Timeshares - you may be able to get out of the contract if you act quickly

A friend IMed me a few weeks ago to tell me that he'd just bought a timeshare; considering that I didn't think him the type to be suckered, I was surprised.

I became skeptical when I learned more details. My friend had attended a 90-minute sales pitch and done no comparison shopping. The presentation was fairly high-pressure: to be entered into a prize drawing (for a free Hummer) my friend had to stay for the entire 90 minutes, and incentives were given for signing a contract right then and there. My friend signed a $10,000 contract on site.

The timeshare was with Trendwest, a company that sells "point-based" timeshares wherein people get a set number of points each year (6,000 in my friend's case) that can be spent on the company's various lodgings worldwide. The $10,000 was for a "premier" contract, which meant that it lasted for life, and the company even bragged about how the timeshare could be "willed" to people. In addition to the one-time $10,000 payment, there was also an annual fee that lasted for the lifetime of the contract. These "maintenance dues" started at $400 per year, but could be increased from year to year.

Trendwest's website is suspiciously sparce; while it has basic information about the company and its properties, the website does not list how many points it takes to make a reservation at each property, nor does it list how far in advance the properties book up. It also has no information regarding whether resorts are already booked at specific times. Since how much money you save is entirely dependent on how many points each property costs per night (and how available the properties are), this makes calculating the potential cost/benefit of the transaction extremely difficult. Presumably, once you have a contract you can find this information out, but by then it's too late.

My SO and I did more research on the company and found a number of interesting things. First, Trendwest was sued by the state of California in 2003 for "deceptive sales practices;" Trendwest settled the suit, agreeing to more than $700,000 in damages, with penalties and fees possibly exceeding $3 million.

"The complaint alleged Trendwest engaged in deceptive marketing and sales practices, and misrepresented its timeshare products. Additionally, the firm violated cancellation notice requirements and unlawfully failed to accept cancellation requests, according to the complaint."

My SO found what appears to be an old Trendwest contract on the Trendwest website. The contract has annual dues data from October 2001 ($340 per year for a 6,000 point contract). My friend reported that the current dues were $400 a year for the same contract. A quick calculation showed that if my friend owned the property until he was 84 (his lifetime, statistically) and Trendwest continued to increase their dues as they have historically, my friend would pay more than $44,000 in annual dues over his lifetime. That's a lot of hotel rooms.

Also found in the contract was this notice, which implies that Trendwest is drastically marking up their product (caps are original):

"AS A GENERAL RULE, A SPONSOR'S PROMOTIONAL AND MARKETING COSTS IN A TIME-SHARE OFFERING CONSTITUTE A MAJOR PORTION OF THE PURCHASE PRICE. SHOULD YOU PURCHASE A TIME-SHARE INTEREST, YOU MAY FIND IT DIFFICULT TO RESELL YOUR TIME-SHARE INTEREST WITHOUT THE USE OF AN EXTENSIVE PROMOTIONAL AND ADVERTISING CAMPAIGN OR USE OF A SALES ORGANIZATION."

This statement seems to be accurate, as secondhand Trendwest contracts are easily available online. Searches on eBay showed numerous equivalent contracts (6,000 points per year for a "premier" lifetime contract, some with even more points already accrued than my friend had bought) for less than $5,000 total payment. Other websites selling "used" timeshares appeared to have similar prices. Since it appears to be perfectly legal to sell timeshares (and this is often one of their supposed benefits), this means that my friend could buy the exact same thing for less than half the cost.

Happily, consumer protection laws in California require that timeshare contracts can be terminated by the consumer within a few days of the purchase (a "cooling off" period; see this website for a summary of what applies in California). The amount of time allowed to cancel the contract depends on state law, and even in California isn't always reported to be the same (the last link reports a seven-day cooling off period for a timeshare; this website says it's three days), but it is clear that the contract can be cancelled within a few days of purchase and that the contract should include a statement of how it can be cancelled. Laws may vary in other states.

I'm happy to say that my friend did in fact cancel the timeshare contract. I look at it this way: even if buying a timeshare turned out to be a good decision for him, it'd be much better to shop around and make an educated choice than to choose based on a single 90-minute presentation by someone with a strong financial motive. That'd be like buying a $50,000 widget without ever comparing different widgets or even having used a widget before.