Timeshare Update

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Timeshare Update                                                                                                                                                                                 PRSRT STD
                                                                                                                                                                                                                                                                               B e c k e r & P o l i a ko f f , P. A .
Emerald Lake Corporate Park                                                 A D V E R T I S E M E N T                                                                                          U.S. POSTAGE

P.O. Box 9057                                                                                                                                                                                         PAID
Ft. Lauderdale, Florida 33310-9057

                                                                                                                                                                                                 JKG GROUP

                                                                                                                                                                                                                                                                                 Timeshare Update
                                                                                                                                                                                                                                  W I N T E R          2 0 0 4                      CURRENT NEWS                        FOR     TIMESHARE ASSOCIATIONS
                                                                                                                                                                                                                             w w w. b e c k e r - p o l i a k o f f . c o m                                                                          b p @ b e c k e r - p o l i a ko f f . c o m

                                                                                                                                                                                                                             What You Can Do to Stop                                                                               Becker & Poliakoff, P.A.’s
                                                                                                                                                                                                                             Unpaid Assessments from                                                                               Timeshare Practice Group
                                                                                                                                                                                                                             Harming Your Association                                                                              B     ecker & Poliakoff ’s Timeshare Practice
                                                                                                                                                                                                                                                                                                                                         Group focuses on serving the needs of
                                                                                                                                                                                                                                                                                                                                   owner-controlled resorts. The Group is based
                                                                                                                                                                                                                             T     he financial imperative of a Timeshare Association is to make sure that assess-
                                                                                                                                                                                                                                   ments are paid by all unit week owners. However, an Association often discovers
                                                                                                                                                                                                                             that it has large Association debts caused by many unit week owners who have not paid
                                                                                                                                                                                                                                                                                                                                   in the Firm’s Orlando office and includes other
                                                                                                                                                                                                                                                                                                                                   attorneys in the firm’s offices throughout
                                                                                                                                                                                                                                                                                                                                                     Florida. C. John Christensen,
                                                                                                                                                                                                                             their assessments over the course of several years. This, in turn, can result in an increase                            who previously worked for the
                                                                                                                                                                                                                             in assessments for those unit week owners who do regularly pay their assessments                                        State examining developer
                                                                                                                                                                                                                             because the extra income is needed to cover the shortfall and the Association’s attempts                                public offering statements for
                                                                                                                                                                                                                             to recover the bad debt.                                                                                                new resorts, took his wealth of
                                                                                                                                                                                                                                                                                                                                                     Timeshare experience with
                                                                                                                                                                                                                                   Nearly all Timeshare Associations employ the services of a collection agency.
                                                                                                                                                                                                                                                                                                                                                     him to Vistana Resort and
                                                                                                                                                                                                                             Collection agencies can be involved in ensuring the financial welfare of a Timeshare                       C. JOHN      then to Becker & Poliakoff,
     AN ELECTRONIC VERSION OF THIS AND OUR OTHER NEWSLETTERS IS AVAILABLE ON OUR WEBSITE WWW.BECKER-POLIAKOFF.COM                                                                                                            Association if they act quickly and efficiently. However, an overly aggressive collection               CHRISTENSEN
                                                                                                                                                                                                                                                                                                                                                      P.A. where he has been con-
                                                                                                                                                                                                                             agency can alienate and anger owners with rude telephone calls or other unsavory tac-                                    centrating his practice in
                                                                                                                                                                                                                             tics. A good owner is a valuable asset to the Association. One that has fallen slightly                                  Community Association Law
                                                                                                                                                                                                                             behind should be gently brought back into the fold and not driven away by over-zealous                                   for the last 14 years. He regu-
The Election of Directors in a Florida Timeshare Association … Continued from page 3                                                                                                                                         collection agencies. As for the truly unrepentant deadbeat, that is another matter entire-                               larly assists clients with their
      As you can see, these statutes almost always defer to the timeshare doc-                                        If an Association wants to use a limited proxy specifically identifying direc-                         ly. The owner who has been at the same address for the last five years and every year                                    annual meetings, elections,
                                                                                                                                                                                                                             claims that the “invoice must have gotten lost in the mail” must be dealt with firmly.                                   interpretation of the law and
uments, particularly the Articles of Incorporation and Bylaws, to establish                                     tor candidates, (so long as limited proxies and nominating committees are not
                                                                                                                                                                                                                                                                                                                                       MARLENE        the governing documents, and
the method by which directors are elected. Thus, these documents will                                           prohibited by the governing documents), a nominating committee could be                                      Fortunately, under 721.16 of the Timeshare Act, the Association does have additional                      KIRTLAND      amendments to their docu-
typically govern timeshare elections. In this regard, timeshare documents                                       appointed by the Board and charged with identifying unit week owners willing                                 recourse against delinquent unit week owners.                                                                           ments. Marlene Kirtland is the
have been almost always drafted to permit the election of directors by use of                                   and qualified to serve as directors (an example of an unqualified candidate could                                  The first step in controlling bad debt is to “lockout” or “deny use” of the unit week to                          Group’s collection/foreclosure
proxies, under the correct assumption that most unit week owners will be                                        be one who is delinquent in the payment of assessments). Such nominating                                     the delinquent owner. It is imperative for the front desk staff to check whether assess-                                attorney, but her significant
unable to attend the annual membership meeting in person and therefore                                          committee would then make its nominations before the mailing of the annual                                   ments are current prior to an owner using or exchanging their unit week. If not, before a                               practice area encompasses
will want to appoint another person who may be attending the meeting as a                                       meeting notice package, so that the candidates nominated would be listed upon                                lockout can occur, the unit week owner must be given the required statutory notice. Once                                nearly every problem that can
proxy-holder (frequently the Secretary of the Association) to vote for them.                                    the limited proxy that would go out with the notice package. The Association                                 the proper notice has been given, the Association may then rent the unit week and keep                                  arise in the daily operations of
                                                                                                                                                                                                                             the rental income to offset the delinquent assessments. This is a particularly useful tool                              a resort. Alex Costopoulos is
Hence, timeshare associations will include a proxy form for the election of                                     could also solicit “bios” from the candidates if it desired, to be circulated with the                                                                                                                                   ALEX
                                                                                                                                                                                                                                                                                                                                     COSTOPOULOS     the Editor of this newsletter
directors in the materials notifying all unit week owners of the annual mem-                                    annual meeting notice package and limited proxy, so that unit week owners                                    where there is a mortgage on the unit week and it does not make economic sense for the
                                                                                                                                                                                                                                                                                                                                                     and, along with Marlene
bership meeting. Depending upon your governing documents, these proxies                                         would have some basis upon which to choose one candidate over another.                                       Association to initiate foreclosure actions.                                                          Kirtland, is the Group’s litigation attorney. He
can be formatted as either “general” or “limited” proxies.                                                            Finally, whether a nominating committee, or general or limited proxies, are                                  In this regard, prior to filing a lien or initiating a foreclosure action, the Association      assists clients in all sorts of disputes involving
      A “limited proxy” is a proxy that contains a specific entry by which the                                  used, any non-developer unit week owner attending the annual meeting in person                               must first determine if there is a mortgage on the unit week. This is because by law, debt            boards and developers, management companies,
unit week owner can either vote “for” or “against” any candidates listed on the                                 can be nominated, or nominate himself or herself, from the floor. However, if a lim-                         owed to the mortgage holder (usually the developer) takes precedence over debt owed to                employees, and vendors. The Timeshare Practice
proxy; if the unit week owner votes either for or against a particular candidate                                ited proxy is being used, it would be a rare occurrence for a candidate nominated                            the Association. If an owner is not paying his assessments, he may not be paying his                  Group can be reached at (800) 232-5379, or at
by checking the particular box, the proxy-holder (the person attending the                                      from the floor (but not listed upon the limited proxy) to obtain enough votes to pre-                        mortgage either. In these instances, it is up to the developer to foreclose his mortgage    
meeting on behalf of the unit week owner) would be required to vote the                                         vail over those candidates listed on the proxies, due to the tiny number of unit                             (which would extinguish the debt owed to the Association). Then, the developer
exact same way. If, on the other hand, a “general proxy” is utilized, such proxy                                week owners who would be expected to attend the annual meeting in person as                                  must pay all new assessments until the unit-week is sold when the new owner takes                     Becker & Poliakoff, P.A. has been representing
would not contain any entries listing candidates, and a (non-developer)                                         compared to the number who would return proxies instead.                                                     over the responsibility to pay. If there is a delinquent mortgage, it makes no sense for              Owners’ Associations in Florida since 1972.
proxy-holder could vote for or against any of the candidates identified at the                                        As for those non-developer owners actually attending the meeting in                                    the Association to foreclose its delinquent assessments because it would, in effect,                  From its offices throughout Florida and inter-
annual meeting. Obviously, if candidates for the Board of Directors will be                                     person, they should cast their votes by way of a ballot similar, but not identi-                             only be foreclosing for the developer, and the Association would reap no benefit. That                national and affiliated offices, the Firm pro-
nominated only at the annual meeting, which is perfectly acceptable in most                                     cal, to a proxy; their ballot need not include spaces for the owners’                                        is why for unit weeks with both mortgage and assessment delinquencies, lockout                        vides a full range of legal services including
timeshare Associations, there will be no way a proxy sent to the unit week                                      signature(s) and other proxy related language. On a final note: if the total                                 and rental is the Association’s best option. But what about assessment delinquencies                  commercial litigation, employment law, land
owners prior to the annual meeting will be able to list any candidates, there-                                  number of director candidates is equal to, or less than, the number of direc-                                where the mortgage is paid off?                                                                       use planning and zoning, patent and trade-
                                                                                                                                                                                                                                                                                                                                   mark, real estate, corporate law, environmental
by eliminating the possibility for the use of a “limited proxy” and necessitating                               tor vacancies to be filled at the annual meeting, no formal voting is needed;                                      Once it is determined there is no mortgage, it is time for the Association to get seri-
                                                                                                                                                                                                                                                                                                                                   law, as well as many other areas. You may
the use of a “general proxy.”                                                                                   all of the candidates can simply take office by “acclamation.”                                               ous. Collection agencies cannot do legal work; your law firm needs to take the necessary              contact us at
                                                                                                                                                                                                                             steps to rid your Association of the freeloaders. This begins by the Association placing a
The material obtained in this newsletter is general and summary in nature and consists of highlights and information pertinent to the clientele of Becker & Poliakoff, P.A. It is not intended to be specific legal advice                                                                             Continued on page 3
on any matters discussed. If you have questions regarding the contents of this newsletter, please contact your attorney at Becker & Poliakoff, P.A. at 800-432-7712 or
The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience.
  2                                                                                                                                                                                                                                                                                                                                    3

                                                                                                                                                                          The Election of Directors in a Florida Timeshare Association
       Directors’ and Officers’ Insurance: Are You Being Protected?
                                                                                                                                                                         T     he procedure to elect directors in a Florida timeshare Association
                                                                                                                                                                               can be a matter of some confusion; the bottom line is that the elec-
                                                                                                                                                                         tion of directors will almost always proceed according to the provisions of
                                                                                                                                                                                                                                                                 Since the Timeshare Act and the Condominium Act provide no
                                                                                                                                                                                                                                                            guidance, we must turn elsewhere. Whether a timeshare resort is a con-
                                                                                                                                                                                                                                                            dominium or not, the association will almost always have been created
                                                                                   across the country) but rather by the association’s employees. Association
S     erving on your association’s board of directors can be a thankless job. In
      addition to being time-consuming, it often leaves directors open to crit-
icism from other unit week owners who don’t think the board is doing a
                                                                                   employees can be sued for anything from discriminatory hiring practices to
                                                                                   tortuously interfering with sales efforts. Some D&O policies make no men-
                                                                                                                                                                         the Association’s governing documents, usually described in the Bylaws.
                                                                                                                                                                         Most of the few exceptions to this general rule pertain to Boards which
                                                                                                                                                                                                                                                            as a not-for-profit corporation. Florida not-for-profit corporations are
                                                                                                                                                                                                                                                            governed by Chapter 617, the Not-For Profit Corporation Act. There are
                                                                                                                                                                         the Developer still controls (this is a separate subject which this Article        various statutes in this Act which impact the election of directors in a
good enough job or could be doing a better job. Oftentimes this is just a          tion of association employees! Especially important is “employment practices          will not address).                                                                 timeshare Association. Some of the more important of these are:
minor annoyance, but sometimes this can lead to real trouble when a law-           coverage” which covers lawsuits involving employment discrimination,                        There is nothing in the Timeshare Act (Chapter 721 of the Florida                 617.0721 Voting by Members – Members are not entitled
suit is filed against the board.                                                   handicapped discrimination, racial discrimination, etc. This type of cover-           Statutes) which addresses the procedure by which directors are elected.                 to vote except as conferred by the Articles of Incorporation or the
       A timeshare association is almost exclusively a not-for-profit corpora-     age is extremely important in timeshares because association employees are            However, many timeshare resorts are also condominiums. Therefore, it                    Bylaws. A member who is entitled to vote may vote in person
tion whose board of directors is made up of a group of unpaid volunteers           constantly in direct contact with enormous numbers of guests and the                  is often expected that the cumbersome statutory procedure for the elec-                 or, unless the Articles of Incorporation otherwise provide, may
whose primary goal is to ensure that the timeshare is being well-maintained        potential for lawsuits is great.                                                      tion of directors in whole-unit condominiums must be followed; howev-                   vote by proxy…If directors or officers are to be elected by
for the benefit of the entire association. It is unfortunate but true that               In this litigious society, it is paramount that board members take the          er, that is not the case. The Condominium Act (Chapter 718 of the                       members, the Bylaws may provide that such elections may be
boards and board members are occasionally the target of litigation. When           necessary steps to protect themselves and the association. Here are a few tips:       Florida Statutes) specifically states: “the provisions of this subparagraph             conducted by mail…
trouble arises, D&O (Directors’ and Officers’) insurance can be a board’s                1. Ensure that your association does carry D&O insurance.                       [referencing the procedure to elect directors] shall not apply to timeshare             617.0803 Number of Directors – Directors shall be elected
best friend. Not only should every board make sure that its association is         Surprisingly enough, many boards aren’t protected simply because a policy             condominium associations.”                                                              or appointed in the manner and for the terms provided in the
carrying D&O insurance, but the board should also be aware of the terms            was carelessly allowed to lapse or assumed to be in place.                                                                                                                    Articles of Incorporation or the Bylaws.
and limitations of that insurance. In order to adequately protect themselves             2. Determine what is covered by the policy and what is not covered                                                                                                                                                        Continued on page 4
from lawsuits by owners and other parties alike, board members need to             by the policy. Do not rely on the oral statements of your management com-
know what their D&O insurance covers and, more importantly, what their             pany or your insurance agent. Get it in writing. If you have concerns over         What You Can Do to Stop Unpaid
D&O insurance does not cover.                                                      what the technical language in the policy itself means, ask an independent
       For example, prior to turnover, the board is controlled by a developer      insurance advisor or your attorney. Be aware of limitations on lawsuits
                                                                                                                                                                      Assessments from Harming Your Association
who appoints his own employees or agents to the board. The developer will          amongst co-insureds, and change insurance carriers if these limitations will       Continued from page 1
often find it cheaper to get D&O insurance for these appointees through            mean there will be no coverage should the board be sued by the developer           lien against the unit week and ultimately foreclosing upon the unit week if                     A Website Devoted
the developer’s own policy. After turnover, leaving such a policy in place         or its affiliates. (Also, limitations on co-insureds claims can allow the carri-   the assessments are not paid. Once filed, the lien is in effect for five years
may cause significant problems for an owner-controlled board. This is              er to deny coverage if a single disgruntled board member chooses to sue the        from the date of filing. The delinquent assessments, late fees, interest and                    to Timeshare Users
because most policies will not cover claims amongst “co-insureds;” in this         rest of the board, or if the current board chooses to sue a former board).         attorneys’ fees continue to add up even after the lien is filed. After the lien is
scenario, a developer and a Board utilizing the same insurance company                   3. Determine what the deductible is and what the policy limits are.          filed, the Association has five years to foreclose on the unit week. If the unit
would be considered “co-insureds.” Hence, there could be no protection at          You need to be sufficiently covered but you also want the best deal for your       week owner pays the assessments before the foreclosure is completed, the              
all if there were a lawsuit between the board and the developer or one of the      Association. Your policy should be tailored to best fit your association’s spe-    Association is still entitled to recover the late fees, interest, costs, and attor-
developer’s companies! Clearly, as the composition and duties of the board         cific needs. The coverage limit on your policy should be sufficient to pay         neys’ fees, in addition to the delinquent assessments. In the vast majority of
of directors changes, so do their insurance needs.                                 both the cost of defending a suit as well as any eventual settlement or judg-      cases where a lien is filed, the delinquent owner either enters into a payment
       Another important, yet often overlooked, facet of coverage is for asso-     ment; be prepared for a worst-case scenario!                                       plan to become current in his assessment obligations, or “quit-claims” his unit
ciation employees. In a timeshare resort, much of the daily activity of the              4. Make sure your policy covers past, present, and future Board              week (gives the deed back to the Association) to avoid foreclosure proceedings.
resort is not done by the board members (who are typically scattered all           Members; it is often a good idea to include their spouses in the coverage as             In the rare event a foreclosure actually occurs, two situations can
                                                                                   well. You should also be sure that committee members or other volunteers           arise. The first is that the Association may purchase the unit week at the
                                                                                   are covered. It is very important that your policy covers all association          foreclosure sale (this usually occurs when no potential buyer is willing to
                                                                                   employees who do not carry their own insurance, or who are underinsured.           bid more than what the Association is owed). The Association will then sell
                                                                                   This should include all full-time, part-time, seasonal, and leased employ-         the unit week to a third party, retaining the profits from the sale to offset
                                                                                   ees, past, present, and future.                                                    the bad debt. The Association can then look forward to collecting future
                                                                                         5. Make sure your D&O policy covers non-monetary claims. These               assessments from the new unit week owner. This scenario also applies to
                                                                                   include lawsuits for injunctions (an Order from the Court either forcing the       the very common situation where the delinquent owner simply quit-claims
                                                                                   association to do something or stop doing something) or for declaratory            his unit week to the Association. The Association can then sell the unit
                                                                                   statements (an opinion from the Court on a legal matter). This is important        week to offset the debt and install a paying owner. The second situation is
                                                                                   because oftentimes the legal fees expended in defending such non-mone-             where the unit week is purchased by a buyer at the foreclosure sale. In this
                                                                                   tary suits can be significant.                                                     scenario, the Association would then recover all of its outstanding assess-
                                                                                         6. If you are dissatisfied with the D&O coverage that you currently
                                                                                   have, or are unsure whether you have a good policy or not, ask your manage-
                                                                                                                                                                      ments, interest, attorneys’ fees and costs due on the unit week from the
                                                                                                                                                                      new buyer and, again, look forward to also collecting all future assessments                     I   n 1993, the Timeshare User’s Group (TUG) was creat-
                                                                                                                                                                                                                                                                           ed by timeshare owners and others to serve as an “unbi-
                                                                                                                                                                                                                                                                       ased source of consumer oriented information regarding
                                                                                   ment company to “shop around.” You may be paying too much for the wrong            from the new buyer. The goal in both situations is not just to recover the
                                                                                   kind of coverage.                                                                  debt, it is to stop the bleeding by getting rid of deadbeats and replacing                       timeshare resorts and the timeshare concept.” Their web-
                                                                                         It is important to be aware that D&O insurance is not a magic suit of        them with owners who will pay. Think of it like this – if your resort has                        site,, is chock-full of tips, resources, advice,
                                                                                   armor. It will not protect you from intentional wrongful acts. It can, howev-      15,000 unit weeks (about 300 units), and 10% are not paying an annual                            classified ads, and independent reviews and ratings of
                                                                                   er, protect you from many types of costly litigation which are becoming            assessment of $400, your resort is losing $600,000 every single year!                            more than 2000 timeshare resorts by TUG members. The
                                                                                   more and more common. D&O insurance is a way to protect you and your                     If collection, lock-outs, liens and foreclosures are pursued aggressive-                   website also includes many helpful articles on topics rang-
                                                                                   association, and can prove to be invaluable when your association has the          ly, you can rid your Association of the worst of the freeloaders who do noth-                    ing from exchange programs to how to rent your unit week.
                                                                                   right policy in place.                                                             ing but drag your resort down. The result is more owners pulling their own
                                                                                                                                                                      weight, and your Association can greatly increase its income without hav-
                                                                                                                                                                      ing to raise the annual assessments; and that makes everybody happy!