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Caribbean Activities Expanded The following briefs represent an update on agreed-upon strategic priorities of the ARDA-Caribbean Committee. U.S. Virgin Islands The ARDA State Affairs team continues to manage a number of legislative and regulatory issues affecting developers and owners in the U.S. Virgin Islands. The recent list of issues includes: • The promulgation of fair and equitable property tax regulations which, when enacted, will save timeshare owners in the territory nearly $1.5 million in property tax savings each year. • The defeat of proposed impact fee legislation, which would have provided for a new 10-percent levy on all construction over $1 million. • The defeat of proposed EDC legislation, which would have removed the real property tax exemption authority from the U.S. Virgin Islands Economic Development (EDC) program. The tax benefits provided by the EDC program serve as the fundamental building blocks for all economic development in the U.S. Virgin Islands. If passed, this law would have brought the development of timeshare, hotel, and other commercial projects to a grinding halt.) Strategic Partnerships As a function of a broader strategy to advance strategic partnerships among related hospitality industry partners in the Caribbean region, leaders representing the U.S.- and Caribbean-based hospitality and vacation ownership industries joined forces during the 2009 ARDA Convention & Exposition in Orlando, Florida (March 29-April 2), to participate in two days’ worth of Caribbean-focused programming, activities, and meetings. ARDA incorporated Caribbean-specific programming into the convention line-up to provide U.S. and Caribbean attendees alike—including representatives of the Caribbean Hotel and Tourism Association (CHTA) and the Caribbean Society of Hotel Association Executives (CSHAE)— the opportunity to share perspectives on the current health and future growth of the Caribbean hospitality marketplace. In addition, CSHAE held its annual two-day leadership conference in conjunction with the ARDA convention. To build upon these partnerships and to address ongoing legislative issues in the Jamaica Since late 2008, the State Affairs team has been involved in the Jamaican government’s process to develop new timeshare legislation for the purpose of attracting new timeshare development to the island. Following a protracted process, on July 1, 2009, the Jamaican Minister of Tourism, Edmund Bartlett, announced that the government will be moving forward quickly with new timeshare legislation. We will actively monitor this process moving forward. 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 associations are funded through assessments paid by the timeshare owners collectively. At the time an individual purchases a timeshare interest, s/he agrees to pay a specified pro rata share of those assessments. As resorts age (and Massachusetts has a large 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 be for a 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 timeshare association has to spread the same costs across fewer paying owners. Current Massachusetts law does not provide a remedy to the association through the creation of a statutory lien on a timeshare interest that may be forfeited through a non-judicial forfeiture (NJF) process for failure to pay assessments. This remedy is essential, as the costs incurred by the association to pursue a judicial forfeiture against a specific timeshare interest are excessive when compared to the value of the real estate being forfeited; these costs, including filing and court expenses, publication costs, and lawyers fees, cannot be rationalized on a year-to-year basis. For example, a typical forfeiture could cost well over $2,500 for a timeshare interest that is only worth $500 in the resale market. The passage of HB 1287 will enable timeshare associations the opportunity to forfeit delinquent timeshare interest through a non-judicial process. This will rationalize the costs of forfeiture by streamlining filing and court expenses, publication costs, and legal fees. But this process does not adversely affect the rights of the delinquent timeshare owners to defend themselves in a forfeiture action if they so choose. The same problem exists with respect to mortgages held on timeshare interests by the original developer or associations securing payment of the purchase price. It is not cost effective to invoke the judicial process to forfeit the owner’s interest. The inability to forfeit interests stagnates the ownership base of resorts, contributes to the decline of income (which threatens their existence), and prevents new persons from becoming owners. It is of critical importance to note that practically all forfeiture 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. The failure of HB 1287 to get signed into law will negatively impact timeshare owners and their HOAs, as the long-term effect of delinquencies on owners who make good on their assessment obligations will become too burdensome. 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 associations to 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 Massachusetts economy. On the Cape, there are three documented cases where an owner’s association went bankrupt due to a “spiraling effect.” When the burden became too great, owners simply stopped paying. In some of the older associations, annual bad debt expenses have risen to an untenable 8-11% to account for accelerating assessment delinquencies. The possibility of this spiraling 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 HB 1287 into law will solve these problems. 6. Nationwide Trend Moving toward NJF to Save Costs. Applying judicial foreclosure laws to timeshares is costly, time consuming, and a burden on the judicial system. Because of this, the trend across the country has been moving toward adopting non-judicial forfeiture procedures because such forfeitures are less expensive, more Developments • October 2009

October 2009 Developments

Table of Contents for the Digital Edition of October 2009 Developments

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