What Happens in a Timeshare Foreclosure?

When you buy a house, condominium, or other piece of real estate, you usually don’t have the full amount of money in your pocket that you need to complete the purchase. The financial services industry answered this common problem with one of its most well-known products: the mortgage. (In some states, there is a similar type of instrument called a deed of trust.)

Timeshares aren’t really the same kind of property interests as houses or condos. But they are still expensive, and many people need mortgages to pay for them. Most banks, however, don’t want to lend money to purchase timeshares. Lenders know the issues that arise with timeshares and often consider them too risky for a loan.

That’s where resort developers come in, offering their own financing in the form of mortgages and deeds of trust on the units they sell to timeshare owners. While this may seem like a wonderful service, it’s really not. What it does is give the resort another tool to control your behavior and force you to pay sky-high interest, plus the resort’s ever-increasing fees.

If you lapse in paying your mortgage or fees to the company that holds your mortgage, they can foreclose on your property interest. Unfortunately, this is much more damaging than just taking back the property. In this article, we’ll look at the foreclosure process, what it means for you, and why it’s a bad idea to ever let a timeshare company foreclose.

The Timeshare Foreclosure Process

Foreclosure processes are governed by the law of the state where your property is located. Therefore, if your timeshare is in Las Vegas, Nevada law will apply. If the unit is in Oahu, you’ll need to look at Hawaii’s foreclosure statutes. In the event that your deeded timeshare interest is in a foreign country (like Mexico), you’ll need to get familiar with that country’s laws.

1. Timeshare Foreclosure: The Legal Documents

In the United States, residential foreclosure is a legal proceeding by which the mortgagee (here, the resort) reclaims the property interest that secured their timeshare loan to you. In plain language, it means that if they can’t get you to repay your loan, they will legally take your timeshare property instead. 

In some states, they have to go to court to do this, but the majority allow what is known as non-judicial foreclosure. In a non-judicial foreclosure, the resort will typically have to send you a notice of default naming you, the property, and the amount that you have failed to pay on your loan. 

Most laws also require this notice to be put in the public record where your timeshare property is located. This makes resale even less likely than it would normally be because nobody wants to buy property on which the lender is foreclosing. Even if you were to somehow get a buyer on board, the resale value of the property would be practically zero.

Assuming you don’t pay your mortgage after getting the notice of default, the company will then set a foreclosure sale in compliance with state law and send you a notice of sale. After that, you may still be able to save the property, but your time is very limited to do so. 

The sale, which is open to the public, will be an auction at which the highest bidder takes your property, even if that amount is below what you owe on your mortgage. Often, the company with the mortgage (here, the resort) will make a “credit bid” where they bid the amount you owe on the mortgage and take the property for themselves.

2. But What If You Want to Get Rid of Your Timeshare Anyway?

It’s no secret that most timeshare owners aren’t happy with their purchase. Constantly increasing maintenance fees, special assessments, and restrictive rules about when you can vacation often make timeshares an unrewarding money pit for many people. Then, they get a foreclosure notice and think, “Maybe being rid of this thing won’t be so bad! What can it hurt?”

It can hurt a lot, unfortunately. The foreclosure process doesn’t stop just because there has been a sale, especially if the mortgage company hasn’t gotten back all the money it loaned you. That unpaid money can cause you a lot of legal and financial headaches.

Consequences of Timeshare Foreclosure

When you are the target of a foreclosure, you stand to lose a lot more than just your property. Remember, the purpose of foreclosure is for the company that lent you money to get its money back, as much as possible. If the company doesn’t get that, it can legally come after you until it gets repaid in full.

Let’s look at a fairly common example in non-judicial foreclosures. Let’s say the company foreclosed on a timeshare that you had in Las Vegas, Nevada. In order to purchase that unit, you borrowed $30,000. At the time of foreclosure, you had paid back $5,000 of principal, meaning that you still owed $25,000 on the loan.

The company obtains the property on a credit bid, but an appraisal determines that it was worth only $2,000 on the day of the sale. The timeshare company can now sue you for a deficiency judgment to get its last $23,000 from you. This would be an actual lawsuit in court, and your costs would include attorney fees. You could even end up paying court costs for the company.

Not all states allow deficiency judgments. But if a timeshare company ends up getting a deficiency judgment, it can take the money from you. If you don’t have the money, they may be able to put a lien on your other property (like your home or property you own for your business) or even garnish your wages to get their money back.

And if the deficiency judgment isn’t bad enough, you should also consider that a timeshare foreclosure will wreck your credit. It will cause your credit score to plummet, and it could take years to recover from that. 

The damage to your credit history could affect any other loans for which you apply. It might even tank credit card applications. Any credit you could get would certainly come with much higher interest rates. It could also affect whether you get a job in the future, if potential employers run credit reports.

Alternatives to Timeshare Foreclosure

At this point, you might think you have only two options: keep paying for an expensive timeshare you don’t want, or create the massive legal and financial problems that come with a timeshare foreclosure. But don’t despair! You do have other options.

Centerstone Group has a collective 30 years of experience dealing with the issues that are endemic to the timeshare industry. They have a toolbox filled with proprietary methods for legally and ethically getting you out of your timeshare contract. 

Maybe you need a pressure campaign against your timeshare resort to convince them to let you out of your unit. Or, if foreclosure is a possibility, Centerstone Group can connect you with experienced law firms or help negotiate a deed in lieu of foreclosure (i.e., convince the resort to just accept your deeded interest in the property).

Centerstone Group is a BBB-accredited business with numerous reviews showing that they get results. Whether you are a new timeshare owner regretting your recent purchase or a long-time owner that is sick of the costs and inconvenience, give Centerstone Group the chance to help you with your problems.

Exit Your Timeshare the Right Way

Timeshare foreclosure is a stressful, expensive, and messy way to get out of a timeshare you don’t want anymore. Though it may technically get you out of the unit, it causes so many legal and financial problems that it is most often a wasteful and destructive solution, akin to curing the disease by killing the patient.

Using a timeshare exit company can spare you many of these difficulties, but not all exit companies are equal. Beware of companies that encourage you to stop paying fees, which will lead you to foreclosure proceedings. Centerstone Group is committed to helping you explore legal, ethical exit options. Contact us today for a free consultation and case evaluation.