How Timeshare Foreclosures Work
The maintenance fees are due. The special assessment arrived unexpectedly. For many timeshare owners, the financial burden can become overwhelming. What happens if you just can’t pay? The answer is foreclosure. It’s a serious process, and understanding how it works is the first step to protecting yourself.
The exact process depends on two key factors: the type of ownership you have and the laws of the state where your timeshare is located. Let’s break it down.
First, What Kind of Timeshare Do You Own?
The type of ownership you have directly impacts how a foreclosure can proceed. There are two main categories:
- Deeded Ownership: With this type, you own a small piece of a physical property. It is a real estate interest, much like owning a tiny slice of a condo. You have a deed that is recorded with the county.
- Points-Based or Right-to-Use: This is more like a long-term lease or a club membership. You have the right to use a property for a certain amount of time each year, but you don’t own any bricks or mortar. This is typically considered personal property, not real estate.
The Trigger: Falling Behind on Fees
Foreclosure doesn’t just happen because you stop paying a mortgage. It can be triggered by falling behind on any of the recurring costs associated with your timeshare. These include:
- Annual Maintenance Fees: These fees cover the day-to-day operations of the resort, like landscaping, security, and pool maintenance. You must pay them even if you don’t use your timeshare that year.
- Special Assessments: These are one-time fees charged to all owners for major repairs or improvements, like a new roof or resurfacing the tennis courts.
- Taxes and Utilities: Your share of property taxes and the cost of utilities used during your stay.
If you become delinquent on these payments, the timeshare association will take action.
The First Step: The Timeshare Lien
Before a foreclosure can happen, the association will place a lien on your timeshare interest. Think of a lien as a legal claim against your property. It’s a public notice that says you owe money, and it serves as collateral for the debt. This lien gives the association the legal right to seize and sell your timeshare to satisfy the debt.
The Two Main Foreclosure Paths
Once a lien is in place, the association can move to foreclose. They have two primary methods to do this, which are dictated by state law and your original contract.
Judicial Foreclosure: The Court Route
This process involves the court system. It is more formal and generally takes longer.
- The Lawsuit is Filed: The timeshare association files a lawsuit against you in court.
- Court Hearings: A judge hears the case to determine if the foreclosure is justified. You have an opportunity to present your side.
- The Judgment: If the judge rules in the association’s favor, they issue a judgment that allows the timeshare to be sold to pay off the debt.
Key takeaway: The judicial process can be lengthy, often lasting many months or even years. This gives you more time to respond or negotiate, but it also prolongs the uncertainty.
Non-Judicial Foreclosure: The Administrative Route
This process happens outside of the courtroom. It is faster and less expensive for the association.
- Notice of Default: The association follows a strict set of steps, which usually begins with sending you a formal notice of default. This letter informs you of your delinquency and their intent to sell the property.
- Waiting Period: State law requires a specific waiting period, giving you a final chance to pay the debt and stop the process.
- The Sale: If the debt is not paid, the timeshare is sold at a public auction, often to the highest bidder.
Key takeaway: The non-judicial process is much quicker. It can often be completed in just a few months, giving you very little time to react.
How Your Ownership Type Impacts Foreclosure
So, how does your ownership type affect this process?
- If you have a deeded timeshare, the foreclosure process described above applies directly. The lien is placed on your real estate deed, and the foreclosure process is used to take that deed away and sell it.
- If you have a points-based or right-to-use membership, the process is often called “repossession” or “termination” rather than foreclosure. However, the result is the same. Your contract will have clauses that state your membership can be canceled for nonpayment. The association can terminate your rights and bar you from using the system.
In either scenario, the consequences are severe. A foreclosure or repossession will cause significant damage to your credit score and can stay on your credit report for seven years. Furthermore, if the sale of your timeshare doesn’t cover the full amount you owe, the association can sue you for the remaining balance in a “deficiency judgment.”
A timeshare foreclosure is a legal and financial event you should strive to avoid at all costs. If you are struggling with payments and worried about foreclosure, seeking professional help early can provide options you may not know you have.
