Federal Court Shuts Down Abusive Tax Scheme Involving Donate For A Cause

WASHINGTON, D.C. (September 30, 2016) — A federal court in Helena, Montana has permanently barred Montana-based attorney James Tarpey, as well as two companies he founded, including Project Philanthropy Inc., a District of Columbia corporation which does business as Donate for a Cause, and Timeshare Closings Inc., a Colorado corporation which does business as Resort Closings Inc., from promoting an allegedly abusive timeshare donation scheme, the Justice Department announced recently. Tarpey and the two companies agreed to the injunction. See the article here

Wisconsin Department of Justice files Suit Against Uri Fried

On June 25, 2015, the Wisconsin Department of Justice (“WI DOJ”), filed a complaint in Dane County Circuit Court against Uri Fried, owner of The Timeshare Group, Inc, and the Timeshare Company, LLC. Mr. Fried is currently in jail serving a sentence for filing a false tax return. The suit alleges that Fried and his companies engaged in a pattern and practice of violations of Wisconsin consumer protection laws in connection with their marketing and sale of “timeshare transfer” services to customers in Wisconsin and nationwide. Fried offered “timeshare transfer” services for customers who owned timeshares in both deeded and non-deeded jurisdictions. Upon contact by an interested customer, or upon referral by a third-party partner, Fried assembled information and documents regarding the customer’s timeshare ownership. According to the complaint, if the timeshare was deeded, Fried prepared a Warranty Deed describing the conveyance of the timeshare owners interest to a limited liability company (“LLC”) that was created and controlled by Fried. If the timeshare was not deeded, Fried filled out whatever transfer form was used at the customer’s resort, requesting ownership be changed into the name of one of Fried’s LLCs.

According to the complaint, Fried created at least 23 LLCs registered with the Wisconsin Department of Financial Institutions, with the registered agent being himself or one of his employees. The LLCs were created to hold transferred timeshares. After transferring the timeshare into one of these LLCs, the entity ceased to take any action to exercise the rights and responsibilities of ownership, such as paying annual fees or taxes. As some timeshare resorts began to recognize these LLCs, they refused to accept the transfer paperwork.

As well, according to the complaint, some of the timeshares Fried transferred into his LLCs were later marketed on Ebay for sale.

In addition, postcards were directly mailed to individuals nationwide. The postcards had a variety of claims on them regarding timeshare disposal. In the complaint, it is alleged that these claims are false, deceptive, or misleading; in particular, many customers would incur late fees and other charges for missed maintenance payments as a result of the refusal of the resort to recognize the transfer, even though the postcard claimed a customer could dispose of a timeshare for “only $585.”

The State is seeking permanent injunctive relief, civil forfeitures, and restitution for any persons who suffered a loss as a result of the defendants’ alleged illegal acts.

Justice Dept Files Complaint Against James Tarpey, Donate for a Cause/Project Philanthropy

Justice Department Sues to Shut Down Abusive Tax Scheme Involving Improper Deductions for Donating Timeshares

The United States filed a civil injunction suit seeking to bar James Tarpey, a Montana-based attorney, Project Philanthropy, Inc. (a District of Columbia corporation which does business as Donate for a Cause) and Timeshare Closings, Inc. (a Colorado corporation which does business as Resort Closings, Inc.) from promoting an allegedly abusive timeshare donation scheme, the Justice Department announced today.  The United States also filed suit against three of Tarpey’s associates – Ron Broyles of California, Curt Thor of Washington and Suzanne Crowson of Montana – all of whom, according to the complaint, assisted Tarpey in facilitating the timeshare donation scheme.

Here’s the full Press Release

The Complaint does not even address the financial damages suffered by timeshare associations caused by this operation’s transfers to individuals and companies who subsequently defaulted in the payment of assessments.

California issues Desist and Refrain against companies associated with David MacMillan

On July 14, 2014 the California Bureau of Real Estate filed a Desist and Refrain Order against the following companies and individuals: RESORT MEMBERS ASSOCIATION, also known as RMA, DONATE TITLE, INC., individually, and doing business as Resort Members Association, VACATION SMART INTERNATIONAL, GRAY WOLF TRANSFERS, INC., doing business as PACIFIC TRANSFER, TRANSFER SMART, TONY ESPINOZA, ROXANNE ESPINOZA, DAVID MACMILLAN and CHRIS BODIG.

ORDER TO DESIST AND REFRAIN

The Commissioner (“Commissioner”) of the California Bureau of Real Estate (“Bureau”) caused an investigation to be made of the activities of these companies and individuals and has determined that they have each engaged in or are engaging in acts or practices constituting violations of the California Business arid Professions Code (“Code”) and/or Title 10, California Code of Regulations (“Regulations”) including engaging in the business of, acting in the capacity of, engaging in the business of, acting in the capacity of, advertising, or assuming to act, as real estate broker in the State of California within the meaning of Code Section 10131 subsection (a) (selling or offering to sell and soliciting or negotiating sales of timeshares) and/or Section 10131.2 (advance fee handling) .

Another Unburdening Approach – Contract of Adhesion

Recently a TTR subscriber reported they were contacted by a debt relief company demanding the Association accept a deed over and waive all past due assessments, The debt relief company asserted their claim was based upon that the contract to pay Assessments between the owner and the Association is a contract of adhesion. This dispute involves a California Resort. Simply asserting a contract is a contract of adhesion and then asserting that it is unenforceable, does not make it so. Only a court can decide this issue. The Subscriber responded:
Contract of Adhesion. You’ve asserted that, “this contract in question to be a legally unenforceable contract of adhesion.” As you or your legal team should be aware:

A. California Business and Professions Code Section 11265 requires that all interests in a time-share plan for which a Public Report has been issued are interests subject to the payment of regular and special assessments. The State of California is the drafting party of the terms of the contract to pay Assessments, not the Association.

B. It is only if a court determines that a contract is adhesive, the court must then decide whether to enforce the contract. In California, a determination that a contract is adhesive is merely the first step that courts take in deciding whether to enforce such contracts: “[t]o describe a contract as adhesive in character is not to indicate its legal effect.” The Scissor-Tail court stated that adhesion contracts are fully enforceable “unless certain other factors are present which, under established legal rules-legislative or judicial-operate to render it otherwise.” California courts consider two factors in determining the enforceability of adhesion contracts: (1) whether the contract or provision falls within the “reasonable expectations” of the consumer; and (2) whether the contract or provision is considered unconscionable. [Scissor-Tail, 623 P.2d at 172]

C. Reasonable Expectations. See Allan, 59 Cal. Rptr. 2d at 824.We see a substantial argument that your clients will be found to have reasonable expectations. With regard to whether the contract or provision to pay Assessments fall within your clients’ reasonable expectations, please be advised:

1. Constructive Notice. Please review your clients purchase and sale Documents.
(a) Paragraph 13. of their Purchase and Sale Agreement states:
Pursuant to the Declaration, Buyer shall be required to pay a Basic Assessment to the Association for each Time Share Interest purchased each year.
(b) Your clients signed a receipt stating “I have read the Commissioner’s public report,” evidencing that they were given The FINAL TIMESHARE PLAN PUBLIC REPORT File No. 010071HF. A prominent section of that report noticed your clients, “The Time Share Associations has the power to bring a lawsuit for damages and/or to place a lien on a Time Share Interest, and to prevent an Owner from reserving a Use Period if the Owner does not pay assessments (excluding Personal Assessments) or other charges due. The remedies available to the Association against Owners who are delinquent in the payment of assessments are set forth in the Declaration.”

D. Actual Notice. At the time of sale, your clients signed a Buyers Acknowledgement of Representations and each initialed the paragraph that reads: “In addition to the purchase price for a Time Share Interest, you will be required to pay to the Association an annual maintenance fee (the “Maintenance Assessment”) for as long as you own the Time Share Interest. Assessments are payable whether or not you use the Time Share Interest in any particular calendar year. Failure to pay Assessments may result in the suspension of your use privileges and a lien against your Time Share Interest. The Basic Assessment may be changed in the manner provided in the Declaration.

E. Unconscionable. With regard to whether the provision is unconscionable, In California, in order to prevail on an unconscionability claim, the complaining party must demonstrate that the contract is both procedurally and substantively unconscionable. [Stirlen v. Supercuts, Inc., 60 Cal. Rptr. 2d 138, 146 (Cal. Ct. App. 1997)] Since California Business and Professions Code Section 11265 requires that all interests in a time-share plan for which a Public Report has been issued are interests subject to the payment of regular and special assessments. This is a matter of public policy and by that definition alone your clients’ contract to pay Assessments cannot be found unconscionable.

Federal Indictment Against Unburdening Operation – USA vs. Kosco and Duffield

On November 17, 2014, DANA J. BOENTE, UNITED STATES ATTORNEY filed within the Eastern District of Virginia Case 4:14-cr-00066-RGD-DEM an indictment against Keith D. Kosco (24 counts), and Julie L. Duffield, (22 counts) Conspiracy to commit mail and wire fraud, mail fraud, wire fraud, aggravated identity theft and forfeiture. For a detailed article on this action – see http://insidethegate.com/gatehouse/2014/12/virginia-usa-timeshare-news-december-6-2014/

Subsequently, Julie L. Duffield, 45, of Eureka, MT, pleaded guilty yesterday to conspiracy to commit mail and wire fraud. See http://www.justice.gov/usao/vae/news/2015/01/20150113duffield.html

TTR has updated its 24 records connected with this unburdening operation.The following is a summary of allegations made within the indictment:

Between 2007 and 2013, Julie L Duffield owned and operated Professional Closing Company that provided closing services for the transfers of timeshare units, operating in Arizona and Montana.

Kosco offered services to developers of timeshare resorts in the business of selling new timeshare units. Kosco’s trade-in business model would allow a timeshare owner wanting to sell their unit, to trade the existing unit as part of the purchase, using Elite Equity Transfers (EET), which would then transfer the unit to a new owner.  The customer could also advertise the existing unit for sale or rent using Resort Solutions, Inc.  (RSI).

Kosco boasts that the bundled services of RSI and EET created one of the largest and most successful trade-in companies in the world, claiming success in transferring over 50,000 as of September 2013.  However, federal prosecutors state that EET did not accomplish the number of transfers claimed by Kosco.  He and his employees represented that the transfer of the timeshare units would be legitimate and result in a clean title transfer with no further obligations of maintenance fees or taxes after the transfer was complete.  EET would take the information on the unit to prepare transfer paperwork; including a new deed and transferring it from the original owner to the new transferee, provided that all maintenance fees and taxes be made current by owner.

Transfer paperwork was handled by EET in coordination with Julie L. Duffield and Professional Closing Company, (PCC), which served as a third party closing entity between 2007 and 2013 and was paid fees by EET until the end of 2013, ETT started using a law firm in Williamsburg, VA to handle the closing in the timeshare units transferred. These straw owners were not made aware of the consequences of such practice and were unable and unwilling to meet the obligations of timeshare ownership, including making payments of maintenance fees.

Starting in early 2009 Kosco and Duffield and their employees and others used names of stolen identities and straw owners (those who agree to have timeshare units transferred into their names for a fee paid by EET,) as the new owners for the transferred timeshare units.

In or about September 2013, following notification that a certain resort would not accept any more transfers to two straw owners, KOSCO began to fraudulently use the identity of his daughter, Kristianne L. Kosco, as a grantee. KLK was at that point incarcerated in Rockingham County, Virginia, and was unaware and did not consent to transfers made into her name.

One case of stolen identity, listed only as SL in the indictment, hundreds of timeshare units were transferred into this person’s name beginning in 2010. TTR believes this individual is Steven T. Levy. Kosco. Employees would falsely represent to resorts and original owners that the transfers were legitimate when, in truth and fact, Levy was unaware that hundreds of timeshare units were transferred into his name.  Under Kosco’s direction, employees of EET would falsely notarize Levy’s signature on transfer paperwork.  Kosco even created an email address for Levy, opened up a bank account and routed mailings to a PO Box in Williamsburg, VA, to which Kosco had access.  By 2012 and into 2013 resorts began declining Kosco’s attempts to transfer timeshare units into Levy’s name due to nonpayment of maintenance fees.

Professional Closing Company is an Arizona registered name filed September 7, 2010. The agent/owner is listed as Julie L. Duffield. This company’s address is 16485 N. Stadium Way, #3021, Surprise, AZ  85374, 602-291-9042.  Another company name found registered to Ms. Duffield is TITLE TRANSFER RELIEF, an active entity since August 3, 2011. Address is listed as PO BOX 2350, EUREKA, MT 59917-2350.

Between 2005 and 2013 Keith D. Kosco owned and/or operated a number of entities involved in the timeshare industry: Resort Realty, Inc., Resort Solutions, Inc. – this company was in the business of providing advertising and marketing services for individuals seeking to sell or rent their timeshare units in exchange for an advance fee charged to the owner.  Company’s status is listed as active in corporate records. Resort Rental LLC – Company began February 2005 and is currently listed as cancelled in corporate records. K & K Property Consultants – Company began in August 2005 and cancelled as of August 2011. Auction America, LLC – began in 2006 and cancelled August 2011.  GLADTrips.com – Company began May 2007 and was cancelled September 2012. Resort Rentals International – began May 2007 and now cancelled. Royal Elite Vacations – Company began March 2008.and now cancelled.  Royal Equity Transfer – Company began May 2009 and now cancelled in corporate records. Exotic Equity Transfers LLC, (also doing business as Elite Equity Transfers) began in 2007 company conducted timeshare transfers in exchange for a fee charged to the original owner. Company is listed as ACTIVE. Royal Elite Exchanges – Company began May 2009 and is now cancelled.  Resort Rentals Mexico  – Company began November 2011 and is currently listed as active.  Resort Advantage International –Company began April 2012 and is currently listed as active. Timeshare Auctions USA – began April 2012 and is now cancelled. Resort Rentals Worldwide – Company began April 2012 and is currently listed as active. GPV International, LLC – Company began in June 2012 and its status is currently active. Grand Premier Vacations – Company began January 2012 and is now cancelled. Priority Exchange Network – Company began in July 2013 and its status is active in corporate records.

Washington State vs. Gibbs Deadline is January 1, 2015

If you haven’t already sent your conveyance documents to reclaim your deed(s), the deadline is fast approaching!

TTR has been informed that the proper method to acquire timeshare interests that were transferred to asset-less entities and individuals as part of the Jonathan and Christine Gibbs operations is to submit a set of conveyance documents (typically a deed) to them. You need to provide whatever documents are necessary to record the conveyance documents for their signature. They will not prepare the documents but after verifying the original transfer, they will sign and notarize them. They will not act on any relinquishment requests that are not accompanied by the necessary conveyance documents. So, if you put in a request without conveyance documents, you need to resubmit. Your relinquishment requests and documents should be submitted to:

Erica Hilderbrant
855 Trosper Road SW #108-322
Tumwater, Washington 98512
email: Erica.h@summitmkg.com

NOTE: This address was confirmed by the Washington State Attorney General’s Office on October 6, 2014.  According to the AGO, The P.O. Box, reported in the  Mar/Apr 2014 Timesharing Today publication, has being closed.

TTR recommends that if you have any questions regarding how the conveyance documents should be formatted that you contact Ms. Hilderbrant prior to submission. To expedite verification, we suggest also providing a copy of the deed that was used to transfer the timeshare from the original owner to the asset-less entity or individual. Although this was not clear at the time, you should provide your own resort specific conveyance documents instead of the standardized form previously provided by TTR.

HOA’s that have been dealing with any of the following companies should proceed immediately with reclaiming your lost deeds. You must apply by January 1, 2015.

SUMMIT MARKETING ASSOCIATES LLC
FINANCIAL RECOVERY SOLUTIONS LLC
WE COLLECT TIMESHARES LLC
TIMESHARE FREEDOM
DIRECT TRANSFERS LLC
PRUDENTIAL WEST LLC
SAVE HANDS TRANSFERS LLC
APEX PROFESSIONALS LLC
CORNERSTONE CLOSINGS LLC
GREAT TIMESHARE BARGAINS LLC
MARMAC ETT LLC
EAGLE VENTURE ASSOCIATES LLC
ELLIOTS WORLD LLC
GLOBAL ACQUISITION ASSOCIATES LLC
GOLDEN ROYALTY ADVISORS LLC
LUDDERS WINE LLC
POY DEVELOPERS LLC
THE GOLDEN GRILL LLC
THE MIDDLE SEAT LLC
THE THROWN APPLE LLC
VAN DRIVERS CONSULTING LLC
CALLAHAN AND ZALINSKY ASSOCIATES LLC
ST HAMM MANAGEMENT LLC
REALTIMESHAREHELP.COM
TIMESHARE FREEDOM LLC
TIMESHARE HOLDING COMPANY LLC
VACATION CHOICES LLC
CHOICE RESORTS VACATIONS LLC

If you are a Washington State resort, The Gibbs agreed to pay $700,000 to the State of Washington, Office of the Attorney General to create a Timeshare Restitution Fund.  The fund shall be distributed to Washington State consumers as provided for in the following paragraph:

Washington State Consumers may apply to the Office of Attorney General for a refund with the following criteria: (1) a consumer for whom contracted timeshare transfer services, (either timeshare title and/or point transfer services) and /or the Lien Release services have not been provided prior to entry of this Consent Decree; and (2) who have not already received refunds in whole or in part by the Defendants prior to entry of the Consent Decree; (3) the consumers must have purchased Defendants’ timeshare transfer service from January 1, 2008 to July 1, 2013; and the Attorney General’s Office must receive a notice of a request for restitution prior to January 1, 2015.

 

For more information regarding this case see  Complaint against Jonathan and Christine Gibbs and AG Bob Ferguson announces settlement of major timeshare scam case.

 

Important Update on Washington State vs. Gibbs

TTR has now been informed that the proper method to acquire timeshare interests that were transferred to asset-less entities and individuals as part of the Jonathan and Christine Gibbs operations is to submit a set of conveyance documents (typically a deed) to them. You need to provide whatever documents are necessary to record the conveyance documents for their signature. They will not prepare the documents but after verifying the original transfer, they will sign and notarize them. They will not act on any relinquishment requests that are not accompanied by the necessary conveyance documents. So, if you put in a request without conveyance documents, you need to resubmit. Your relinquishment requests and documents should be submitted to:

Erica Hilderbrant
855 Trosper Road SW #108-322
Tumwater, Washington 98512
email: Erica.h@summitmkg.com

NOTE: This address was confirmed by the Washington State Attorney General’s Office on March 18, 2014. According to the AGO, The P.O. Box, reported in the most recent Timesharing Today publication, is being closed.

TTR recommends that if you have any questions regarding how the conveyance documents should be formatted that you contact Ms. Hilderbrant prior to submission. To expedite verification, we suggest also providing a copy of the deed that was used to transfer the timeshare from the original owner to the asset-less entity or individual. Although this was not clear at the time, you should provide your own resort specific conveyance documents instead of the standardized form previously provided by TTR.

We received the following explanation from the Washington State Attorney General’s office:

The Consent Decree states “Defendants shall transfer title and/or ownership of every timeshare transferred by defendants to all timeshare resorts located within the United States, including those outside the State of Washington, with whom the defendants conducted timeshare transfer or lien release services if requested in writing by timeshare resorts.” 

It does not require the defendants to generate the transfer documents themselves.  The next section of the Decree that refers to transfers involving individual (non-business) transferees even states “nor are the Defendants or their designees under any obligation to execute any other documents other than the limited power of attorney as set forth in this section.”   I believe that both the defendants and the state anticipated that resorts would require that their own transfer documents be used.

The initial letter that went out to resorts perhaps could have used more instructive language.  For example, it seems the word “relinquishment” might be causing some confusion.  While I can appreciate that the letter from the defendants may be confusing to some resorts, it does ask that resorts “please mail the relinquishment/transfer documents identifying the timeshare intervals you want to take back together with a separate sheet of paper containing a complete legal description of the property you wish to transfer.”  

I would take “relinquishment/transfer documents” to mean whatever documents each resort uses to memorialize and complete the transfer of a timeshare property or interval.  I may be assuming too much to think that each resort has documentation it uses for that purpose.  But even if a resort does not have specific documentation of its own, then it would have to use whatever documentation would satisfy that resort’s legal, technical and practical requirements.

For more information regarding this case see  Complaint against Jonathan and Christine Gibbs and AG Bob Ferguson announces settlement of major timeshare scam case.

What Constitutes Proof of Liquidity?

In the world of suspect timeshare transfer activity, a common characteristic of transferees, both entities and individuals, that default on their HOA dues, is a lack of liquidity.

Liquidity (financial ability) is defined as having more assets than liabilities. So, as an example, if you have an LLC that has taken title to 100 intervals, the current dues liability for those intervals is approximately $75,000 (at an average of $750 per week). A balance sheet for the LLC would reveal whether they have sufficient liquid assets (cash equivalents) to cover the liability. The LLC can’t use  whatever they claim the “asset value” of the weeks to be to offset the liability because the dues obligations are cash obligations.

What your HOA should ask for: 

Asking for financial statements is a reasonable request when public records show a company has taken title to an unusual number of timeshare interests. The same is true for an individual. It is not unreasonable to require that they demonstrate the ability to meet their obligations.  

You might want to write a letter that includes something similar to the following: 

Public records show that  Mr. _______ has recently taken title to _____ timeshare intervals. These timeshare interests represent approximately $___________ in annual cash obligations. Please provide proof that he has adequate cash liquidity or income to fulfill the obligations for the timeshare interests he has recently taken title to. 

Typically a shell LLC formed for the purpose of taking title with the intent to defraud will not have a valid balance sheet or income statement. It is unlikely they will have any financial statements. Just asking for financial statements should have a chilling effect.

 

Washington State Attorney General Settles Case

The Washington State Attorney General’s office settled their complaint against Jonathan and Christine Gibbs. You can read about it at AG Bob Ferguson announces settlement of major timeshare scam case

As part of the Consent Decree Christine Gibbs has agreed to return the timeshares in her possession to the Associations. Resort Associations are confused by the letter that they have received advising that certain companies and individuals are agreeable to return timeshare intervals to them. The actual sender of the letter is not identified and the language in the letter is confusing.  It is from Christine Gibbs.

TTR recommends that when responding, you should not only provide the information specified in the letter but also review the deed from the original owner to the Shell person or entity to see if there were any defects in the legal description. You should note these and send a copy of the deed with your single sheet request.

You need to provide whatever documents are necessary to record the conveyance documents for their signature. They will not prepare the documents but after verifying the original transfer, they will sign and notarize them. They will not act on any relinquishment requests that are not accompanied by the necessary conveyance documents, so if you previously put in a request without conveyance documents, you need to resubmit.

Your relinquishment requests and conveyance documents should be submitted to:

Erica Hilderbrant 855 Trosper Road SW #108-322 Tumwater, Washington 98512. Note this addrress was confirmed by the Washington State Attorney General’s Office on March 18, 2014. According to the AGO, The P.O. Box reported in the most recent Timesharing Today is being closed. email: erica.h@summitmkg.com

New Recordation Activity May Signal a Change of Unburdening Strategy

TTR first wrote about this in June 2013. Since then, we’ve learned new details. TTR believes the recordation of three deeds may reveal a modus operandi worth noting.

We have tracked 3 separate reports of this activity now. Here  the recording sequence of deeds taken in from an unburdening program:

  1.  Property Relief, with Robert Pickel as the named Attorney in Fact, using VP Title recorded the deeds from  the original owners to a person that TTR has identified as a suspect asset-less individual and notified the association of the transfer.
  2. Then, sometime in the last 3 months of the year the suspect asset-less individual recorded deed backs to the the original owners. These deeds were recorded without notice to the Association which was outside of the resort’s transfer policy. The suspect asset-less individual was not delinquent in the payment of assessments on these intervals at the time of redecoration.
  3. These deeds were recorded without the knowledge of the original owners. So the original owners, believing that they had been relieved of the obligation to pay assessments, were unaware that they were shown in the County Records as the owners again.
  4. Assessment bills were sent out to the asset-less individual but he secretly transferred the weeks back to the original owners. So the bills were sent to the wrong person.
  5. Then after the first of the year, using Pacific Transfer, using the same power of attorney from the original owners records a deed to a person that TTR has identified as a “broker,” who we suspect as being insolvent. In one case, this transfer occurred after the assessments had become delinquent, so prior to submitting the transfer request, someone from Pacific Transfer called and paid the assessments using a credit card.

We believe this method of operation is designed to so that the asset-less individual can avoid being technically liable for assessments when the bills are sent out for them.   Our Subscribers should let us know if they see similar activity at their resort.

Washington State Attorney General Announces Major Timeshare Transfer Case

TTR is very encouraged to see the State of Washington take comprehensive legal action against one of the largest unburdening operations. We will keep you updated as this case progresses through the courts.

To see the entire complaint please go to: Complaint against Jonathon and Christine Gibbs

 TTR has updated and cross referenced its records on the companies, Asset-Less Entities and individuals identified below:

On May 30, 2013 the Attorney General of the State of Washington filed a lawsuit alleging violations of the Consumer Protection Act and other state laws based on Defendants’ timeshare transfer and discount travel membership schemes. This lawsuit was filed against JONATHAN GIBBS, individually and his marital community; CHRISTINE GIBBS, individually and her marital community and all of their Timeshare and Travel Related Businesses, including SUMMIT MARKETING ASSOCIATES LLC, FINANCIAL RECOVERY SOLUTIONS, LLC WE COLLECT TIMESHARES LLC, dba TIMESHARE FREEDOM, DIRECT TRANSFERS, LLC; PRUDENTIAL WEST LLC, SAFE HANDS TRANSFERS LLC, APEX PROFESSIONALS LLC, PREFERRED TRANSFERS LLC, CORNERSTONE CLOSING LLC, GREAT TIMESHARE BARGAINS LLC, MAR MAC ETT LLC, EAGLE VENTURE ASSOCIATES LLC, ELLIOTS WORLD LLC, GLOBAL ACQUISITION ASSOCIATES LLC, GOLDEN ROYALTY ADVISORS LLC, LUDDERS WINE LLC, POY DEVELOPERS LLC, THE GOLDEN GRILL LLC, THE MIDDLE SEAT LLC, THE THROWN APPLE LLC, ALEW, LLC; VAN DRIVER’S CONSULTING, CALLAHAN AND ZALINSKY ASSOCIATES LLC, ST HAMM MANAGEMENT LLC, REAL TIMSHAREHELP .COM, a Domain Name; TIMESHARE HOLDING COMPANY LLC, VACATIONCHOICES LLC,  CHOICE RESORT VACATIONS LLC, and other yet unknown Timeshare and Travel Related Businesses and Jane Does and John Does. In addition, transfers from these operations were made to the following individuals: Shanta Grover, Keith Barkas, Yvonne Barkas, George Barkas, Cynthia Barkas, Stella Dirks, Charles Banyard, Timothy Jackson, and Ruthie Hayes.  The Gibbses reside in Olympia at 3630 Pennant Court NW, Olympia, 2 Washington 98512; their current mailing address is P.O. Box 13199 Olympia, WA 98508.

What’s the Difference between Data and Information? What You Get in a TTR Report

There is a huge difference between the data that you might obtain by searching a name by yourself and the INFORMATION that you receive when TTR provides you a search report.

Some of our Subscribers research prospective transferees by searching the internet. Although the major search engines like Google, Bing, and Yahoo may return some relevant results, they are designed primarily to put up commercial results first making you wade through a maze of vaguely relevant results.

Even if you are lucky enough to get a relevant hit, say looking up the name of a limited liability company, the unburdening companies often use very common names or names designed to be similar to other companies in order to make it difficult to determine if the result is actually the company that you are searching. Searching for an individual is even more daunting as you will be presented with a myriad of opportunities to, for a fee, obtain a possible match.

There are more sophisticated methods of search available with fees running between $19.95 per month and $250 per month plus search fees.  But what you get from this type of search is just unfiltered data which is not very useful in evaluating whether a prospective transferee is likely to default on the dues after conveyance.

At TTR, we wade through the unfiltered data for you and interpret the results in a factual manner. Here are the pertinent details of the INFORMATION that we provide:

  • We research if the person or entity is shown in the public records as having taken title to an unusual number of timeshare interests, whether the person or entity has been foreclosed upon or has been reported as being delinquent by other subscribers. We also note if the person or entity has transferred timeshare intervals to other known Asset-Less Entities.
  • We let you know if a prospective transferee has recently been searched or reported delinquent by other subscribers.
  • Address and telephone numbers are verified. If the address provided is commonly used by the unburdening companies, or if it is a lock box at a UPS Store we also note that.
  • We provide likely physical address and telephone numbers for the person or entity.
  • For entities, we provide the name, addresses, and telephone number of the registered agent or principal of the entity.
  • We identify the escrow agent used by the unburdening company.
  • If an entity is formed by a known unburdening operation, we cross reference other such entities formed by the same company.

When we email your report to you, we make notes suggesting how the information can be used in one of our model letters.

As you can see, there’s a huge  difference between Data and INFORMATION!

Can’t I Just do a Web Search? No You Really Can’t. Why TTR’s Research is Better (and Cheaper)

We have been told by some of our Subscribers that once they became aware of the tremendous impact created by the unburdening companies, they began seeking more information regarding potential transferees.  Using resources ranging from simple Internet searches to more sophisticated and expensive search methods such as subscribing to Intelius or NexisLexis, they felt that the data they acquired was sufficient for verification purposes.  Our article, What’s the Difference between Data and Information? , shows why the data provided by these services is not sufficient to evaluate a prospective transferee.

What we found is that our Subscribers who attempted their own searches spent an inordinate amount of time (and money) attempting to research a new prospective transferee. The data they collected was often inaccurate or only verified the data they already had. They still didn’t have any information that might indicate that the prospective transferee lacked sufficient liquidity to pay the assessments or was actually formed with the intention to default on the assessments. Even if they were able to find some information that could have been used to challenge what they believed was a suspect transaction, it was typically insufficient.

The most dynamic aspect of the INFORMATION that our Subscribers get from TTR is that it is fully interpreted and cross referenced with useful information that our Subscribers can use to identify suspect potential transferees. If the name you search was recently searched by another Subscriber, we’ll let you know right away. If the name that you search is already in our database, you get an immediate report on your computer screen and you are charged only $1.45. If our database returns an irrelevant result, you can request an immediate refund with a single click. If no results are found, you can order a custom report that TTR will deliver to you by the next business day and you only pay $9.50. In any case, there is no alternative search service that can provide a comprehensive source of relevant INFORMATION for evaluating a prospective transferee at any price.

 

Thanks for the Information, TTR. Now What Do I Do with it?

The information provided to you by TTR can easily be implemented using the tools that are part of your subscription. For example, TTR’s INFORMATION that a potential transferee has recently taken title to an unusual number of timeshare interests or, has been reported delinquent by other Subscribers, or has been foreclosed upon for failure to pay assessments, or that the address provided is an address commonly used by the Unburdening Companies for Asset-Less Entities or individuals, or that public records show discrepancies in the address and telephone numbers that have been provided, or the prospective transferee has been recently searched by other Subscribers, etc. can be plugged directly into one of TTR’s Model Letters to request an explanation of such circumstances.

TTR’s procedures do not recommend that a prospective transferee that has been identified as having one of these circumstances be rejected out of hand.  Instead, sending a letter requesting an explanation of facts that are supported by public records and which have been diligently verified, has been proven by our Subscribers to have a chilling effect on the Unburdening Companies. Asking for an explanation is not unreasonable and, in fact, is part of an Association’s duties.

On the other hand, you may search a prospective transferee and find no discrepancies or circumstances that would lead you to suspect the transaction. This doesn’t mean that the prospective transferee should be accepted without following the same transfer policy that you would apply to a suspect transferee.  TTR stresses that all prospective transferees be processed under the same procedures.

TTR recommends that all prospective transferees should provide the information that is required on TTR’s Standardized Estoppel Certification, Membership Application and Company Resolution.  When you are provided with the information on these forms you will be able to enter the new transferee onto your roster with complete and verified information.

TTR’s Best Estoppel Procedures and Practices, Standardized Forms and Model Letters, can be downloaded by Subscribers from the Downloads Sub Menu of the Registry Tab.

 

Why a TTR Search Can Save You Time and Money; Avoid Collections and Foreclosures

Before TTR was launched, I attended a Timeshare Board Members Association Conference. One of the sessions was a discussion on what could be done to meet the challenges that the legacy timeshare resorts faced regarding the impact of the Unburdening Companies. I had intended to quietly listen to the other attendees and not mention TTR. The web site was still in the last stages of review by ARDA so I felt discussing it in that forum was premature.

As I listened, I heard several of the common misconceptions regarding this activity. There was quite a bit of confusion about the difference between the Unburdening Companies and the shell LLC’s that they used to dump timeshare intervals into. Although there was a general awareness of the problem, it was clear to me that because of the extensive research Grant Wolf Inc. had already done; I was one the most informed people in the room. I was chomping at the bit to share the true extent of the impact that the Unburdening Companies had on the sustainability of the resorts.

I found myself biting my tongue and chomping at the bit. Chomping at the bit won out. Although I was totally unprepared to make a speech, I began to describe the features of TTR. The energy in the room immediately picked up and I suddenly found myself facing a barrage of questions. I was most surprised by the strong interest of the principals of a collection company who were one of the sponsors of the conference.

They told the group that they waste a lot of time trying to collect from the Asset-Less Entities and individuals given to them by their customers. They also acknowledged that the Unburdening Companies had stopped conveying interests to shell LLCs and fictitious trusts, and had begun conveying to random individuals who were for a fee willing to ruin their (already poor) credit rating. Although they were capable of performing commercial skip tracing searches, being able to access TTR’s interpreted and cross-referenced information was of great appeal to them.

So, although the primary purpose of searching TTR’s database is to identify potential fraudulent transfers before they happen, thereby saving foreclosure costs later, searching names that are delinquent can also save you wasting your collection time on noncollectable accounts. If a delinquent name on your roster is searched and we find no record, you can order a report. We’ll tell you if that name has characteristics of being classified as Asset-Less. However, if we find no such aspects, we will still provide you with updated skip tracing services that will facilitate your collection efforts.

By the way, if you are involved in the management of a resort and you haven’t looked at the TBMA you probably should.

Asset-Less Entity vs. Unburdening Company? TTR’s Classifications Explained

Often, people confuse the Unburdening Companies with the Asset-Less Entitles or individuals to which they transfer timeshare intervals. TTR has a very robust categorization system to help our Subscribers differentiate them.

Asset Less Entities. Commonly referred in the industry as LLC’s or Viking Ships, TTR refers to these companies and individuasl as Asset-Less Entities. The primary purpose of TTR is to research and categorize the Asset-Less Entities or individuals, to which the Unburdening Companies have transferred timeshare interests with the intent to default on the assessments due the Associations. By providing a dynamic (constantly being updated) and contemporaneous (real time live) database, our Subscribers can quickly search new prospective transferees ,and either immediately receive a screen report or order affordable custom research to assist them in identifying possible suspect transactions.

Here are the classifications TTR uses for potential transferees:

Searched-by-Subscriber – Whenever a Subscriber to TTR does a search of a new transferee, a record is created with the information entered. Typically, these records start off as not verified. This information is meant to serve as an early warning of possible new Asset-Less Entity activity. If estoppel requests are being made for the same person or company to multiple Subscribers, you have good reason to more closely examine the request and employ best estoppel practices. TTR will review these entries and if public records show suspicious transfer activity, TTR will update the status classification.

Undetermined – Some of the entities and individuals within the TTR database that, based on public records, have been transferred multiple interests may have an acceptable explanation. Such a company or individual will remain classified as Undetermined until we have confirmation from our Subscribers that the company is on their roster and is delinquent or we have determined the classification should be changed.

Asset-Less Entity – Transferees have been identified as Asset-Less Entity if they hold an unusually high number of intervals, or are known to make or receive transfers from known Asset-Less Entities (LLC’s that have been dissolved, have multiple delinquencies at multiple resorts, have foreclosures, are managed by the same individual as other such companies, etc.). This classification does not mean an Association should refuse to accept estoppel requests to transfer to these individuals or companies. It does mean that the Association should employ best estoppel practices and procedures to fully vet the estoppel request. As part of the Association’s due diligence, it is reasonable to request an explanation from a transferee as to the number of intervals it owns, the reasons for the reported delinquencies, the reasons for foreclosures, and to require the submission of a membership application and company resolution. TTR does a deep background check on every company or individual who has been identified with this classification. After the background check, these companies will show as Verified.

Suspect or Suspected Asset-Less Entity/Individual – This classification is given to individuals or companies that show a number of interval transfers but, as of yet, have not been reported as being delinquent, foreclosed, not associated with, or had transactions with known Asset-Less Entities. Some of the most notorious companies share the same address and use of any of these is reason to suspect the transferee.

Multiple Transfers to Asset-Less Entities – Although not believed to be in the relief company or trade-in company business, these are companies identified within the database that have made multiple transfers to Asset-Less Entities.

Multiple Week Delinquencies or Never Paid Dues after Transfer – This is an entity or person on your roster, who owns several weeks that you suspect may be an Asset-Less Entity or who has never paid assessments after taking title to an interval.

All Communication Returned – Bad Info – Any new owner whose correspondence is returned or all of the contact information is bad is entered into the database under this classification.

In this case, TTR provides custom research services.

Other – Usually entered as “Suspect.” If there is another reason that you believe a transferee should be entered, please enter that reason in this entry box.

Unburdening Companies. There are many business models currently operating that, for a fee, represent to timeshare owners that they can legally transfer their timeshare in order to be relieved of their Assessment obligations. These operations are commonly referred to as Relief Companies, Postcard Companies, Rescue Companies, Transfer Companies and similar names. Collectively, TTR refers to these companies as Unburdening Companies.

Think of these companies as the ones making the money from the unburdening activity. The records in TTR can be used to research the company in order to answer your owners’ inquiries about them. If a resort wants to take legal action against these companies, the principal or resident agent information should be of some assistance. Where possible, TTR has cross referenced alter-ego companies of the principals and the Asset-Less entities used by them.

Here is how these companies are classified within the TTR database.

Unburdening Program/Postcard Company – Also referred to as relief or rescue companies. TTR has identified companies who may be contacting your owners.

Attorney Assisted Cancellation – This is another type of operation that attempts to cancel or rescind an owner’s obligation on some allegation of misrepresentation or breach of contract. If confronted with this approach, the Association should consult its attorney.

Trade-In Company – Some timeshare operators offer a trade-in program but then facilitate the transfer of the intervals, directly or indirectly, to an Asset-Less Entity.

Travel Club/Agency Trade-In – Some travel agency or vacation club operators offer a trade-in program but then facilitate the transfer of the intervals, directly or indirectly, to an Asset-Less Entity.

Charitable Donation Program – Some unburdening operators offer a donation program but then facilitate the transfer of the intervals, directly or indirectly, to an Asset-Less Entity.

Huh, I Didn’t Know Our Resort Even Had a Transfer Policy!

TTR started out as an online database for five of the timeshare resorts with which the principals of Grant Wolf, Inc. are association consultants or are Board Members.  In January 2010, we performed an audit of the member rosters of these five resorts. These resorts were developed and sold out in the 1980’s and 1990’s. Starting from that initial audit, our efforts have developed into an on-line database named the Timeshare Transfer Registry® that we believe will assist timeshare Associations in managing what has become a real threat to their sustainability.

As part of this project, we worked with two very experienced timeshare attorneys, to develop a set of transfer policies. We specifically were interested in developing a set of procedures that could be applied to all prospective transferees uniformly and that were not only reasonable but met the Associations’ duties as set forth in the resorts’  governing documentation.

What we were surprised to discover was that the Declarations of all five of the resorts already had “Notification of Sale of Time Share Interest” provisions which uncannily defined procedures that 30 years after they were written, were directly applicable to dealing with the challenges presented by the unburdening operations of today. Had these provisions been enforced,and the resorts were aware of the practices of the unburdening companies, I wouldn’t be writing this today.

With very slight modification, we were able to develop the model transfer policy language that TTR recommends:

Not later than (30) days before the voluntary or involuntary sale, transfer or assignment of any Vacation Ownership, Timeshare Interval or Timeshare Estate the current Member shall notify the Association in writing. The current Member or their authorized escrow agent shall submit a Standardized Vacation Ownership Estoppel request, a Company Resolution from the proposed transferee (if a Corporation, Trust or Company), a Membership Application from the proposed transferee and a pro forma of the conveyance document prior to its recordation. In the absence of such notice and required documentation, and prior to the Association’s approval of the recordation of the conveyance documents, the Association shall not be required to recognize the transferee for any purpose. Any action taken, prior to the giving of such notice and required documentation by the transferor, as an Owner, shall be recognized by the Association. Prior to receipt of any such notification and documentation by the Association, any and all communications required or permitted to be given by the Association shall be given to the Owner.

We suggest that you review the governing documents to see if your resort has  similar language already in place. Even if you can’t find the exact language, Associations are universally granted certain general powers and duties (duties being the operative word). These would include:

  1.  To adopt, publish and enforce, from time to time, Association Rules.
  2. To levy and collect and enforce Assessments.
  3. To compile a roster of the names and addresses of each Owner (the “Roster”).
  4. Enforcement by legal action of the provisions of the governing documents.
  5. The power of foreclosure for failure to pay assessments.

These are really the only duties that your Association needs to be charged with by the governing documents in order to to adopt TTR’s recommended transfer policy.

What are TTR’s Basic Transfer Policy Recommendations?

Simply, TTR’s recommended estoppel and transfer procedures require that a prospective transferee (entity or individual) provide:

  1. An accurate statement of identity; including proof of legal standing within the State where the resort is located (registered as an entity with the State);
  2. A serviceable address – a physical address in case you need to collect, or take legal action;
  3. If conditions discovered from research of public records so indicate, proof of the Transferee’s liquidity to meet the Assessment obligations of the timeshare estates that public records show that the Transferee owns;
  4. A proforma of the conveyance documents that will be used in the transfer; and
  5. If the transfer is to be processed under a Power of Attorney, then the document creating the power must be valid, enforceable and only exercised by the named attorney.

TTR provides standardized forms to request this information and provides model letters to process a transfer in a systematic and uniform manner for all transferees.

Requesting all of the above information is reasonable. Actually, if your transfer policy doesn’t currently require this information from a new transferee, you probably are not adequately performing the fiduciary duties of the Association.

Subscribers can download both TTR’s standardized forms and model letters from the Downloads sub menu under the Registry Tab.

 

 

What’s Missing from this Picture? How to Analyze a Power of Attorney

As a kid, when I went to the dentist’s or doctor’s office, I remember looking at the Highlights magazine. One of my favorite features was the puzzle at the back of the magazine where there were two drawings that, at first glance, looked identical. But they weren’t and the puzzle was to find what was missing or different in the second drawing. Examining the Power of Attorney forms used by the unburdening companies is a similar type of puzzle.

Typically, the Power of Attorney forms used by Unburdening Companies are carelessly filled out and signed during the unburdening sales presentation by untrained salespeople whose only goal is to close the deal. This typically leads to defects and errors which render the document unenforceable.

So here’s what you need to look for:

Does the Power of Attorney legally describe the timeshare interval? The legal description typically includes an Interval Number, an Assessor’s Parcel Number, a unit type, a seasonal use, a frequency of use, etc., and an exhibit “A” with a full legal description of the property as it appears on the Owner’s deed.

Has the Power of Attorney been executed showing the legal vesting of the owners and in the exact names as the recorded deed? Are the signatures properly notarized and is the acknowledgement in the proper form required by the recorder of jurisdiction? Very frequently the timeshare interest is owned by a trust but the owners have signed their names as individuals and not in their capacity as Trustees.

Has the person representing that they hold the Power of Attorney provided the Association with adequate credentials confirming that they are in fact, the party that holds the Power of Attorney? For example, it would be reasonable to expect a photocopy of a valid driver’s license or passport or request that the instructions be notarized with an acknowledgement that this is the actual person making the request. Only the actual named attorney can act under the document.

Has the person representing that they hold the Power of Attorney instructed you to communicate with and/or authorized another person who is not identified on the Power of Attorney to transact business regarding the timeshare interval? Only the actual named attorney can act under the document.

Often, in an attempt to monetize the use rights associated with the timeshare interest, a reservation request accompanies the Power of Attorney. Does the reservation request provide the name, address, telephone number, and email address of the person for whom the reservation is being made? Many resorts’ governing documents allow only the current owner to make reservation requests.

If any of these are the case, we suggest that you send a letter similar to the model letter POA LETTER .doc located from the Downloads Tab.

Unburdening Company Myths #1 and #2

Unburdening Company Myth # 1 – If you deploy a transfer policy you are guilty of unreasonable restraint of alienation.

Unburdening Company Myth # 2 –It is perfectly legal to transfer a timeshare interest to a LLC.

This is legal speak mumbled by the Unburdening Companies and their attorneys.

In theory, if timeshare estates were truly absolute fee simple estates, it might be argued that the conveyances arranged by the unburdening companies are legal. Timeshare estates are certainly far less than absolute fee simple estates; being created from the governing documents to which they are subject, further subject to specific regulatory control, held typically in tenancy in common with thousands of other owners and are severely restricted as to use rights. All of these aspects, especially the terms of the governing documents, are already recognized as reasonable restraints of alienation.

In theory, LLC’s, trusts, and corporations are legal entities that can own real estate. In reality there is entire body of Federal and State case law and legislation that places substantial requirements on how such entities behave in order to legally enforce their rights.

A practical examination of the actual conveyance transactions created by the unburdening companies provides ample legal basis for associations to reasonably control and, where conditions determined from factual publicly derived evidence dictate, reject these transfers.

The following is an analysis as to the legal basis upon which the Associations can deploy proper estoppel and conveyance practices and procedures.

1. Analysis of the LLC’s and other Business Entities (“LLC”).Standing/Authority of an LLC to transact business in the Situs State. In order for an LLC to enforce any claims it has in court, it must establish standing/authority to sue.1 To have standing in a particular state, the LLC must be registered in order to transact business in that state and do such things as are necessary to remain in good standing in that state (e.g., file an annual report and pay taxes).2 In some cases, courts have dismissed lawsuits where a company has failed to file an annual report.3 Additionally, failure to pay taxes will result in the company lacking good standing and therefore lacking capacity to sue.4 Therefore, to ensure that the LLC can enforce any claims it has in court, it should be registered to transact business in all states where it would potentially need to enforce such claims and should comply with all statutory requirements (e.g., filing annual reports and paying taxes).5

Universally, timeshare Associations, by virtue of their recorded declaration, hold a continuing lien for assessments and are granted broad powers, including but not limited to the power of sale, for their collection. In fact, any conveyance of a timeshare interest is subject to the governing documents. Therefore,

    1. TTR asserts that an Association is entitled to be provided a legal physical address of the proposed transferee for the purpose of process service. An examination of the registrations of the majority of the LLCs (and individuals) show addresses of P.O. Boxes, virtual offices, corporation filing services, and in some cases, fictional addresses that would be inadequate for process service. Therefore, an Association requiring a physical address for process service of at least the manager of an LLC prior to conveyance, would not be an unreasonable restraint of alienation.
    2. By virtue of the continuing lien for Assessments, upon the conveyance of a timeshare estate there is an express contract created within the governing documents between the Member of the Association and the Association to pay Assessments.  This contract occurs within the Situs State of the resort which further enforces the necessity of an LLC taking title to a timeshare estate to be registered to do business within that State. Therefore, it would not be an unreasonable restraint of alienation for an Association to require such registration of an LLC before allowing a conveyance.
    3. TTR further believes that the LLC, by owning real property in a particular state, is transacting business in that state, and therefore must be registered in that state.
    4. In addition, depending on a particular State’s regulation of escrow agents, the escrow company processing an “escrow” may be required to be licensed under that State’s appropriate regulatory agency.

2. Power of Attorney. To be effective, a limited Power of Attorney must legally and correctly identify the grantors and the attorney, and their capacities. If the power is granted to transact business regarding a specific real property interest, then an adequate legal description of that real property must be included.  The Power of Attorney can only be exercised by the person or entity that has been granted that power.

A practical examination of the Power of Attorneys utilized by the unburdening companies usually reveals some defect in the form and content. Of the hundreds of such documents TTR has reviewed, very few are not without defect and, almost without exception the powers granted are exercised by someone other than the named attorney. The instructions accompanying the Power of Attorney are submitted by the escrow company and not by the attorney itself.  Usually, the grantors legal capacity is not correctly reflected and or the real property is not adequately identified.

Therefore prior to acting on any instructions, an Association requiring a correction of the defects within the power of attorney, or requiring the instructions accompanying it, be submitted by the actual attorney and be notarized, would not be an unreasonable restraint of alienation.

 3. Limited Liability of Members and Managers; Personal Liability under Agency or Other Law.  A member of an LLC who personally participates in tortious conduct (bad acts) of the company may be held personally liable for the consequences of their conduct. 6 Members or managers may be personally liable if they, in their individual capacity, damage someone else’s contractual or business relationships.7 An agent or officer who participates in the commission of a tort is liable whether or not he is acting on behalf of another or the LLC.8 Even if officers and agents of the company are not participating “hands on” at every step, they may be held personally liable for violations.9 This liability is not based solely on their membership in the LLC. Rather, it is the fact that they are present and participating in the operations of the company while a violation is being committed (either by them or the company) that incurs the liability.10

Based on the above, it is TTR’s position that to knowingly and intentionally transfer a real property interest that carries an assessment liability to an insolvent LLC (regardless of its legal status at the time of conveyance) is fraud and concealment. Further, the intentional default by such an entity on assessment obligations damages all of the contractual relationships of the other (tenants in common) members of the Association.

4, Alter Ego Theory – Piercing the Veil. Another approach to piercing the veil is the “alter ego” theory. This has been adopted by many states and occurs where a corporation (or LLC) is deemed merely a front for another entity. Delaware courts,  adhere to the “instrumentality” theory of veil piercing, and thus have not expressly adopted the alter ego theory. However, one of the most authoritative passages on the alter ego theory was written by a Delaware judge applying a federal standard. She wrote that the alter ego analysis:

“includes whether the corporation was adequately [funded] for the corporate undertaking; whether the corporation was solvent; whether dividends were paid, corporate records kept, officers and directors functioned properly and other corporate formalities were observed; whether the dominant shareholder siphoned corporate funds; and whether, in general, the corporation simply functioned as a façade for the dominant shareholder … [N]o single factor could justify a decision to disregard the corporate entity, but that some combination of them was required and that an overall element of injustice or unfairness must always be present, as well.11″

Although Delaware Courts have not expressly adopted the alter ego theory, courts in other states have applied it to Delaware companies in actions pending in their jurisdictions. New York has adopted the alter ego theory. To establish alter ego liability, New York courts require evidence of 1) a single economic unit and 2) injustice.12

 Some factors a court will consider in determining whether to pierce the veil, whether according to an instrumentality or alter ego theory, are:

  1. Significant lack of funding for the LLC (requirements vary based on industry, location and specific circumstances);
  2. Failure to observe formalities in terms of behavior and documentation (regularly scheduled meetings, keeping notes of the meetings, recording votes, etc.);
  3. Failure to pay dividends/distributions;
  4. Non-functioning officers and/or directors;
  5. Concealment or misrepresentation of members;
  6. Absence or inaccuracy of financial records;
  7. Use of the LLC as a front for personal business of the dominant member(s) (alter ego theory);
  8. Failure to maintain arm’s length relationships with related entities; or
  9. Manipulation of assets or liabilities to concentrate those assets or liabilities.

This list is not exhaustive, but is intended to give a general idea of the types of things typical to the conveyance to shell LLCs. Not all factors have to be met and usually satisfaction of only one factor is not enough to pierce the veil, but this will depend on the circumstances and egregiousness of the conduct.

 Clearly, most of the conditions cited above exist in the case of the conveyances of timeshare interests by the unburdening companies to the shell entities that they created.  Therefore, prior to accepting a conveyance to an LLC or an individual, an Association requiring documentation or explanation in the event of the above conditions, would not be an unreasonable restraint of alienation.

5. Solvency. Under the Bankruptcy Code –  U.S. Code Title 11 › Chapter 1 › § 101 (32) The term “insolvent” means with reference to an entity other than a partnership and a municipality, financial condition such that the sum of such entity’s debts is greater than all of such entity’s property, at a fair valuation. TTR Classifies individuals or entities as asset-less, when public records show an unusually high number of timeshare intervals being conveyed to them or have received verified reports from subscribers that they have already defaulted on assessments or have never paid them after been conveyed.

TTR asserts that it is not an unreasonable restraint of alienation to require a transferee so classified to provide an explanation of the number of timeshare estates it has taken title to and to provide evidence that the transferee has the liquidity sufficient to pay the assessments.

6. Model Language. TTR recommends an Association adopt into its governing documents, typically in the Rules and Regulations, or at least adopt a transfer policy similar to this model:

Not later than (30) days before the voluntary or involuntary sale, transfer or assignment of any Vacation Ownership, Timeshare Interval or Timeshare Estate the current Member shall notify the Association in writing. The current Member or their authorized escrow agent shall submit a Standardized Vacation Ownership Estoppel request, a Company Resolution from the proposed transferee (if a Corporation, Trust or Company), a Membership Application from the proposed transferee and a pro forma of the conveyance document prior to its recordation. In the absence of such notice and required documentation, and prior to the Association’s approval of the recordation of the conveyance documents, the Association shall not be required to recognize the transferee for any purpose. Any action taken, prior to the giving of such notice and required documentation by the transferor, as an Owner, shall be recognized by the Association. Prior to receipt of any such notification and documentation by the Association, any and all communications required or permitted to be given by the Association shall be given to the Owner.

TTR asserts that it is not an unreasonable restraint of alienation to require a transferor to comply with this policy.

6. Pro forma Conveyance Documents. By far, the most commonly recorded conveyance document used by the transfer agent is a quit claim deed. These deeds, executed by the named attorney, typically lack a proper legal description, correct interval number, Assessor’s Parcel Number, or correct vesting language for the grantor. The recordation of the defective deed creates a bifurcation of title between the Recorder’s office and the Assessor’s office.

TTR asserts that it is not an unreasonable restraint of alienation to require a transferor submit pro forma conveyance documents prior to recordation to prevent such clouds on the title of the timeshare estate being conveyed

1.Morgan Howard (United States), LLC v. Lewis, No. FSTCV 054006343S, 2006 WL 2348892, at *2 (Conn. Super. July 14, 2006); See also, Zahrijczuk v. Branford Water Pollution Control Auth., No. CV116024727, 2012 WL 1511369, at *2 (Conn. Super. Apr. 10, 2012) (quoting Cmty. Brd. 7 v. Schaffer, 639 N.E.2d 1, 4 (N.Y. 1994)) (“Business corporations . . . are creatures of statute and, as such, require statutory authority to sue and be sued[.]”).

2.Id.

3.SMLL, LLC v. Daly, 128 P.3d 266, 266 (Colo. App. June16, 2005).

4.Real Estate Network, LLC v. Gateway Ventures, LLC, No. 4:05-CV-422-CAS, 2005 WL 1668194, at *3 (E.D. Mo. July 12, 2005); See also, N.Y. Bus. Corp. Law § 1312(a) (“A foreign corporation doing business in this state without authority shall not maintain any action or special proceeding in this state unless and until such corporation has been authorized to do business in this state and it has paid to the state all fees and taxes imposed under the tax law or any related statute[.]”).

5.Id. at *2; HMMH Holdings, LLC v. Hallenborg, No. CV065001446S, 2006 WL 2411476, at *1 (Conn. Super. Aug. 1, 2006); Eschelon Photography, LLC v. Dara Partners, L.P., No. 99968/05, 11 Misc.3d 1064(A), at *8 (N.Y. City Civ. Ct. Jan. 25, 2006).

6.McFarland v. Virginia Ret. Servs. Of Chesterfield, LLC, 477 F.Supp.2d 727, 740 (E.D.Va. 2007).

7.Brew City Redevelopment Grp., LLC v. Ferchill Grp., 297 Wis.2d 606, 626 (2006).

8.Ventres v. Goodspeed Airport, LLC, 275 Conn. 105, 142 (2005).

9. MaryCLE, LLC v. First Choice Internet, Inc., 166. Md.App. 481, 530 (2006).

10.Estate of Sestito v. Silk, LLC, No. X04CV010103522S, 2004 WL 574517, at *3 (Conn. Super. Mar. 9, 2004).

11.Harco Nat. Ins. Co. v. Green Farms, Inc., CIV. A. No. 1131, 1989 WL 110537, at *1039-40 (Del. Ch. Sept. 19, 1989).

12. NetJets Aviation, Inc. v. LHC Commc’ns, LLC, 537 F.3d 168, 176 (2d Cir. 2008).

 

 

 

Unburdening Company – It’s the economy, or the property, or you, but it’s not us

We got a kick out of this.

One of our Subscribers confronted an escrow company that had been the escrow agent for 110 timeshare intervals that were transferred from the original owners to 44 separate individuals, trusts and Limited Liability Companies. Cumulatively, the new transferees of these 110 timeshare intervals at the 2 separate resorts were delinquent in the payment of assessments in the amount of $213,655 since the transfer. None of these entities and/or individuals paid any assessments after the conveyance of the timeshare intervals to them. Only two of the entities to whom the escrow company processed conveyances at the resorts were still shown as still active. Our Subscriber pointed out that the high rate of dissolution within this group of transferees was strong evidence that these now defunct entities always lacked the financial capability to pay the assessments or had always intended to default on their obligations.

The escrow company responded:

Since the delinquencies occurred long after the transaction closed, your frustration with alleged delinquent payments seems to point to the state of the economy, and/or the buyers’ evaluation of the property after acquisition, and/or the buyers’ experiences with management of the property,”

One might ask, “Where in the Declaration is a default on the payment of Assessments is permitted due to the state of the economy, the buyers’ evaluation of the property or the buyers’ experience?”

Unburdening Company Myth # 3 We are helping the consumer – nobody is being swindled

Why every fraudulent transfer damages thousands of consumers

While it is true that the unburdening companies’ claim that consumers who avail themselves of an unburdening program for a fee may receive relief from assessment obligations, every time a timeshare interval is transferred to an Asset-Less Entity or individual and the assessments become delinquent the rest of the members of a timeshare resort must bear the burden of the delinquency, collection costs and eventual foreclosure costs. Certain practices of the unburdening companies have practically killed the resale market. What TTR has discovered is that, regardless of the ethical profile of the model or the company involved, eventually some (we suspect the bulk) of intervals taken in by unburdening companies end up being conveyed to Asset-Less Entities or individuals and the assessments then become delinquent.

TTR has reviewed well over 100 unburdening operations.  We discovered a wide range of business models and practices. The models range from more responsible models to unscrupulous models that are simply designed to create a default in payment of assessments or take the consumer’s fee but never convey the interest.

The more responsible operations actually deliver what they promise to their customers; that for a fee, they will arrange to convey the customer’s timeshare interest to another entity or person thereby relieving them from the obligation to pay the associated assessments. Whether such conveyances are done by a defective deed or under a defective Power of Attorney is a separate issue. Another model is one associated with companies that facilitate trade-in programs for active timeshare developers. Typically these operations monetize the timeshare interests by making reservations for the current use week and then renting, exchanging or using that reservation as an incentive for marketing purposes. Often, the reservation for the use week is made under a Power of Attorney before the title to the interest is recorded. Some unburdening operations and trade-in programs have an associated resale operation that advertises and lists the more desirable intervals. Often, these desirable intervals are listed on EBay and other web sites for very low selling prices ranging from $1.00 to a few hundred dollars. This practice constitutes “dumping” and pretty much killed the resale market for the individual timeshare owner. These listings are often shown during an unburdening or sales presentation as proof of the value of the consumer’s current ownership. At the time that the interval is listed, the assessments are current. If the listing doesn’t sell by the time assessments become due again, it is then transferred to an Asset-Less Entity or individual. In the case of intervals that have a Right of First Refusal (ROFR) provision, the intervals are sold back to the developer for a negotiated fee.

The less responsible operations often still attempt to monetize the associated usage rights but fairly quickly convey the timeshare interests to Asset-Less Entities or individuals.

The fraudulent operations simply take the consumer’s fee and never transfer the interval. In this case, the original consumer is damaged as well as the Association.

Actions Your Board of Directors Should Consider Taking

Adopting and employing basic transfer policy requirements is a sensible approach to meeting what is already part of an Association’s fiduciary responsibilities. Once an Association has adopted a transfer policy, there are several important matters that TTR recommends your Board of Directors consider. These include:

  1. Whatever the transfer policies are that your resort has adopted, be sure that they are applied consistently with ALL transfer requests.  Discretionary or discriminatory application of your transfer policies is not advisable.
  2. When a suspected or actual Asset-Less Entity has been identified, the information supporting this classification and all correspondence received from the Escrow Company or transferee should be reviewed by the Board.  The Board can formally set a specific list of conditions that, if present, can be used to reject a prospective transferee and delegate the responsibility of final review to the resort manager based on those criteria. Such criteria might include:
    1. The potential transferee has recently taken title to an unusual number of timeshare interests and has not provided evidence that it has sufficient liquidity to meet the associated obligations.
    2. The potential transferee has been reported delinquent by other Subscribers, or has been foreclosed upon for failure to pay assessments and has not provided an adequate explanation of these conditions.
    3. The transferee has refused to provide the necessary information required on your resort’s Standardized forms.
    4. The transferee has not provided an adequate explanation as to why the address provided is an address commonly used by known unburdening companies for Asset-Less entities or individuals.
    5. The pro-forma conveyance documents are inadequate or defective.
    6. The Power of Attorney under which the transfer is being made is defective.
    7. The transferee has not provided an adequate explanation as to why public records show discrepancies in the address and telephone numbers that have been provided.
  3. Boards should decide on what actions to consider taking with unburdening companies that continue to record conveyances outside the resort’s transfer policy.
  4. Recognizing that there may be legitimate reasons for an owner to deed back their interest, some Boards of Directors have set a policy as to what reasons for deed back are acceptable, the cost to do so, etc.

 

 


 

Is TTR Guilty of Defamation or Libel?

No.

Truth is always a defense against allegations of defamation and libel. We exercise careful diligence to verify the information that we publish in the database. We factually state data that we obtain from public records. Where we can’t make a proper determination of a classification, the record’s classification remains “Undetermined.” Our classifications are based on definitive, published criteria that can be supported by empirical evidence that typically originates from public records. See our Article Asset-Less vs.Unburdening Companies… for a definitive list of our classifications.

Any company or individual who appears as a record in our database may review their record and provide explanations or feedback to it. We have several such records. When there appears to be a discrepancy between a company’s reputation and its transfer activity that appears to be suspicious, TTR contacts the company to provide an explanation.

Information that is provided by our Subscribers is identified as such and is never used solely to make a determination of a classification. Information provided by our Subscribers is posted anonymously. The identity of our Subscribers, their companies, and their resorts is not published.

It is TTR’s position that to knowingly and intentionally convey a timeshare interest to an entity or person who lacks the liquidity to pay the associated assessments or intends to default on those obligations is fraud. This position is well supported not only within the timeshare industry but also by several State legislatures that have passed laws to that effect. See our Article, Unburdening Company Myths #1 and #2 for more information on this.

It is also TTR’s position that the procedures that we recommend should be part of a transfer policy in order to to fulfill the Association’s duties with regard to the maintenance of the members’ roster, the protection of the title to the timeshare interests, and the collection and enforcement of assessment obligations. See our article, Huh, I Didn’t Know Our Resort Even Had a Transfer Policy!.

We emphasize that the information provided by TTR should not be the sole basis for determination of whether an Association should reject a transfer. TTR’s information is to be used as guidance for evaluating a potential transferee. All of our procedures recommend that our Subscribers state the information that TTR provides in a letter (based on our model letters) and request an explanation of the circumstances from the transferee.