If someone contacts you suggesting that they can sell your Mexican time share for three times the price you paid for it less than ten years ago, the best thing you can do is hang up the phone and/or delete the email. Instead, you may talk yourself into believing that the offer is legitimate. After all, your time share is a really good one, facing the ocean, in a desired locale. If you really think that, then the next best thing you should do is call a lawyer to help protect you from the myriad “time share resale” scams that abound out there. If you doubt their burgeoning existence, then just check out the FBI’s numerous stories and warnings about this criminal enterprise (http://www.fbi.gov/news/stories/2012/february/timeshare-fraud_021712) and type in the term “time share scams” for further information.
In Ontario, the Consumer Protection Act, 2002 (the “CPA”) attempts to provide some protection for consumers engaged in time share transactions. For example, while transactions involving the purchase and sale of real estate are generally exempt from the Act, consumer transactions involving time shares are not. Covered time share arrangements include (a) “fractional” use arrangements whereby the use of the property is circulated periodically amongst participants in a plan (whether or not the property is located in Ontario), and (b) “vacation club” arrangements whereby the consumer is given access to discounts and benefits for future accommodation, transportation and other travel-related goods and services.
The CPA gives the Ontario consumer a ten-day cooling off period after entering into a time share agreement to cancel the agreement, as well as additional cancellation rights if the consumer does not receive a compliant copy of the agreement conforming to the regulations. These cancellation rights are in addition to whatever cooling off period may be offered in the jurisdiction where the time share is located. Unfortunately, however, these time share provisions are really aimed at the “front-end” of the transaction and thus do not assist the consumer on resale.
In the typical “time share resale” scam, an internet-based marketing agency will approach the prospective seller, suggesting that it has “guaranteed, multiple buyers” for the seller’s specific time share at a very attractive price. A brokerage contract will be produced stating that the purchase money will be remitted directly to the seller’s account. All rather professional-looking, the contract will also state that the agency will reimburse the seller for 100% of all taxes and fees incurred during the transaction.
Immediately after contract execution, the agent will confirm its receipt of a lucrative purchase offer, usually (and notably) from a large, well-known and credit-worthy corporate entity located in the foreign jurisdiction, and will confirm that the purchase money has already been deposited for the seller’s benefit at the state taxation office in the jurisdiction. At this point, there are already several red flags. For example, the seller should ask himself: why would a large corporate conglomerate want my used (although surely beautiful) time share, when it presumably already owns or has access to several corporate condominiums in the jurisdiction? And why would the state taxation office be involved in deposit-taking arrangements designed to assist foreign sellers to sell their time shares?
The documentation accompanying your new internet agent’s notification will contain an authentic-looking letter from the corporate entity assuring you of its desire to purchase your time share and also confirming that the full purchase price has been deposited as your agent has already indicated. The conglomerate’s letter will instruct you that the full purchase price for the time share will be released to you against receipt by the state taxation office of your payment of the applicable taxes connected with the sale. It will instruct you to kindly make payment of these taxes to your agent, who will kindly assist you in making the required remission to the taxation office. And of course, your new agent will helpfully remind you that it has guaranteed the reimbursement to you of all applicable taxes in your brokerage agreement. All very innocent and commercial it will seem.
Quite the contrary, just more red flags! For example, the seller should realize that most land transfer and sales taxes are almost universally paid by the purchaser, so why is the seller being asked to pay them? Why is this particular jurisdiction different from most others? Furthermore, why should the seller rely on the agent’s guarantee to reimburse him for payment of these taxes? How does the seller know that the agent a good credit risk? Indeed, it is at about this time that the seller may make the connection that, as taxes are usually expressed as a percentage of sale price (say 10%), the sale price for the time share had to be inflated in order to make the scam worth the agent’s time and effort.
So, if despite all the red flags thrown up, you still elect to pay the requested tax amount to your new agent, chances are good that you’ll never see your money again, and that the prized sale of your Mexican time share will quickly vanish into the Sea of Cortez.
Interestingly, the CPA has so-called “remote agreement” provisions that you might think about falling back on. A “remote agreement” after all is simply a consumer agreement entered into when the consumer and supplier are not present together. The brokerage agreement exchanged over the internet should constitute such an agreement, as the agent is in the business of supplying services to you for purposes of the CPA. For such agreements, the CPA mandates certain pre-contract disclosure and prescribes certain content that must be included in the remote agreement. It also gives the consumer various cancellation rights for failure to comply with these requirements. But frankly, if the new agent is a charlatan, the “remote agreement” protections of the CPA will turn out to be just as illusory as your dreamy foreign offer.
Instead, this is where the seller’s lawyer can assist. He or she will insist that the full purchase price for the time share be deposited into an escrow account, held either by the seller’s lawyer or with a suitable escrow agent, preferably in a deposit account located in the seller’s jurisdiction, and ideally before the seller goes one step further with the purported transaction. The lawyer will also conduct basic due diligence, including by directly contacting representatives of the foreign conglomerate to verify that the offer is real and to request exact details of the offer. Ultimately, if the deal was legitimate, the seller’s lawyer would review the offer and work up a final agreement of purchase and sale with the purchaser. In addition, the seller’s lawyer will also seek advice from foreign counsel to verify that applicable land transfer and sales taxes are truly payable by the purchaser. And finally, he or she will also seek advice as to how, when and whether any income or capital gains tax is payable by the seller in connection with the sale.
If the transaction is a scam, the seller’s lawyer should be able to ascertain this by undertaking these steps. All of this will of course result in legal expense for the seller, all of it very much worthwhile if it protects the seller from a time share resale scam. But in truth, this expense will only arise if you successfully talk yourself into owning a more valuable time share than you actually have. So the next time you receive an unsolicited phone call or email to sell your time share for three times what you paid for it, think carefully before signing on with your new internet agent.