Proponent Testimony for HP 1062

Joint Standing Committee on The Judiciary

Chair, State Senator David R. Hastings, III, Chair,

Submitted by:

The American Resort Development Association

Resort Owners Coalition (ARDA-ROC)

Thank you Mister Chair - Members of the Committee – Ladies and Gentlemen - my name is Keith Stephenson and I am the Director of Legislative and Industry Affairs for the American Resort Development Association.

  • I am joined today by Erik Newman, an attorney with the law firm of Gallagher, Callahan & Gartrell, P.C., of Concord, New Hampshire, who is the legislative legal counsel to ARDA for Northern New England affairs;
  • Chandler McGrew, a former state representative from Bethel, member of a Homeowner Association affected by this bill and proponent of the legislation;
  • On behalf of all us, I would like to thank you for the opportunity to speak in support of HP 1-62. We have all agreed to keep our comments to 3 minutes each.

1. Who is the American Resort Development Association (ARDA):The American Resort Development Association (ARDA) is the WashingtonD.C. based national trade association representing the interests of the timesharing and vacation ownership industry. Founded in 1969, ARDA represents more than 1,000 timeshare development and related service corporations. It is the mission of ARDA to foster and promote the growth of the timeshare and vacation ownership industry and to serve its members through education, public relations and communications, legislative advocacy, membership development, and ethics enforcement.

ARDA is unique in the world of associations in that we also represent the interests of the owners of our product. In fact, on this particular issue ARDA’s efforts are supported and funded 100% by more than 800,000 individual timeshare owners from around the country (including Maine) through ARDA’s Resort Owners Coalition which is also known as ARDA-ROC. Through ARDA ROC, we advocate on a wide variety of legislative issues affecting owners and timeshare homeowners associations’ wherever the need exists.

2. Characteristics of Timeshares: Timeshare ownership enables owners to enjoy a vacation experience over the course of many years. Timeshares, however, are not primary (or homestead) residential dwellings and cannot be used as such; they are vacation properties used for limited periods of time during a given year (one week, three weeks, etc.). Timeshare interests are not a financial investment – they are intended for recreational use, i.e. vacation experiences.

Many timeshare resorts in Maine are structured to give “Managing Entities”, defined by the Maine timeshare statute at Tile 33, Chapter 10-A as the manager, or if there is no manager, the association of unit owners, the responsibility to maintain, repair, and replace their common elements. The common elements will vary by resort but generally include recreational amenities that are available for the use and enjoyment of all timeshare owners (i.e., the pool), as well as other elements essential to the structural integrity of the resort. The maintenance and repair obligations of the Managing Agent are funded through assessments paid by the timeshare owners collectively. At the time an individual purchases a timeshare interest, he or she agrees to pay a specified pro rata share of those assessments.

As resorts age - and Mainehas a number of older resorts - some timeshare owners

stop paying their pro rata share of assessments and simply “walk away” from their timeshare interest.This may result from any number of different reasons—a change in the owner’s economic circumstances, a change in the owner’s residence that makes travel to the resort unappealing or unnecessary, an owner’s subsequent purchase of a timeshare in a different resort, an owner’s children leaving home, etc. Whatever the reason, the effect is the same—the Managing Agent has to spread the same costs across fewer paying owners.

The passage of HP 1062 will expand the options available to Managing Agentsto take back and resell timeshares that are delinquent in payment of assessment obligations or where owners have breached the terms of a mortgage containing a power of sale. The foreclosure options, both non-judicial and foreclosure by possession, enable Managing Agents to return timeshares to productive use and keep owners’ shared assessment costs at a minimum.

It is of critical importance to note that practically all foreclosure actions go uncontested because the owners are no longer interested in being involved with the resort. Also, because of the small sums involved, collection activities against the former owners for delinquent amounts are rarely pursued because there is little financial incentive to do so.

It is important to keep as many options for foreclosing on timeshares available to Managing Agents. As the number of delinquencies increase, the paying timeshare estate owners shoulder an increasing burden—one for which they had not bargained at the time of purchase.This, in turn, increases the number of delinquencies, which then increases the financial burden on the remaining responsible owners. As delinquencies grow, it forces Managing Agentsto defer maintenance and repair expenses, potentially decreasing the value of the entire resort development. It also causes some owners to simply "walk away" from their timeshare interests as they are unwilling to subsidize a disproportionate share of assessment obligations. This in turn reduces the amount of new tourism dollars coming into the Maineeconomy.

The possibility of this spiral effect is amplified in the context of the current economic crisis, mounting consumer debt, and lingering recession fears that are negatively impacting consumer spending—particularly on vacation planning and spending. If bankruptcies related to this problem continue to grow, it would become a substantial problem to those local municipalities where timeshare resorts operate. Passing HP 1062 into law will counter some of the challenges for Managing Agents posed by the current economic climate and the spiraling effect of delinquencies.

3. Legislative History and Importance of HP 1062: ARDA supported a lengthy initiative on behalf of Managing Agents to adopt a non-judicial foreclosure process for time-shares that culminated in the amendment of 33 MRSA Section 593, sub-§1 and enactment of 33 MRSA Section 595 by the 122nd Legislature and signed by the governor in April 2006. The objective of that legislation was to provide an efficient non-judicial means for Managing Agents to foreclose on timeshares for non-payment of assessments by owners or breach of a mortgage provision. The legislation has served timeshare Managing Agents well since its adoption.

The subsequent 123rd Legislature repealed strict foreclosure in 2007, including the repeal of a procedure embodied in Title 14, §6201, “Foreclosure by Possession”. Prior to its repeal, this was a remedy which was not exclusive to timeshares and enabled repossession of property by one of three methods of possession, which, if continued for year, forever foreclosed the right of redemption.

Certain timeshareowners associations expressed an interest in re-instating the foreclosure by possession process as an alternative to non-judicial foreclosure. ARDA has participated in a dialogue with the bill’s sponsors and supporters both in the legislature and within Maine owners associations to ensure that the reinstatement of a foreclosure by possession process for timeshares shall operate as a viable alternative and without conflict with the non-judicial foreclosure process under Title 33, §595.

Together, non-judicial foreclosure and foreclosure by possession, as embodied by HP 1062, provides a robust choice of alternatives for Managing Agents to take back timeshares from owners that are delinquent in the payment of assessment fees, in the manner they deem best serves the interest of their owners. These tools are critically important to timeshare owners associations, many of whom are not-for-profit entities, to minimize the expense of foreclosure. Timeshares, as a fractional interest related to real estate, have a proportionately lower resale value than a whole ownership of real estate. Therefore, it is of the upmost importance that foreclosure expenses be minimized to enable owners associations to operate efficiently and in the best interest of their constituent owners. This bill promotes that objective.

4. Timeshare is a Vital Component of Maine’s Hospitality Industry:

The timeshare industry is a vital component of the Mainehospitality industry. In ______alone, more than ______timeshare owners visited Maine. There are currently __ timeshare resorts offering approximately ______total units operating in Maine.

In total, the Mainetimeshare industry supports an estimated $___ million in annual consumer spending; ______full and part time jobs; and more than $____ million in tax revenues derived from property taxes, occupancy taxes, and employee taxes. Timeshare ownership in the state of Maineis represented by residents and non residents alike.

5. HP 1062 Provides Strong Consumer Protection Provisions: It is of critical importance to reiterate that practically all timeshare foreclosure actions go uncontested because the owners are no longer interested in being involved with the resort. However, to ensure that the rights of all timeshare owners are preserved in reinstating the foreclosure by possession procedure, HP 1062incorporates all of the same provisions aimed at consumer protection that were a part of the repealed foreclosure by possession statue under Title 33 §6201: entry must not be opposed, 2 witnesses to the peaceable entry are required; a certificate attesting to the entry must be sworn to by the witnesses and recorded in the registry of deeds within 30 days of entry to afford notice; and possession must be continued for one year before the right of redemption is extinguished.

On behalf of the American Resort Development Association, Mainetimeshare owners, timeshare associations, and resort developers, we thank you for your consideration and support of HP 1062.

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