ARIZONA STATE SENATE
Phoenix, Arizona
real estate
timeshares; revisions
Purpose
Makes numerous changes to the statutes regulating real estate timeshares to update and streamline existing timeshare requirements and practices, enhance consumer protections and authorize payment of finder fees.
Background
The American Resort Development Association (ARDA), the national trade association of the timeshare industry, and the Arizona Department of Real Estate (Department) indicate that Arizona’s existing real estate timeshare statutes, written in 1982, do not reflect the operation, practices or products of the timeshare industry of today. For the past year, ARDA has been working closely with the Department to update and revise current Arizona statutes regulating the timeshare industry and H.B. 2395 is the culmination of these efforts. The legislation, modeled after Illinois’s real estate timeshare laws and Arizona’s subdivision laws, incorporates modern variations of the timeshare product; streamlines existing timeshare requirements; increases and modernizes consumer protections; and authorizes payment of finder fees.
According to the ARDA and the Department, there is no anticipated fiscal impact to the state general fund associated with this measure.
Provisions
1. Clarifies that a person who sells or offers to sell a timeshare interest, attempts to solicit prospective purchasers to purchase a timeshare interest or creates a timeshare plan with an accommodation must register a notice of intent to sell and application for a public report with the Department.
2. Expands the required documents and information contained in an application for a public report for a timeshare plan to include the following:
· a statement requiring the developer to notify the Commissioner if a timeshare plan accommodation may become subject to a tax or lien arising out of claims against other purchasers in the same timeshare plan. Allows the Commissioner to require such disclosure to prospective purchasers.
· the name, street address, mailing address and telephone number of the designated broker used by the developer and a managing entity of the timeshare plan.
· a public report that complies with the requirements authorizing the sale or lease of timeshare interests within a timeshare plan.
3. Allows, at the developer’s request, the Commissioner to authorize the developer to conduct pre-sales of a timeshare plan before the issuance of a public report if the application for a public report is administratively complete. Sets forth the requirements to obtain an authorization to conduct pre-sales.
4. Allows the Commissioner to require the developer to fully disclose material changes in a timeshare plan in a prepared supplement to the public report for sales made after the material change and pending amendment to the public report and deliver the supplement to all prospective purchasers.
5. Requires a filing fee as established by rule to accompany an application to amend a timeshare public report.
6. Requires the public report approved by use by the developer authorizing the sale or lease of timeshare interests to be made available to each prospective purchaser in writing, CD-ROM or other electronic format approved by the Commissioner. Sets forth the required information to be included in the public report.
7. Allows the Commissioner to suspend or revoke the public report on certain circumstances.
Rescission
Periods
8. Requires rescission rights to be conspicuously disclosed in a purchase agreement. Sets forth the placement and the required information to be included in the disclosure.
9. Allows the purchaser to cancel the purchase agreement without penalty or obligation within seven days after the purchaser signs the agreement.
10. Permits the rescission period disclosure in the purchase agreement to reflect the longer period of time in the event the developer allows for an extended rescission period.
11. Shortens, from five years to three years, the time period within which a purchaser or lessee may bring a rescission action.
Escrow
and Trust Accounts
12. Requires the developer of a timeshare plan to deposit in an escrow or trust account all monies that are received during the purchaser’s rescission period and be evidenced by an executive agreement between the agent and the developer.
13. Requires the developer, in the event that a timeshare interest is contracted to be sold but the construction of the timeshare property in which the timeshare interest is located has not been completed, when the rescission period expires to continue to maintain in an escrow or trust account all monies received from the purchaser under a purchase agreement either before or after the rescission period expires.
14. Outlines the disbursement of monies from the escrow account.
15. Allows the Commissioner to accept from the developer a surety bond, irrevocable letter of credit or other financial assurance in lieu of placing monies in escrow.
16. Requires the developer to make documents related to the escrow, trust account or obligations available to the Commissioner on request.
17. Requires the developer to maintain any disputed monies in the escrow account until either the developer receives a written agreement signed by all parties, or a civil action is filed, in which case the developer is required to deposit monies with the appropriate court.
18. Prohibits the release of any monies placed in escrow with respect to timeshare interests to the developer until the developer has provided satisfactory evidence to the Commissioner of one of the following:
· the timeshare property is free and clear of any claims of the developer or other person having a blanket encumbrance against the timeshare property.
· the holder of any blanket encumbrance has filed a subordination and notice to creditors document providing that such blanket encumbrance does not adversely affect and is subordinate to the interests of the owners of the timeshare interests.
· the holder of any blanket encumbrance has transferred the subject accommodations to a nonprofit organization or owners’ association for use by and benefit of the owners of the timeshare interests.
· an alternative arrangement is made to protect the rights of the purchasers of the timeshare interests and is approved by the Commissioner.
Timeshare
Interest Reservations
19. Stipulates that a party may enter into a timeshare interest reservation if the prospective seller has first provided notice to the Department of the intention to accept such reservations. Sets forth the required information to be included in the notice and the required statement on the reservation form.
20. Caps the reservation deposit for a single timeshare interest at twenty percent of the purchase price, which must be deposited into an escrow or trust account within one business day of its acceptance.
21. Requires the prospective seller to provide the prospective buyer copies of the public report and proposed purchase agreement for the reserved timeshare interest within 15 days of receipt of the public report.
22. Stipulates that the prospective seller and buyer have seven business days after the buyer’s receipt of the public report and proposed purchase agreement to enter into a contract for the purchase of the timeshare interest, otherwise the reservation automatically terminates.
23. Allows a prospective buyer to cancel a timeshare interest reservation at any time prior to the execution of a purchase agreement by delivering written notice of the termination to the prospective seller. Requires the seller, or the escrow or trust account agent, to refund all deposits, less agreed upon fees, within five days.
24. Allows the Commissioner to deny, suspend or revoke authorization to accept timeshare interest reservations to any person who violates any real estate laws.
Developer
Duties
25. Places on the developer the management and control of all aspects of the timeshare plan, including the promotion, advertising, contracting and closing.
26. Stipulates that the developer is responsible for the action of the association or managing entity while they are subject to the developer’s control.
Promotional
and Advertising Materials
27. Requires, within ten days after a request by the Commissioner, submissions of promotional and advertising materials relating to a sale, lease or use of timeshare interests to be filed by the developer.
28. Allows any proposed advertising not requested by the Commissioner to be filed for review and approval by the Commissioner.
29. Allows an interest in a timeshare plan, vacation ownership plan, fractional ownership plan, vacation club or other terms to be approved by the Commissioner on a case-by-case basis after the Commissioner finds that such terms clearly disclose to prospective purchasers the nature of the timeshare interest being offered.
30. Eliminates the requirement that a deed or title to the prize be held by a disinterested third party in a neutral escrow account pending award of the prize to the winner of a drawing or contest to solicit interest in or promote timeshare interests.
31. Eliminates the requirements that a developer who offers redemption certificates establish verification procedures and financial assurances to guarantee the delivery of the good or services promised in the certificate.
32. Requires the disclosure indicating that promotional and advertising materials are being used to promote the sale, lease or use of an interest in a timeshare plan to be provided as part of the initial advertising promotion contact with a prospective purchaser. Requires any other such disclosures to be provided prior to the prospective purchaser is required to pay any money or attend a sales presentation connected with the advertising promotion.
Finder
Fees
33. Allows a developer to pay a finder fee to an unlicensed person who owns a timeshare interest in the developer’s timeshare plan.
34. Caps the finder fee at $600 in credit or non-monetary compensation per 12-month period.
35. Requires the developer to maintain records of all finder fees paid for three years.
36. Prohibits an unlicensed person to advertise or promote the person’s services in procuring or assisting to procure prospective timeshare interest purchasers.
Miscellaneous
37. Applies real estate timeshare laws to a timeshare property located in this state and timeshare plans with and without an accommodation or component site in this state if those timeshare plans are sold or offered to be sold to any individual in this state.
38. Allows a timeshare plan to be created in any accommodation, unless otherwise prohibited by law, zoning ordinance or regulation.
39. Requires all timeshare plans to maintain a one-to-one purchaser-to-accommodation ratio per calendar year.
40. Allows the Commissioner to physically inspect timeshare plans offered for sale or lease.
41. Provides exemptions from real estate timeshare laws.
42. Modifies, clarifies and defines terms associated with the real estate timeshare industry.
43. Makes numerous clarifying, technical and conforming changes.
44. Provides for a delayed effective date of January 1, 2002.
CED 1/29/01 6-0-2-2
3rd Read 3/12/01 54-0-6-0
Prepared by Senate Staff
March 23, 2001