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Watch Out for Timeshare, Retirement Home Scams

The FTC just announced a huge crackdown. Here's how to avoid getting ripped off -- and what to do if you're a victim.

posted by Caroline Mayer, June 6, 2013 More by this author

timeshares on the beach

Caroline Mayer is a consumer reporter who spent 25 years working for The Washington Post. Follow her on Twitter @consumermayer


timeshares on the beach
iStockphoto | Thinkstock
The Federal Trade Commission announced today a huge crackdown on the type of travel and timeshare resale scams I wrote about in December, when they showed up for the first time in the Top 10 Consumer Complaints report by the Consumer Federation of America and the North American Consumer Protection Investigators. (That survey lumped these schemes together with grievances about retirement communities and assisted-living facilities under the heading of “Real Estate,” which came in at No. 9.)

In today's dragnet, the FTC — along with law enforcement agencies in 28 states and 10 countries — announced 191 actions to stop fraudulent operations hawking timeshare property resale services and travel prizes. More than 184 individuals face criminal prosecution.

Victims, many of them elderly or in financial distress, were defrauded out of more than $14 million, said Wilfredo A. Ferrer, U.S. attorney for the Southern District of Florida.

"Con artists take advantage of timeshare owners who have been in tough financial straits and are desperate to sell their timeshares," Charles A. Harwood, acting director of the FTC's Bureau of Consumer Protection, said at a Miami press conference. "They persuade owners to pay fat up-front fees by saying they have someone ready to buy the property, but that's a lie."
 
Timeshare gripes were the fastest-growing category of complaints last year, according to consumer protection investigators around the country. And, as Next Avenue explained in “Shaky Finances of Continuing Care Retirement Communities,” the financial health of some retirement communities has raised cause for concern.
 
Causes of the Complaints

What’s behind the rash of complaints about retirement and vacation properties?

(MORE: What Is an Assisted Living Facility?)

Consumer advocates cite two primary reasons:
 
The tough economy. Everyone is more conscious about the value of money these days. People get angry when pressured into purchasing a timeshare they can’t afford. They don't like feeling duped by flimflam artists, and resent unkept promises after buying into a retirement community or assisted-living facility.
 
America’s aging population. More and more boomers are hitting their 50s and 60s, making them ripe targets for relocation scams.
 
Here's the lowdown on each category — and advice that can help you avoid problems, or deal with them:

Timeshares
 
There has been a rising tide of complaints from prospective timeshare buyers and current owners alike.
 
In 2011, the office of Louisiana’s attorney general was besieged by complaints against Festiva, a North Carolina-based timeshare company operating out of New Orleans. “Consumers were offered ‘prizes,’ such as a big-screen television or a cruise, if they attended a Festiva sales presentation," a new report says. "Once there, they were forced to listen to a six-hour sales pitch. Some never received their ‘prizes,’ others complained that the free cruises ended up costing hundreds of dollars in fees.”

Another troubling snag: Many owners who no longer use their units can’t get out of paying annual maintenance fees because management companies don't honor their contracts. The cost can total thousands of dollars a year.
 
Consumer groups also report an uptick in disturbing complaints from timeshare owners who have been scammed while trying to sell their units by hiring resale companies (the firms who sold the units aren't responsible for reselling them).
 
Companies that promise to “resell” timeshares demand upfront fees of $2,500 or more — and often disappear with the money, watchdogs say. Worse still, after an owner has paid one unscrupulous “reseller,” another scammer calls. This newcomer positions itself as a “resale recovery services” firm and promises to get back the money the consumer paid to the first company — for a $1,000 fee. After the aggrieved owners send payment, “that's the last that consumers ever hear from them,” the new report says. 

Consumer agencies offer these tips to anyone who wants to purchase or sell timeshares:
 
When considering a purchase, don’t let yourself be pressured. "Never pay for a promise and get everything in writing first," Harwood said.

If a sales rep insists you buy immediately, walk away. Read the timeshare contract closely to see if the maintenance costs will be reasonable for your expected use, and study the rules for selling the unit.
 
If you own a timeshare you no longer want, contact your timeshare management company about your options, consult a real estate agent — or both. Avoid timeshare resale companies that take upfront fees regardless of whether they find a buyer for you. And don’t throw good money after bad by paying a second company to recover cash you’ve lost to a reseller.

(MORE: Sandwich Generation: Time to Downsize?)

Lynn Hanes, an investigator at the Bucks County Office of Consumer Protection/Weights and Measures in Pennsylvania, suggests asking your timeshare management firm whether you can donate the unit back to the company to stop the annual maintenance fees if you can't find a buyer. “I’ve had consumers call me back to say this offer worked,” she notes.
 
Retirement Communities and Assisted Living Facilities
 
Regulators say a growing number of people are also having a hard time getting money back from retirement communities and assisted-living facilities.
 
Initially, unit owners are told that they or their estate will be entitled to a chunk of the large entrance fee when they move out or die. But they later discover that the return process doesn’t work so neatly — and they can’t get a refund after all.
 
For example, one Pennsylvania woman was assured she’d receive 85 percent of her assisted living facility’s $17‚000 entrance fee if she moved out. A year after she decided to leave, however, the woman still hadn’t received the money.
 
“She was told she wouldn’t get a refund until someone else took her unit,” the report says, and because the community had raised the entrance fee to $399,500, few people were interested in moving in. (The Bucks County Consumer Protection office ultimately negotiated with the retirement community, and the woman received a $168,654 refund.)
 
In other cases, Hanes notes, refunds are delayed because retirement communities designate recently vacated units as “sales models.” As a result, the units are unavailable to new tenants, effectively holding up refunds to the people who’ve moved out.
 
“I consider withholding money for an excessive amount of time a form of elder abuse,” Hanes says.  
 
If you're buying into a retirement community or an assisted-living facility, consumer advocates urge you to:
 
Read the contract carefully. Hanes says you should never sign an agreement to move in until you (or your financial adviser) thoroughly review the contract.
 
Look closely at the entry-fee rules. Make sure the contract states that you will receive a partial refund within a year after moving out, and beware of clauses saying that there must be a new occupant in place before you get any money back. No deadline (indicating the length of time before the company must give you a refund) in the contract? Just ask. “If management says no,” Hanes advises, “perhaps you should consider another place.”
 
Contact your local or state consumer protection agency if you have a complaint about a timeshare, retirement community or assisted-living facility. The more complaints regulators receive, the more apt they are to try to get help for scammed consumers.