When you purchased your timeshare, it probably seemed like a good deal. You own part of a vacation property and can whisk your family away on vacation to the same familiar resort every year. Unfortunately, though, many timeshare owners find that over time, the arrangement becomes increasingly difficult to afford.
If you purchased a deeded timeshare contract, you most likely had to take out a mortgage to pay for your portion of the property. These mortgages are typically structured as 10-year loans, and they often come with excessive interest rates ranging from 14-18%, with some as high as 20%. In addition, you’ll be required to pay annual maintenance fees, which currently average $1,000 and rise at approximately 4-5% each year. On average a timeshare can cost you a whopping $6,000 a year. Many timeshare owners find that after a few years, they’re no longer able to afford these exorbitant fees. Plus, the economic uncertainty ushered in by COVID-19 has led to layoffs, pay cuts and furloughs, creating additional stress for those who can no longer afford their timeshare.
As a result, many people simply stop paying their timeshare mortgage and annual maintenance fees in the hope that the resort will foreclose on the property. The problem with this? A timeshare foreclosure can damage your credit and put you in a high-risk borrower category, making it difficult to qualify for loans in the future.
Before letting your timeshare go into foreclosure, it’s important to understand the harsh consequences you’ll face as a result of this action. Here’s what you need to know about timeshare foreclosures and your alternative options.
The mortgages for timeshares are generally held by the resort developer, not a traditional bank. However, these loans function much like a standard real estate loan. As part of this agreement, the resort developer retains the right to foreclose on your timeshare if you fail to make the payments stated in the loan agreement. In addition, if you fail to remain current on the maintenance fees and other payments associated with your timeshare, you may face foreclosure.
The foreclosure process for timeshares is similar to that of a residential foreclosure. Oftentimes, the property will be sold at auction to the highest bidder. If the foreclosure sale doesn’t recoup the full amount you owe on the mortgage, the developer may be able to seek a deficiency judgment against you to recover the remaining balance on your loan. Since the laws governing deficiency judgments vary by state, the location of your timeshare interests will determine if developer can seek to recover money from you for a deficiency judgment.
Here’s what else you need to know about the timeshare foreclosure process:
Even if you’re current on your timeshare mortgage payments, you could be subject to foreclosure should you fall behind on other costs like maintenance fees, special assessments or other fees if you have a “deeded” timeshare. When you have a deeded timeshare, you own a portion of the real property in the unit that’s shared by other owners. If you aren’t paying your portion of the fees, the timeshare HOA could potentially place a lien on your share of ownership. Sometimes, these liens are recorded with the county. To go through a judicial foreclosure process, the association will need to file a lawsuit against the timeshare owner and obtain judgment from the court that allows them to sell the timeshare in satisfaction of the lien.
If you go through the judicial foreclosure process, the lender will go the route of a court proceeding and file a foreclosure. This process allows the lender to sell the owner’s share in the property to recoup losses. In this instance, you not only lose the interest you have in the timeshare property, but you’ll also have a foreclosure judgment on your credit report, much like you would if you were to foreclose on your home.
Whether you go through a judicial or non-judicial foreclosure process can depend on where you own a timeshare, as some jurisdictions allow foreclosures to happen outside a formal court system. In general, a non-judicial foreclosure process happens outside of a court and must follow state specific rules for the non-judicial foreclosure to be effective. Typically, the lender must send the timeshare owner a notice of default that they’ve fallen behind on payments.
Foreclosing on a timeshare can negatively impact your financial situation in a number of ways. Not only can it ding your credit, making it difficult to qualify for low interest rates on loans in the future, but it can also mean you’ll owe more on your taxes and see an increase in your insurance premiums. Here’s a look at the lasting consequences a timeshare foreclosure can have on your financial situation:
Your credit score is an important three-digit number that informs lenders how well you pay your bills. A foreclosure can raise a red flag to lenders who are evaluating your creditworthiness in the future, and having one of these defaults in your credit history can have a long-lasting and devastating impact on your credit score. In fact, a timeshare foreclosure can sink your credit score by 130 to 170 points. A drop of 170 points is significant enough that it could cause your credit score to sink from the “good” category to the “very poor” category, according to Experian, one of the three major credit bureaus. How much your credit is affected is based on what else you have in your credit file cushioning your credit score (i.e., on-time payments for other installment loans like a residential mortgage and auto loan). Foreclosures can impact your score for seven years, making it difficult to get good rates on borrowed money or qualify for loans altogether.
If the resort developer or lender writes off the deficiency balance for the amount you owed on your contract, they may send you a 1099-C Cancellation of Debt form. You’ll need to consult with your accountant or a tax attorney, but it’s possible you’ll need to include this amount as taxable income, which will affect the amount that you owe to the Internal Revenue Service (IRS).
A high credit score that’s in the “very good” or “exceptional” range will nab you better interest rates on everything from a mortgage to a car loan to a revolving line of credit on a credit card. But if your credit takes a triple-digit hit, you’ll be subject to paying higher interest rates on loans. Generally, a credit score of 760 or higher will get you the absolute best interest rate on a home loan. But let’s say your credit score dropped and instead of getting, say, a competitive 3% interest rate on a 30-year-fixed mortgage for a $300,000 mortgage, you’re now qualifying for a 4.5% interest rate. You’ll be paying an extra $92,000 over the life of the loan in interest.
In a worst-case-scenario, underwriters may decline to extend loans to you altogether if they see a foreclosure on your credit report because it signals that you didn’t fulfill your debt obligations.
Did you know that most car insurance companies look at your credit history, in addition to things like your accident history and driving record? Many U.S. auto insurance companies layer in credit-based insurance scores to help determine risk when they draw up quotes for you. This practice is banned if you live in some states, including Massachusetts, Hawaii and California. A lower score could translate to higher rates, costing you hundreds of extra dollars in car insurance premiums over the years.
If you’ve reached the point where you can’t make these payments, you may be looking for a way out. Unfortunately, timeshare contracts are extremely difficult to terminate.
One option to avoiding foreclosure is to stick out your contract and continue paying the bills.
You could potentially sell your timeshare, but this usually isn’t an option since timeshares typically don’t have resale value. You could also try to negotiate on your own with the resort, but most will charge you hefty termination fees. That’s why it’s important to work with a reputable company like Timeshare Termination Team, which aims to provide the safest, most trusted timeshare termination experience. Our You First Approach™ helps clients achieve a safe, legal and permanent timeshare contract exit.
At Timeshare Termination Team, we’ve helped hundreds of people break free of the financial burdens associated with timeshare ownership. We understand the stress associated with your situation, and we’ll work with you to devise a customized strategy that addresses your unique needs and goals.
With a team of expert advisors and in-house attorneys, Timeshare Termination Team aims to provide the safest, most trusted timeshare termination experience. Our You First Approach™ helps clients achieve a safe, legal and permanent timeshare contract exit. The first step is to contact us today for a free consultation so that you exit your timeshare legally and without jeopardizing your credit score.
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