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Time Share Scam

Offers to time share owners to sell their time shares are generally too good to be true. For many years the most common form of consumer abuse was a solicitation to list a time share for a non-refundable fee. Variations on that theme were requests to send money for an appraisal, closing costs, title search, or guaranteed purchase at appraised value, because the caller had a buyer waiting. These abuses were so often repeated that most time share owners became immune to these pitches.

Since 1995, the Commission and the North Carolina Attorney General’s Consumer Protection Section have investigated numerous examples of a much more sophisticated scheme to prey upon time share owners desiring to dispose of their property. Here’s how it works.

Typically, a time share owner is contacted about selling his or her time share directly to a purchaser who claims to want a limited number of time shares. The time share owner is invited to meet to sell the time share. At the meeting, the time share owner gradually discovers that the only way the time share will be purchased is if the time share owner buys a residential building lot at the same time. If the time share owner does buy a lot, the lot seller will buy the time share, typically at a price far above market value and perhaps even in excess of the original purchase price.

And this deal gets better! There is enough money from the “sale” of the time share to make a down payment on the lot purchase price, pay the closing costs, and then make the loan payments on the residential building lot for many months, sometimes more than a year! Then the former time share owner, now the owner of a valuable residential building lot, can put the lot on the market and sell it for a profit! Usually this pitch is accompanied by claims of rising market value, the inherent value of building lots, maybe even a promise to re-purchase it at its sales price if the property does not sell.

The truth is something else. Typically the sales price of the residential lots offered is between $25,000 to $35,000. The lot seller has typically paid between $2,000 to $5,000 for the lot in a recent acquisition (in some cases the lot seller does not even take title to the lot until it is under contract to a time share owner). The lot has little or no market demand. In some cases it may simply be unbuildable, either completely or only with prohibitively expensive improvements.
The lot seller never “pays” anything for the time share. The time share seller/lot purchaser typically borrows 90 percent of the lot sales price from a lender, most of which is then paid to the lot seller, with a smaller portion paid back to the time share seller/lot purchaser. Even after giving part of the loan proceeds back to the lot purchaser, the lot seller typically has a profit of four to five times its initial investment in the lot sold.

The former time share owner, after making payments for awhile, then decides to cash out by selling the lot only to discover that he now owns a lot on which he owes much more money than anyone is willing to pay him.

And what happened to the time share traded for the lot? With luck, it was transferred to some one else. Unfortunately, in a number of cases, the lot seller doesn’t even bother and the purchaser eventually discovers that he or she is not a “former” time share owner after all!

If you are asked to participate in a sales promotion that involves trading time shares for lot purchases, please contact the Commission legal staff. If a time share owner asks you about this type of proposition, please refer that owner to the Commission legal staff or the Consumer Protection Section of the North Carolina Attorney General’s Office.

This article came from the May 2003-Vol34-1 edition of the bulletin.