Critics question realtor Wayne Stroman's timeshare resale business

Thomas was a Stroman employee for six years. He is reluctant to talk about his days working there, saying it was "a good paying job and the people were great." When asked whether there was an emphasis at Stroman on signing people up and collecting up-front fees, he says, "Yeah, I would say there is."

Over the past 20 years, several timeshare scams operating around Houston have been successfully prosecuted. One of the more notable was in 1995 when agents shut down the real estate marketing firm American Land Liquidators. The courts decided that the company and its employees had fleeced more than $9 million from 27,000 property owners over the course of nearly three years by misrepresenting to sellers the number of buyers available and the likelihood of sales.

So far, the Texas Attorney General has not filed in court against Stroman Realty. Attorney General spokeswoman Lauri Saathoff says her office has received numerous complaints concerning Stroman, but would not confirm whether there is or has ever been an investigation into the company.

However, other states including Illinois, Arizona, Florida and California have attempted to protect their residents and stop Stroman from soliciting and charging up-front fees without proper state licensing.

Illinois and Arizona have both issued Stroman cease-and-desist orders to prevent the company from operating in their states. Stroman has sued both states to try to continue his business. In Illinois, the case was dismissed from federal court until the state licensing agency has a chance to do its job. In the Arizona case, Stroman's lawsuit was dismissed and Stroman is now appealing in the U.S. Court of Appeals for the 5th Circuit.

In 1998, Stroman sued Florida and California state officials in the U.S. District Court in the Southern District of Texas to lift cease-and-desist orders both states had issued against Stroman. Florida and California officials claimed they were attempting to get Stroman to comply with their licensing, fee, disclosure and advertising rules when the company deals with consumers who are their residents. They argued that they are required to regulate the timeshare resales to protect their residents, specifically from abusive business practices and fraudulent brokers. In Florida, up-front fees are illegal, and California strictly regulates their use.

In his 2005 opinion, U.S. District Judge Lynn Hughes sided with Stroman.

On the topic of up-front fees, "Stroman's clients are not being duped," Hughes wrote. Sellers who pay the up-front fee "are told," wrote Hughes, that the fee is nonrefundable and that no guarantee is given as to how fast and for how much the timeshare will sell.

It is true that Stroman customers sign paperwork stating as much; however, the court did not address any discrepancies between what salespeople may tell customers over the phone and the time at which their credit cards are apparently charged, versus what they actually sign.

"That is what I call judiciary in a bubble," says Parsons. "Yes, the customers have some burden as well, and I'm sorry, but these consumers didn't do their homework or they wouldn't have gone to Stroman...but these (judges) are people who don't deal in this arena and have never been victims. They're sitting there, pro-business, and with a lack of empathy."

During the case, some interesting facts came to light.

Up-front fees account for 94 percent of Stroman Realty's income in its timeshare business, according to Hughes's opinion. In 1997, the company collected more than 18,000 fees and sold 680 timeshares, or 3.7 percent. Stroman spent about $3.5 million, or roughly 37 percent of its income that year, on advertising and on its computer system that lists properties on its Web site.

One of the chief complaints customers have had over the years is that they feel their up-front advertising fee has not gone toward the promotion of their property as promised. Stroman says it spends millions of dollars advertising in publications such as USA Today, the New York Times and the Washington Post. Consumers, however, complain they have been duped because the ads are for the promotion of Stroman Realty's listing service, not the individual timeshare properties.

The court broke down Stroman's advertising expenditures, saying of the approximately $3.5 million it spent on advertising, $3 million went toward promotion, while more than $450,000 went toward maintaining Stroman's computer system, which houses the online database of all timeshare listings.

Stroman manager Billy Stevenson justifies Stroman's promotion tactics, saying, "If I advertise a great Colorado ski week and someone wants to buy on the beach in Florida, they're not going to call. Generic advertising gets you the broadest reach of potential customers."

Hughes also ruled that Stroman Realty does not need to be licensed in other states because it is already licensed in Texas, reasoning that licensing requirements across the country are comparable. In addition, by being licensed in Texas, Stroman is subject to Texas laws and enforcement. Florida and California are appealing the decision, and a total of 14 other states (Alaska, Arizona, Illinois, Iowa, Kansas, Kentucky, Massachusetts, Nevada, Oklahoma, South Carolina, Utah, Vermont, Virginia and Wisconsin) plus Puerto Rico have jumped onboard, filing amicus briefs. In essence, though, Hughes said that the states and consumers have a Texas forum for claims under Texas law.