The Role of the Real Estate Professional in the Timeshare Purchase
In all but a handful of states (Kansas, Maine, Missouri, North Dakota, Oklahoma, Texas and Virginia) state licensed real estate agents (either brokers or salespersons working under a broker’s license), must actively participate in the timeshare sales process for all developer generated sales.
These persons are considered by law to be real estate professionals subject to clearly defined legal duties and guidelines which dictate their conduct during the sales process. Failure to properly carry out their professional duties can subject them to state disciplinary actions that can result in fines and/or loss of license, as well as potential civil liabilities for comparable failure to exercise their professional judgement properly.
Limited Broker Disclosure and Fairness Duties
As consumers, we are accustomed to hiring real estate licensees to assist us with real estate transactions for their knowledge and professionalism. Although a broker may serve as the single agent for the buyer or seller, they also commonly serve as transaction brokers with limited professional obligations to either or both parties. However, even with no brokerage agency relationship with the buyer, that broker (and his or her salespersons) still owe the buyer the fiduciary duty of dealing with them fairly. With that in mind, they also have the duty to disclose to that buyer any facts known that materially affect the value of the purchase, particularly those not readily apparent to the purchaser. (For legal citations supporting these contentions, see further below).
The Dual Role of Real Estate Licensees in Timeshare Deals
Since it’s quite unlikely that a prospective purchaser touring a timeshare resort with an eye toward purchasing an interest will have an opportunity to consult with their own real estate agent prior to purchase (always a same day event in the timeshare world), the question then perhaps becomes whether the purchaser can or should take some comfort from the presence and active involvement of the real estate licensee on premises, even though this professional’s primary goal is to serve the best interests of the developer.
Real Estate’s Professional Obligations
Based upon the real estate professional’s statutory duties, together with case law interpreting same, the answer certainly ought to be “yes.”
A purchaser not only should be able to rely upon that professional to at least a limited extent to provide a layer of consumer protection, but in the absence of the carrying out of that agent’s obligations to the purchaser, said purchaser has standing to file a professional complaint with the state and/or to bring suit against that licensed agent for failure to properly carry those duties out to the purchaser’s benefit. (Note to reader: your author is a Florida based practicing attorney and as such is relying upon Florida law-specifically F.S. 475.25 (1) (a-c) et. seq., and case law including Johnson v. Davis 480 So.2nd 625 (1985) and Torbron v. Campen 579 So.2nd 165 (1991). Although your author believes the law is comparable in many other states, this article cannot be relied upon as an effective and uniform statement of the law in any or all jurisdictions; always consult an attorney in your transaction state).
Returning to the specifics of our subject matter, I’m not proposing that the timeshare consumer place a heavy reliance on the real estate broker’s statutory duties to a buyer. From a practical standpoint this approach should be viewed as a possible remedy if other buyer remedies have not provided all protection needed. Prior to this approach, the purchaser can and should initially look to the protections offered in the public offering statement and then the statutory rescission period provided. I’d suggest this tact only be utilized after the fact if necessary, keeping in mind Ben Franklin’s old adage that “An ounce of prevention is worth a pound of cure.”
Hypothetical Situation, Failure to Fulfill Responsibilities
So we have a sense of the real estate licensee’s responsibilities now, but under what set of factual circumstances can we apply them? Let’s commence by narrowing our hypothetical situation down to a specific and quite plausible factual one, and let’s characterize it as a dereliction of duty claim against the real estate broker.
A review of the applicable state statute, F.S. 475.25, indicates a litany of the potential offenses a licensee may be accused of, including fraud, misrepresentation, concealment, false promises and/or violation of a duty imposed by law, etc. So to flesh out a plausible case against a licensee, assume a purchaser believes certain significant details of the purchase transaction were omitted during the sales process and that those omitted details are arguably material facts that, if revealed in a timely manner, may well have caused the purchaser not to make the purchase. Again, Florida statute 475.25 (1) (b) addresses offenses like fraud and misrepresentation, but more specifically, also references concealment.
Timeshare Industry: Concealment and Market Interference
Concealment is, at least to my way of thinking, arguably a more specific claim than the others, and based upon typical facts in a timeshare presentation, may fit the bill in our hypothetical set of facts. The timeshare industry in general regularly faces criticism because of the noted and well-documented absence of a robust secondary resale market. Part of the criticism comes from the industry’s own involvement with and active interference in preventing the formation of a healthy timeshare resale market, a fact easily discoverable by reviewing the SEC filings of most, if not all, of the publicly traded timeshare developers.
The Hidden Truth About Timeshare Resale Value
What this activity translates into for the unwary timeshare consumer is that they pay a substantial sum to purchase their vacation interest but when the time comes to divest from their purchase (as it always must at some point, sometimes sooner than anticipated), they learn that their interest has little to no value, nor is there any kind of structured resale market to allow even an attempt to re-market their interest.
This knowledge of the absence of resale value is well known to timeshare insiders, including of course, those real estate salespersons who regularly participate in timeshare sales. However, this is not a fact typically shared with prospective purchasers (perhaps for obvious reasons). It’s fair to state that if that clearly material fact (absence of resale value) was revealed at the time of purchase, it would dissuade many prospective purchasers from buying.
In practice, most buyers (perhaps with a little help from their timeshare salesman during the sales presentation) equate their timeshare purchase with a real estate purchase, and thereby assume that their purchase will at least maintain, if not appreciate beyond its retail market price. Certainly therefore, it comes as a complete surprise, not to say shock, to subsequently learn that the resale value precipitously dropped to next-to-nothing immediately after acquisition! Since this hypothetical scenario can arguably apply to many timeshare acquisition transactions, it seems to provide a good template for a potential concealment claim when a licensed real estate professional, presumably aware of the near absence of a resale market, fails to advise would-be purchasers of this quite material fact.
In Summary, a timeshare purchaser should have a certain extra degree of comfort knowing that a professional real estate licensee participated in their transaction…
…even after the transaction has concluded, with the knowledge that there may be legal remedies in existence to assist them if they feel aggrieved by facts comparable to our example. For starters, a complaint can be filed with the real estate licensees’ professional board alleging the statutory violation at any reasonable time after discovering the alleged fraudulent conduct. The other ‘action option’ for a potential aggrieved complainant to consider beyond the administrative action is the possibility of litigation, as the professional board complaint, even if considered meritorious by the disciplinary committee, may not provide a remedy to the complainant, only discipline for the licensee.
Presumably if the concealment is egregious enough, the appropriate legal remedy if pursued through the courts would be a rescission of the contract with an accompanying return of any and all monies paid in towards the purchase. Please however, always recall that litigation should only be considered by consumers, particularly those without very deep pockets, as a last resort, as it brings its own set of issues to the table, not the least of which is the cost and unpredictability of outcome of any litigation. Of course, there’s a distinction between preparing to file litigation, and actually filing suit. If a skillful presentation of your issues can be presented prior to litigation, a resolution may be quite possible prior to filing.
To conclude, although it’s probably fair to state that the presence of a real estate licensee was not necessarily intended by the developer to benefit the timeshare consumer, an informed purchaser, armed with an understanding of the inner workings of who the ‘players’ are and what their roles are legally intended to be, may be able to extract some further resolution, even well after the transaction has been concluded.
Respectfully submitted,
Michael D. Finn, Esq.