Marriott Accused of Defrauding Timeshare Buyers

Timeshare, sunny house on a beachAre you thinking about buying a timeshare in a vacation property? If so, make sure you know what you are buying. A recent lawsuit serves as a reminder that buyers of timeshare properties need to understand exactly what they are getting for their money.

The class action lawsuit filed in federal court alleges that various Marriott-related companies engaged in “convoluted and patently illegal transactions” that purport to convey title to property and an interest in a land trust, when in fact buyers receive only a license to use properties that are owned by one of several businesses affiliated with Marriott. The lawsuit also alleges that the Marriott Vacation Club timeshare program requires buyers to pay closing costs, recording fees, title policy premiums and real estate taxes just as property owners would, even though buyers never acquire title to the property.

Lawsuit Background

According to the 145-page complaint, the collapse of the real estate market left Marriott with a large inventory of unsold or foreclosed condominiums in resorts that it maintains across the country. To recoup its investment in those condominiums, Marriott decided to change the way it sold timeshares.

The former program sold buyers a percentage interest in condominium properties, accompanied by a right to occupy the property at specific times. The new program created a point system that allows buyers to book condominiums that are held by a land trust. Marketing materials inform buyers that the more points they have, the more access they obtain to condominium usage.

The lawsuit alleges that the point program is marketed as giving buyers an interest in a timeshare estate, including a beneficial interest in a Florida land trust. In simple terms, a land trust holds title to real estate, while beneficiaries of the trust have all the rights and benefits of ownership, including shared management and control of the property.

The lawsuit contends that buyers in the Marriott point scheme never acquire a beneficial interest in a trust or an interest in a timeshare estate. Instead, they receive nothing more than a contractual right to occupy certain condominiums for designated periods of time, depending on the number of points they have. The complaint states that the land trust answers to Marriott, not to the owners.

Florida-based First American Trust is the trustee of the land trust that holds the timeshare properties. Marriott has pooled a large number of its vacation ownership villas around the country into the Florida land trust.

The lawsuit further alleges that purchasers never really know what they own, because their ownership is determined by a formula that only Marriott understands. A buyer’s ownership percentage in the trust is recalculated every time someone buys or sells an interest in the timeshares, and typically changes 25 times a day. When a timeshare plan ends, the lawsuit claims that purchasers receive a “refund” in whatever amount Marriott decides to pay them, rather than a pro-rata share of the property value.

A legitimate awards-based program that gives participants the right to occupy resort condominiums does not violate the law. According to the lawsuit, however, Marriott leads participants to believe that they are buying shared title or a beneficial interest in a land trust, not simply the right to occupy property. By convincing participants that they are property owners, Marriott and First American are able to collect closing costs, title insurance premiums, real estate taxes, dues, and other charges that would normally be paid by property owners but not by non-owners who merely use property.

Claims Against Other Parties

The lawsuit focuses on violations of Florida law. It joins Orange County as a defendant because the Orange County Comptroller accepts deeds for filing that do not describe any physical property. Rather, the deeds refer to a code (for example, “H04815”) as the legal description of the property. According to the lawsuit, the codes describe nothing tangible and cannot be located in any of the state’s land records. The complaint contends that Orange County violated Florida law by recording deeds that contain no legal description and that provide no evidence of a property transfer recognized by Florida real estate law.

In addition, the suit alleges that First American Title Company wrote title insurance policies (for a fee) on the timeshare purchases despite the absence of any legal title. The complaint faults First American for purporting to search title histories of the properties when, in fact, code numbers like “H04815” have no title history.

Implications for Timeshare Buyers

The lawsuit accuses Marriott and First American of violating a federal anti-racketeering law. If that allegation is proved, any damages assessed against Marriott could be tripled. The racketeering accusation is based on the premise that collecting escrow fees and title insurance premiums when no actual title exists constitutes criminal fraud.

Marriott has not yet filed an answer, but a Marriott Vacation Club spokesperson told the Orlando Sentinel that the vacation timeshare industry in Florida is “highly regulated” and that all of the company’s timeshare sales procedures are reviewed by the state.

Given its complexity, the lawsuit is unlikely to be resolved quickly. Regardless of outcome, the lawsuit should alert timeshare buyers to the changing landscape of the real estate market. Buyers should understand whether they are buying a traditional timeshare, supported by a deed that describes an ownership interest in a specific property, or whether they are merely paying for the right to occupy property that they do not actually own. Buyers should also make an effort to understand the benefit, if any, they are receiving in exchange for purchasing title insurance and paying closing costs.

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