Can You Default on a Timeshare? |
Consequences of a Timeshare Foreclosure
The dream of many Americans is to purchase a vacation timeshare. However, most major banks and mortgage companies do not provide loans for timeshares. Therefore, it is common for people to finance their timeshare purchase through a mortgage from the resort developer. What occurs when you're unable to continue paying for your timeshare?
You'll probably be foreclosed if you don't make your timeshare mortgage payments or keep up with the assessments. Timeshare foreclosures can have consequences similar to residential foreclosures, such as a lower credit score or a deficient judgment.
Can a Timeshare be Foreclosed On?
Yes. When you take out a mortgage loan to buy a timeshare, you sign an agreement to make monthly payments on the property until the debt is paid off. It is essential to keep up with your timeshare mortgage payments and assessments, just as you would with any other mortgage. Suppose you stop making payments on your timeshare loan. In that case, you will eventually go through foreclosure, as a timeshare is seen as real property like a house (other owners of the timeshare property are not affected by the foreclosure of your interest in the property). If you stop paying your maintenance fees or additional related costs, you may still face foreclosure even after you have paid off your timeshare loan. Not making payments on your timeshare can have severe consequences, including damaging your credit.
What Happens If You Default on a Timeshare Loan
Suppose you don't keep up with payments on a deeded timeshare. In that case, the developer could demand that you catch up, accelerate the loan (making the whole amount due immediately), or start a foreclosure process.
Can I Be Sued for Not Paying for My Timeshare?
In order to maintain the benefits of owning a timeshare, you must agree to pay an annual maintenance fee, additional fees, and your loan payment, if applicable. If you don't pay your timeshare fees, the management company will take legal action against you. The company's legal action will depend on the type of timeshare you own and whether you took out a mortgage loan to pay for it.
Getting Sued in Civil Court
For timeshares that you have the right to use, your timeshare management company will start calling and sending demands for payment if you are late. This is also true for deeded timeshares if you don't pay the required upkeep fees. If you don't pay your overdue balance, we will take one of two actions. Your bill could be forwarded to a collection agency if you don't pay. The company could also sue you in civil court to get a judgment. If the court rules against you, the management company may withhold your wages or take money out of your bank account to get what you owe.
Will a Timeshare Foreclosure Hurt My Credit?
One thing that lenders look at when considering whether to give you a loan is your credit score. A foreclosure on your timeshare could hurt your credit score. However, not all timeshare lenders and companies immediately report late or missed payments—or even foreclosure—to credit agencies. But this doesn't mean the foreclosure will never appear on your credit report. Foreclosures are part of the public record, and credit reporting bureaus can access this information.
If you go through a foreclosure, your credit score will drop significantly. This is because you will have missed payments on your loan, which will be reported to the credit agencies. The drop would be more severe if you had a high credit score before the foreclosure. However, the impact will be less noticeable if you already have a low credit score.
Late Payments Might Hurt Your Credit
If you're behind on your timeshare payments, the developer may report this to the credit bureaus, which could negatively impact your credit score. This could make it more challenging to qualify for a loan. However, not all developers report late payments, and if the debt is turned over to a collection agency, they may be the ones to report it to the credit bureau. So, if you're worried about your credit score, it's best to stay updated on your payments.
How a Timeshare Foreclosure Might Hurt Your Credit
A judicial foreclosure will result in a judgment against you that becomes a part of the public record. It will appear on your credit reports, while a nonjudicial foreclosure will not. Either way, the foreclosure documents are public records, and the credit reporting bureaus will find out about them, negatively impacting your credit score.
Understanding the Process of Timeshare Foreclosure
1. Timeshare Foreclosure: The Legal Documents
The foreclosure process in the United States allows the lender to take back ownership of the property used to secure the loan. The lender can take your timeshare property if you cannot repay your loan.
Most states allow lenders to foreclose on a property without going to court, a process known as nonjudicial foreclosure. In a nonjudicial foreclosure, the resort will usually have to send you a notice of default that includes your name, the property, and the amount you have not paid on your loan.
Most laws also require notice to be given to the public in the form of a recorded document at the location of the timeshare property. This makes it even less likely that the property will be sold because potential buyers don't want to purchase a property on which the lender is foreclosing. Even if you could convince someone to buy the property, it would be worth almost nothing on the market.
2. What If You Want to Get Rid of Your Timeshare Anyway?
It's no secret that most timeshare owners are unhappy with their purchases. Timeshares are often seen as a negative investment because of the high maintenance fees, special assessments, and restrictive rules about vacationing. After receiving a foreclosure notice, some homeowners realize that getting rid of their homes may not be such a bad idea after all.
The foreclosure process can continue even after a sale, which can harm homeowners if the mortgage company hasn't recouped all the money it loaned. Unpaid money can lead to many legal and financial problems.
Why You Want to Avoid a Timeshare Foreclosure
A timeshare foreclosure can have severe financial repercussions, similar to a residential foreclosure. A timeshare foreclosure will go on your credit history and can negatively affect your finances for a long time. There are several reasons why you should avoid foreclosure on your timeshare and why you should consider other options first:
Foreclosing on a timeshare can lower your credit score significantly. If you default on your timeshare payments, your credit score will be negatively impacted for seven years. Any collection efforts that the timeshare company makes will also be reflected on your credit report.
A timeshare foreclosure could also result in an inability to obtain another type of mortgage for up to seven years in some (but not all) cases.
Good Options for People Who Want to Stop Paying
A good timeshare exit company can help you cancel your timeshare contract with minimal cost and impact on your credit score.
Option 1 – Selling Your Timeshare – You can find a buyer on the secondary market for your timeshare.
Option 2 – Handing the Timeshare Back to the Developer – Some timeshare companies are more understanding than others when working with owners on delinquent accounts. If you have the proper conversation with them, you can return ownership without dealing with a lot of mess and expenses.
Your timeshare company will likely not take action for an extended period of time. Yes, the company will continue to try and get paid because that is their source of income. However, if you're late on payments for a few months, they can begin the process of taking your timeshare away.
Timeshare companies in Florida will foreclose on your timeshare if you default on your payments. Foreclosure allows the bank to take your property and remove your name from it. They can then sell it at auction or to a new buyer who they pressure into a sales presentation.
Option 3 – Donating Your Timeshare – One way to get rid of your timeshare is to donate it to a charity. This can give you a tax write-off and rid you of the timeshare. Several charities are willing to take timeshare donations and will handle all of the logistics associated with selling it.
Exit Your Timeshare the Right Way
Timeshare foreclosure is a very stressful, costly, and complicated way of getting rid of a timeshare you no longer want. Even though it may technically get rid of the unit, it causes so many legal and financial problems that it is often seen as a wasteful and destructive solution, similar to curing the disease by killing the patient.
Wesley Financial Group can help you avoid many difficulties associated with timeshares, but not all exit companies are the same. Be careful of companies encouraging you to stop paying fees, which will lead to foreclosure proceedings. Wesley Financial Group is committed to helping you explore legal, ethical exit options. Contact us today for a free consultation and case evaluation.