Would you join a lawsuit to revert DVC's resale restrictions?

[freediverdude]

This is the type of thing that won't gain a lot of traction right away, but as more Riviera owners start to sell in a few years, there will be some blowback at that time as they realize "whoops this contract is different than all the other resorts, now I'm still underwater if financed or have to sell for a lot less than if I had gotten Copper Creek." A lot of people are shortsighted or not thinking about that, and we will see more about this in the years to come.

 

[jlwhitney]

This is the type of thing that won't gain a lot of traction right away, but as more Riviera owners start to sell in a few years, there will be some blowback at that time as they realize "whoops this contract is different than all the other resorts, now I'm still underwater if financed or have to sell for a lot less than if I had gotten Copper Creek." A lot of people are shortsighted or not thinking about that, and we will see more about this in the years to come.

I also think its impossible to fully predict what will happen between its a new thing and DVC has it written to where they can change the restrictions. There are a million different ways things could play out.

 

[dvcsince93]

I stumbled across this discussion while I was looking for information supporting the wildly divergent number of DVC members-


While I love DVC, there is no question Disney is all about the money (fyi- I have both direct and resale points and have been a member since 1993) It has been the same from the get go. While the issues have changed over the last 25 years, the basic theme has been constant.


While Disney is not a fountain of info regarding the DVC, since 10 of the resorts are in the same county, you do have online county records for those resorts. Moreover, after looking over the data available for deeds recorded since 2008, I think that it would help you consider the viability of any concerns you have inside or outside of a courtroom.



One big problem will be evidence supporting your allegation that Disney has breached their duty to the members. My brief look at the Orange County website leads me to believe that you have some hurdles. While I believe that the restrictions will impact resales, I believe that Disney would argue that there issues other than resale value that need to be considered.



For example, since 6/2008, DVD has recorded about 180K deeds while there appear to be about 35000 recorded resale deeds that do not involve a gratuitous transfer. Thus, between about 15 and 20% of the deeds recorded have been through resale. The number of resale contracts has been growing annually. However, when you look at deeds where the underlying contracts were over $10K, it appears that the percentage of resale contracts drops to about 5-6%.



My concern would be that if its true that resale contracts are typically for much smaller amounts, then the issue becomes what is the average point holdings for resale members vs direct purchase members. While the minimum point purchase for direct sales has decreased, it still exists whereas resale has no such restriction. I have seen a number of complaints that studios, in particular, are in short supply. That would be consistent with members having smaller amounts of points making the only reservations they can place at the 11 or 7 mos window. If true and I was Disney, I would argue that the current setup is making it hard for people to get the reservations they want and so the restrictions would not be harming the club but actually trying to address an imbalance.



The other issue that I saw in briefly looking at the recorded deeds was that the business of flipping DVC contracts is only growing. My very unscientific review of the deeds stumbled upon a number of individuals and businesses that are flipping hundreds of contracts each year. My favorite was a person who bought a grand villa, fixed week 52 at VGF (1313 points) for about $166k in March and then sold it that same July for $150K. Since the fixed week had not come and the sale price was nearly $20K less than the purchase price, something else must have financially supported the purchase/sale. (This person has flipped more than a hundred contracts over the last few years).



I have found no way to quantify the number of people who are flipping DVC contracts but that is something Disney would know. Moreover, if true, Disney could argue that the vacation club was not being helped by such actions.

 

[Katie L]

The other issue that I saw in briefly looking at the recorded deeds was that the business of flipping DVC contracts is only growing. My very unscientific review of the deeds stumbled upon a number of individuals and businesses that are flipping hundreds of contracts each year. My favorite was a person who bought a grand villa, fixed week 52 at VGF (1313 points) for about $166k in March and then sold it that same July for $150K. Since the fixed week had not come and the sale price was nearly $20K less than the purchase price, something else must have financially supported the purchase/sale. (This person has flipped more than a hundred contracts over the last few years).

Whaaaaaat... how does this make any sense at all? Any guesses?

Thanks for all the research - always interesting the things this group comes up with.

 

[KAT4DISNEY]

My concern would be that if its true that resale contracts are typically for much smaller amounts, then the issue becomes what is the average point holdings for resale members vs direct purchase members. While the minimum point purchase for direct sales has decreased, it still exists whereas resale has no such restriction. I have seen a number of complaints that studios, in particular, are in short supply. That would be consistent with members having smaller amounts of points making the only reservations they can place at the 11 or 7 mos window. If true and I was Disney, I would argue that the current setup is making it hard for people to get the reservations they want and so the restrictions would not be harming the club but actually trying to address an imbalance.

I'm not seeing any correlation to this observation on resale contracts. The lowest that a resale owner could go is buying a 25 pt contract that was an add on by a member. Those are rare and IMO rarely the only purchase. Often the buyers of those contracts have been looking to add on to their existing membership from many reports over the years. To become a new member was dropped to 50 points and I'd believe that most resale buyers have at least that.

 

[crvetter]

Whaaaaaat... how does this make any sense at all? Any guesses?

Thanks for all the research - always interesting the things this group comes up with.

I wonder if it is the owner of Monera Finance (and other DVC finance companies). They show up as flipping a lot because they foreclose the property and it is in their best interest to bid up to (against other bidders) the maximum judgement amount (if it goes for less than the judgement the finance company takes a loss, which many would if they didn't bid on them their selves, effectively paying themselves). So if they might have a judgement more than market value so need to bid high then simply they resell at market value realizing a loss; however, that loss is significantly less than allowing the contract go cheap on the auction site (unless to themselves).

For instance the judgement might be 20k but because the auction site for foreclosure gets little exposure, thus prices depressed, participants might only bid up to 10k (not including the person issuing the judgement) thus the lender loses 10k on the sale. However, if the lender themselves wins the bid their loss will always be judgement less the market value (obviously if market value is greater than judgment they make some money).

I will add there are definite companies flipping the foreclosure properties too, not just the finance companies trying to get their money back. Though this is why Disney added the Trustee Foreclosure so they can avoid having this entire online bidding hassle.

 

[dvcsince93]

Its true that a number of the deeds that these people flip are from foreclosure, however, I found one buyer that has bought and sold nearly 200 contracts over the last 5-6 years and none appeared to be a foreclosure sale.

Also, both deeds on the VGF sale in March and July were warranty deeds prep'd by *** which also differs from the typically judgment transfer. I have no idea of what was going on behind the scene but...

 

[The Jackal]

It probably had loaded points and they rented them out and took those profits and sold it. DVC can stop this ( if they have an issue with it ) and just buy all contracts that these flippers attempt to buy, since DVC ROFR process can look the buyers info up. If they had 3 years worth of points and the rented all of them at $15 a point that is almost $60,000.

 

[ljmiii]

What's the endgame?

I've spend the past week or so delving further into the question of a lawsuit. And become more and more convinced that at the end of a long and painful process DVD would likely be forced to use the terms written into Riviera's declaration docs to revert the resale restrictions. I also investigated the details of forming a Delaware LLC to buy a small resale contract that would serve as a conduit for the lawsuit and the protections it would provide should the judgement be in DVD's favor. But at the end of the day I came back to Bing Showei's excellent question.

This isn't like the 2020 points reallocation where pretty much each and every DVC member would be affected in one way or the other moving forward. The best possible outcome of a lawsuit about Riviera's resale restrictions is that DVD would be forced to make Riviera the last 'real' DVC resort and Reflections the first of the DVC2 resorts. A great boon to anyone buying Riviera, a small benefit for anyone buying resale elsewhere after 1/19/19, and a complete irreverence to everyone else.

So I would be happy to assist anyone else willing to do the heavy lifting to make this lawsuit a reality. And I thank you all for your thoughts and observations. But I will not be the one carrying the torch.

 

[dvcsince93]

Wow, looking back at a number of the existing DVC resort agreements, it seems clear that, going back to 1995, each one includes the provision that future DVC Resort agreements "shall be substantially similar to this Agreement in all material respects" until Riviera. Expressly leaving out the provision tells me that even the lawyers drafting the Riviera resort agreement don't think it is substantially similar in all material respects. Sad, its one thing to make the rules so that you can do what you want and its another to change the rules you made, when they don't suit your purpose.

Its also telling that with Riviera they changed how they calculate the corporate member fee to BVTC- instead of $1 per member as it is with all current resorts, its now a $25K flat fee. They clearly don't want to have to calculate or disclose how many people are selling their interests.

All that said, I don't think that a lawsuit would solve anything...It would, however, be interesting to find a way to make them publically address the issue- I fear that with one on one talks, the rationale would vary from person to person.

 

[mustinjourney]

The other issue that I saw in briefly looking at the recorded deeds was that the business of flipping DVC contracts is only growing. My very unscientific review of the deeds stumbled upon a number of individuals and businesses that are flipping hundreds of contracts each year. My favorite was a person who bought a grand villa, fixed week 52 at VGF (1313 points) for about $166k in March and then sold it that same July for $150K. Since the fixed week had not come and the sale price was nearly $20K less than the purchase price, something else must have financially supported the purchase/sale. (This person has flipped more than a hundred contracts over the last few years).

One guess would be that the contract was fully loaded -- the person could have rented the banked points -- and then transferred 2600 points to themselves or someone else at more than $16 a point (VGF this would not take too much work). Three years' worth of points is about 4000 points total -- at $16 per point, that yields $64000 of rental income. Subtract $20000 and you can see that they still made a decent amount of cash ($44000 -- or about 27% ROI). This doesn't take into account MFs -- which would knock out about $15000. So now we're down to $30,000 in profit (18% ROI). Still pretty damn good.

 

[HeightRequirement]

i would join the lawsuit just to see how this plays out in court. both sides have interesting arguments to make.

 

[CarolynFH]

Does anyone think that maybe DVD is planning to pull Riviera out of DVC I and put it into a newly created DVC II when Reflections is ready to sell? So that the resale buyers at both could trade into those two resorts (and future DVC II resorts) but not into the L14 DVC I resorts? Because the thing that bothers me about resale buyers not being able to trade out of their home resort is that if owners can't trade out, then I can't trade in, unless I jump in at the 7 month window before some of the less knowledgeable owners book there, and as the proportion of resale owners increases the problem will get worse.

 

[skier_pete]

Does anyone think that maybe DVD is planning to pull Riviera out of DVC I and put it into a newly created DVC II when Reflections is ready to sell? So that the resale buyers at both could trade into those two resorts (and future DVC II resorts) but not into the L14 DVC I resorts? Because the thing that bothers me about resale buyers not being able to trade out of their home resort is that if owners can't trade out, then I can't trade in, unless I jump in at the 7 month window before some of the less knowledgeable owners book there, and as the proportion of resale owners increases the problem will get worse.

I do not think they will start a DVCII. I believe they want someday to have all the resorts be separated to resale buyers. I agree with your statement that the more resale owners exist the harder it will be to trade in through the overall system. Disney does not care about if you can trade or not.

 

[CarolynFH]

I do not think they will start a DVCII. I believe they want someday to have all the resorts be separated to resale buyers. I agree with your statement that the more resale owners exist the harder it will be to trade in through the overall system. Disney does not care about if you can trade or not.

Being able to trade out has been such a large part of their sales spiel (especially since sales began for Saratoga Springs) that it's hard to believe they'll back away from promoting that as a benefit of DVC ownership - although of course we all know that they're more than willing to promote it even when we and they know that availability will be minimal to nonexistent. And of course now they can tell those prospects that if they buy direct they can trade, but if they buy resale they can't! So I guess you're right!

 

[Grumpy6264]

I do not think they will start a DVCII. I believe they want someday to have all the resorts be separated to resale buyers. I agree with your statement that the more resale owners exist the harder it will be to trade in through the overall system. Disney does not care about if you can trade or not.

I agree with this, but I would take it further and say that the more owners (resale and direct) that are in the system, the harder it is going to be go book non-home resorts. I also agree that they don't really care whether or not you can trade in or out.

If the number of owners keeps going up, competition for rooms at 7 months will only get fiercer.

DVC II would be a step towards stemming this issue, but short of a hard wall between the two groups of resorts, there isn't going to be improvement in this.

 

[DougEMG]

Give how sales reps promote members being able to book value rooms at AKV at 7 months, I feel sure they will continue promoting trading even if it becomes completely impossible because resale owners are the only owners at every resort.

 

[stewart715]

Whaaaaaat... how does this make any sense at all? Any guesses?

Thanks for all the research - always interesting the things this group comes up with.

Maybe a nifty way to get the grand villa at xmas for cheap? Currently week 52 is 1419 points, so buying the contract, booking a reservation and then selling it for $16k less would be a lot cheaper than renting those points (over $20k) and certainly cheaper than cash rack rate ($32k). Sounds like a lot of work though.

 

[katandmouse]

I've spend the past week or so delving further into the question of a lawsuit. And become more and more convinced that at the end of a long and painful process DVD would likely be forced to use the terms written into Riviera's declaration docs to revert the resale restrictions. I also investigated the details of forming a Delaware LLC to buy a small resale contract that would serve as a conduit for the lawsuit and the protections it would provide should the judgement be in DVD's favor. But at the end of the day I came back to Bing Showei's excellent question.

This isn't like the 2020 points reallocation where pretty much each and every DVC member would be affected in one way or the other moving forward. The best possible outcome of a lawsuit about Riviera's resale restrictions is that DVD would be forced to make Riviera the last 'real' DVC resort and Reflections the first of the DVC2 resorts. A great boon to anyone buying Riviera, a small benefit for anyone buying resale elsewhere after 1/19/19, and a complete irreverence to everyone else.

So I would be happy to assist anyone else willing to do the heavy lifting to make this lawsuit a reality. And I thank you all for your thoughts and observations. But I will not be the one carrying the torch.

Thank you, @ljmiii, for all your work
compiling this information and looking into this. I know this thread, along with the Multi-Site POS one and the 2020 Point Chart one, has really helped me understand what DVC is as a company, and what they seem to be doing now with all the recent changes. You’ve also helped me find documents (the resort agreements etc) that DVC does not make easily accessible to resale members, but I feel like everyone should have them and be aware.

To me it sounds like DVC is changing their operations (maybe they’ve grown too big and/or scrambling to catch up with issues like resales and booking availability) and we should continue to monitor what they do vs what’s afforded in our contracts...

For example, since 6/2008, DVD has recorded about 180K deeds while there appear to be about 35000 recorded resale deeds that do not involve a gratuitous transfer. Thus, between about 15 and 20% of the deeds recorded have been through resale. The number of resale contracts has been growing annually. However, when you look at deeds where the underlying contracts were over $10K, it appears that the percentage of resale contracts drops to about 5-6%.

I find it really interesting the increasing number of resale purchases vs direct. I wonder what % of resale deeds represent brand new members vs how many are just add-ons by existing direct members. I also wonder if the cost difference is a function of the relatively recent jump in prices for direct and resale in the last few years (what I mean is, if most of those $10k+ contracts were sold in the past 2-3 years).

Does anyone think that maybe DVD is planning to pull Riviera out of DVC I and put it into a newly created DVC II when Reflections is ready to sell? So that the resale buyers at both could trade into those two resorts (and future DVC II resorts) but not into the L14 DVC I resorts? Because the thing that bothers me about resale buyers not being able to trade out of their home resort is that if owners can't trade out, then I can't trade in, unless I jump in at the 7 month window before some of the less knowledgeable owners book there, and as the proportion of resale owners increases the problem will get worse.

I think that’s a great question to ask DVC. Maybe they don’t really care about members’ ability to trade, but if enough people are concerned, they’ll have to address it.

Personally, I think they will charge a conversion fee to give resale contracts the ability to trade out at 7 months. From what I could see, that option’s already in the new agreement, whereas pulling Riviera out and starting a new DVC2 would be more complicated. But that’s just my personal opinion, and I’d love to hear DVC’s response to this.

 

[disneynutz]

DVCMC has changed their operations, the new SVP in charge, Terri Schultz has really changed things. We see changes with each management change but she has been the worse. Seems like she has something to prove and she has her sights on moving up the Disney ladder.

Some of the contract flippers are resale brokers, they have access to tons of contracts and the seem to do it as a side business.

Bill