Thursday, March 19, 2009

Ten to One ~ it's probably an understatement

If Vacation Lodging Service (VLS) licensees and real estate brokers are under the same supervisory commission, and if one reason for this is because both types of businesses (overnight rental company and a real estate office) are holding, in trust, as fiduciaries, other peoples' money ~ then why should ONE of these two not be afraid of the big bad wolf (Tennessee Real Estate Commission, or also fearfully known as TREC)?

Consider this:   Yes, there was a time in the real estate business when there weren't enough title companies to go around (pre-1990's) and most Tennessee real estate brokers did hold all the earnest money usually given to the listing broker to hold on behalf of usually the buyer.  

Brokers did draw the closing documents and do their own closings and dispersed large sums of money from their escrow accounts (even if the sale was funded by a bank!).  If you take that community standard and couple it with the fact that, during that time period, almost all earnest money deposits were at least 10% of the purchase price (pre-buyer agency) ~ that was a dang lot of money lying around in escrow accounts in the State of Tennessee.

However, Tennessee real estate brokers had the fear of TREC instilled in their hearts.  This was before the internet, so it must have just been a whisper campaign that TREC would come kill you if your escrow was out of balance EVEN ONE PENNY!  You can take this to mean that brokers felt that TREC would have them killed over a penny.  

At the time, the TREC folks must have been pig farmers and concrete plant owners, because brokers really were skeered.  These days, most real estate brokers want the title companies to hold the earnest money deposit on a real estate transaction. 

But, it begs a question:  Why haven't VLS licensees been afraid of being killed over a penny?  You say "well, they USED to be" and that is true ~ but why haven't they been respectful of other peoples' money and fearful of TREC since 2003?

To put it in perspective for you, 
  • if there are ONE million dollars sitting in real estate brokers' escrows, right now, on behalf of people from all over America anticipating the closing of their real estate purchase in Tennessee, 
  • there should be TEN million (or way more)  sitting in escrow with the Vacation Lodging Service licensees.
This is money that should be sitting in VLS escrow coffers, every penny earmarked in some shape, form or fashion as
  • guest advanced deposits,
  • money due to owners for checked-out rentals,
  • money due to the pest control guy and the rental company as commissions earned,
  • money collected from the guests and owed to the tax authorities.
So, for every One million of real earnest money being held in escrow accounts around Tennessee, there should be TEN million of VLS's guest, owner, tax, and vendor peoples' money.

 And how much is there really being held in Tennessee VLS escrow accounts that really belongs to someone else?  I would be suprised if it was more than 50 cents.

Wednesday, March 18, 2009

My black eye.

Sometimes you feel like you get a black eye and a bloody lip when you work at an overnight rental company.  Guests can be brutal; owners can be, well, owners (owners: people with enough time on their hands to watch every step you make).  

The pseudo black eye as described, above, can be dealt with and managed to a degree.  Good thing, too!  And, it's good that the bad days are balanced out by the days when the guests love you and the owners praise you.

However, the black eye that a shot and a beer won't cure is the  reputation that Tennessee is getting around the rest of the nation.  Absentee property owners have been ripped off by so many property managers in this mecca of opulant scenery and lying bastard property managers, that they are starting to talk about it amongst themselves.

They're not whispering, either.  They're yelling.  

Some property owners have lost their life savings.  Some have lost property ~ and not because of their overnight rental sitting empty, either.  Owners have not been paid for actual rentals in their property.  This means they had to pay the utilities for a reservation that they were never paid for.  KaPOW.

Monday, March 16, 2009

The Robber Baron State

Calling All Criminals: Come on up, down, or over to Tennessee! Are you currently running a Rob Peter To Pay Paul operation? Hey, that's no problem, here.

We've got the 'blurb'. The 'paragraph'. The 'notice to the public in a timely manner'. The "Dear Guest ~ In accordance with TCA-62-13-104(D)(i), your monies are going into my operating account, blahblahblah..."

When a property manager receives money from a guest in anticipation of an upcoming rental, that guest believes that they will get full credit for every penny paid on their behalf.

What does the Guest really have? Oh yeah, a belief.

When an owner places their property with a licensed (or license poseur) vacation rental manager, they trust the manager to diligently turn over all monies due to them from that vacation rental.

What does the Owner have? A belief ~ and a little more. The Owner and the Manager have a fiduciary relationship. It was created when they all signed an agreement for the Manager to rent the Owner's property.

But some Managers act like Robber Barons. They think it's OK to use the Guests' deposits and the Owners' net profits any way they see fit, as long as they have enough to cover the Guests' refunds and the Owners' checks :::::::drum roll:::::: when the time comes.

This concept of trust and accounting due an Owner from a Manager was re-affirmed in Tennessee by a judge in 1998 when Vacation Lodging Service locations were moved from Consumer Affairs to the Tennessee Real Estate Commission. The VLS licensees were required to keep the guests' and owners' money in an audited escrow account. Of course, that was watered down when it passed without the bonding requirement. But at least it passed.

Things seemed to rock along OK ~ until along came the (D)(i) insertion in 2003. Ah, the Barons.

Saturday, March 14, 2009

Company B was 'B' for BAD

There was once a super nice, ethical man named Don Shults. Don was a hard worker, and I say 'was' because, God rest his soul,  he worked himself right into the ground. Now, before Don went to meet his ancestors, he sold the rental company he had built from the ground UP. Great Smoky Mountain Vacation Rentals.

Don didn't realize it, but in July 1999 he sold his company to a financial rapist. The Financial Rapist ran wild with the company's escrow money until around March 2001.   Finally, enough of the owners were missing enough money and were collectively not feelin' the love e-nough that ~ they complained.

But it wasn't until January 2007 that justice was served and restitution ordered for that particular fiasco.Click HERE to read the sordid court document that details the trial, the witnesses, the injured, and the verdict.

However, as justice was taking it's sweet time - some how - some OTHER people were running the show at Great Smoky Mountain Vacation Rentals. We would have to check with the owners on that program at that time to know if the OTHER people were doing a good job with their fiduciary duties as a property manager. It's almost moot, however, because the OTHER people sold it to some MORE people. The name of the 'some MORE people' is Roy Duane Wilhite. 

So, a person named Duane Wihite is running the now-beleagured property management company known as Great Smoky Mountains CABIN Rentals.  It did deteriorate to the same tired  story:

Mr. Wilhite
  • fanfarelessly closed his doors on October 1, 2008;
  • owed his owners back rent money;
  • was seemingly unconcerned for the guests who had paid deposits, much less the guests who were were completely paid up in advance;
  • filed Chapter 7 Bankruptcy in November 2008.
What was Mr. Wilhite's problem?  We may never know the WHY, but we can easily deduce the HOW.   What if it was Drunken Uncle Ponzi?  

You know how Drunken Uncle Ponzi comes around and spends all the money that's EARMARKED,  so the poor company owner has to have more reservations in order to get more advance deposits so he can fund the owner, vendor and tax checks that USED to be funded ~ but D.U.P. struck, again.  It really hurts when half of your inventory is pulled in one fell swoop commensurately reducing your dipping ability.

Friday, March 13, 2009

Company A: swallowed up

Company A was 'A' for awesome!

But how could the Owner, a kind, gentle human ~ hardworking, ethical, and smart ~ have known what would happen to the new endeavor, along with everything else this Ethical Person had acquired in their lifetime of physical toil?

However, when the rubber met the road and the company closed it's doors, it was a simple matter to write checks out of escrow for

  • the balances due to owners, 
  • amounts due to taxes, 
  • and one check to the company taking the units with the respective advance bookings including the corresponding advance deposits.

Props to Company A. Props to the Owner and the meticulous bookkeeper behind the smooth closing-out of Company A's books.

Wednesday, March 11, 2009

A tale of two woes

The next two posts will detail two American Dream working-man stories. One has a saddish, but noble, ending and one ended in a tempest.

One company shall remain anonymous out of respect for their conduct and aplomb; the other shall be blasted all over these pages as more exposure to their dastardly deeds. Yes, they will be named ~ but as you're reading, please think about the many other companies that YOU know are behaving the same way.

They just haven't been exposed.

Sunday, March 8, 2009

The Pros of it and the Cons of it

Reasons to operate your overnight rental business in an ESCROW fashion (even though the law in Tennessee doesn't requre it):

1) You can sleep at night, knowing that if you wake up the next morning and decide not to be in the rental business, anymore, you know exactly who gets what so you can get OUT;

2) The guests, owners and the tax people can sleep better at night, knowing you are not using THEIR money to pay your employees or furnish your own personal cabins.

Reasons NOT to operate your overnight rental business in an ESCROW fashion (because the law in Tennessee allows it):

1) You can use the advance deposits to pay your payroll, or other office operating expenses;

2) You can use the money people think you are holding for fun things, like fancy cars, furniture, etc., etc.

What does it matter? If more people are going to make more reservations and give you more advance deposits ~ you can use that money to pay the people you owe, now.

Oh, wait... that sounds like a Ponzi scheme.