants to say goodbye,” he said. Not making that effort, he added, “could be something that blows up in their face.”

Companies like Diamond benefit from the lack of an organized buyers’ market for timeshares. The company’s most recent annual financial filing noted that if such a market “were to become more organized and liquid,” the resulting availability of vacation units “could adversely affect our sales and our sales prices.”

And even if an owner defaults and walks away from maintenance fees, Diamond can prosper. It simply repossesses the unit at little cost and tries to resell.

This “inventory-recapture model” is industrywide and allows companies to acquire units far more cheaply than it costs to build properties or buy resorts. In a company presentation last November, Diamond said it typically pays $1,500 to the homeowners’ association to take back a timeshare week. Then it sells the space for an average of $27,434, it said.

Last year, the company introduced a “relinquishment option” for members of its European resorts. If they agree to pay two years of maintenance costs, they can escape their obligations.

Customer complaints across the industry have grown loud, and in recent months the stocks of Diamond and other timeshare companies have fallen in the face of market chatter that the Consumer Financial Protection Bureau might write new rules to address industry practices. Even as Diamond’s earnings almost tripled in the first nine months of 2015 over the same period a year earlier, the company’s shares are down 37 percent from their high of last March.

An official at the bureau declined to comment on the industry.

Aggressive sales tactics are among the most common complaints. Typically, potential timeshare buyers are invited to a free or low-cost mini-vacation at a resort if they agree to attend a sales presentation during their stay. Participants say fast-talking, commission-paid sales representatives often run these events, emphasizing the merits of timeshares as investments and downplaying their shortcomings.

Customers are told the meetings will last less than two hours, but they often go on far longer, and participants find it difficult to leave.

Michael D. Finn is a partner at the Finn Law Group in Largo, Fla., whose busy practice consists solely of helping timeshare owners walk away from their obligations. “Every timeshare contract I have ever seen contains a clause with a phrase something like ‘I did not rely on any oral representations in order to make my decision to purchase this timeshare,’” Mr. Finn said in an interview. “I call that the salesman’s license-to-lie clause, because that encourages them to do whatever they have to do to close that person, that day.”

Speaking about the industry generally, Mr. Finn said that buyers are often led to believe they are making a real estate deal and that their holding will have a value that they can recoup in a resale or pass on to their children.

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stephen cloobeck
Stephen J. Cloobeck founded Diamond in 2007 and earned $7.4 million as a director in 2014. The company, which is based in Las Vegas, operates 99 resorts worldwide. (NOTE: Photo replaced 3/29/2017)

“Nothing can be further from the truth,” Mr. Finn said.

In November, Diamond said that over the last 12 months it had conducted about 221,000 tours at its 53 sales offices around the world. The company says that 15.1 percent of tours result in sales.

Diamond says its innovative programs “infuse hospitality into our sales and marketing efforts.” Its “Events of a Lifetime” include golf outings with a professional, spring training with Reggie Jackson, the baseball Hall of Famer, or tickets to a show near a Diamond-owned resort.

In the interview, Mr. Palmer said he was proud that roughly 60 percent of the company’s sales came from existing customers. “I wear it like a badge of honor,” he said. “These people bought from us, and they want to own more.”

In addition, he noted, sales are regulated by state authorities. “No one stumbles into a purchase here,” he said. “People have five to 10 days to think about it.”

But even fans of Diamond recognize that accusations of high-pressure sales tactics in the industry can be problematic for property managers. “There’s some natural tension between management who wants to create the best experience possible, and the sales organization — they are motivated to want different things,” said Terry Timm, a Diamond timeshare owner who is chief administrative officer of Thrivent, a financial services company. “The way timeshare sales are structured have really really incentivized the wrong things.”

A 100% Profit

Diamond often buys resorts that have fallen into bankruptcy, acquiring timeshare owners as part of the deals. After Diamond takes over a resort, it usually becomes the management company and often raises maintenance fees.

Some of these increases reflect the costs of necessary improvements at resorts that have fallen on hard times. But Diamond members who are critical of the company say that it typically gains control of the resort’s governing board, known as the homeowners’ association, giving timeshare owners little say in how money is spent.

Owners at some resorts are wary about ceding any board control to Diamond. Jacob Bercu, is a retired Silicon Valley software engineer and longtime resort owner at Tahoe Beach & Ski. A few years ago, some of the resort’s roughly 7,000 owners noticed that Diamond was buying up defaulted timeshare segments at county tax auctions. Last September he won a board seat sought by a Diamond representative. “We took aggressive action to keep them away from the ownership, to convince our owners not to sell out and, instead, to vote for us so we keep control,” Mr. Bercu said.

Timeshare owners of the Grand Beach Resort, a 192-unit property in Orlando, Fla., on the other hand, learned in a letter in September that their annual maintenance fee would rise 14.9 percent this year. Management fees paid by the resort members, the letter said, are expected to jump to a total of $1.15 million from about $366,000 in 2015.

Diamond said the increases at Grand Beach resulted from a new management contract, consistent with the company’s deals elsewhere, and higher operating costs and reserves for renovations.

The chief beneficiary of these cost increases is Diamond, which levies management fees at the properties it owns and operates. Diamond tells investors that it typically reaps a fee equal to as much as 15 percent more than the costs of running a resort: labor, utilities, taxes and other overhead, including the reserve funds kept for emergencies.

“Anything that is put in the budget that gets expended on an annual basis, we get our 15 percent fee,” Mr. Palmer explained to investors at a September 2014 conference, according to a transcript. “That is basically a 100 percent profit business.”

In the interview, Mr. Palmer added that the company was completely transparent with owners about its charges. “All the costs are disclosed on a private website,” he said. “There are no hidden fees.”

Diamond’s founder, Mr. Cloobeck, is something of a celebrity.

He has appeared on the CBS television show “Undercover Boss” and has played golf with President Obama. Mr. Cloobeck owns 22 percent of Diamond’s stock and earned $7.4 million as a director in 2014, according to the most recent proxy.

This compensation disturbs owners faced with rising maintenance costs extracted by Diamond. Among them is Eleanor Varkel, a caterer from South Africa who has two of the company’s timeshares, one in Las Vegas and another in Hawaii. Both were taken over by Diamond after the companies operating the resorts collapsed.

“Every year the maintenance fees go up, up, up,” Ms. Varkel said in an interview. “We were paying $300 a year in maintenance 15 years ago, and now it’s gone up to $2,000 a year.” Ms. Varkel said she had tried, unsuccessfully, to sell her ownership stake either to Diamond or elsewhere. “You can’t give it away, not even to charity.”

Correction: January 23, 2016
Because of an editing error, an earlier version of a picture caption with this article misstated the number of resorts operated by Diamond. It is 99 resorts, not 93.

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