Bankruptcy

Timeshares Overview

By Amy Loftsgordon, Attorney
Before you buy a timeshare, learn how they work.

Timeshare sellers are notorious for offering gifts, free vacations, and other perks to get you to sit through a sales pitch. If you attend a timeshare presentation, you’ll probably hear about how much money you can save over the years by buying a timeshare instead of paying for hotel rooms. Plus, a timeshare requires less maintenance than owning a vacation home and you get to go to an exciting place every year. Sounds pretty good, right? However, the salesperson probably won’t mention that timeshare deals can be complicated, nor how hard it is to unload a timeshare if you later want to sell it. You’re also not likely to hear that annual maintenance fees (which are already expensive) often go up, or that you could lose your timeshare to a foreclosure if you can’t pay the fees. Understanding exactly how timeshares work should help you decide whether to buy one.

“Deeded” and “Right to Use” Timeshares

A timeshare is a way for a many people to share the ownership or use of a property. The two main types of timeshare interests are “deeded” and “right to use.”

Deeded Timeshares

With a deeded timeshare, you actually own a percentage of the timeshare unit—along with other people who purchased interests in that unit. You receive a deed describing your ownership rights and your interest is legally considered real property. You can sell, rent, transfer, or bequeath it—subject to any restrictions contained in a separate document called a Declaration of Covenants, Conditions, and Restrictions (CC&Rs). The CC&Rs describe the requirements and restrictions on how timeshare owners use the property.

Right to Use Timeshares

If you buy a right-to-use timeshare interest, you aren’t buying an ownership interest in the property. Instead, you are buying the right to use the property. So, you won’t get a legal deed. Usually, right-to-use timeshares expire after a specific number of years, like 20 or 99 years. At the end of this period, your right to use the property ends. Right-to-use timeshares are often sold in places where the government prohibits or limits foreign ownership of real estate. For example, right-to-use timeshares are common in Mexico, where the law prevents foreigners from owning property within 50 kilometers of the coast or 100 kilometers of an international border. Because most timeshares in Mexico are on the coast, they are set up as right-to-use timeshares. In the United States, resorts generally offer right-to-use timeshares because they want to, not due to legal reasons. You’re likely to encounter both deeded and right-to-use timeshares throughout the U.S.

How Does the Sharing Work?

In both a deeded timeshare and a right-to-use arrangement, there has to be a method to allocate the property’s use, so that everyone gets to use it in a predictable, fair way. Common ways to schedule visits are by allocating weeks to the members, or points, which are explained more fully just below.

Timeshare Weeks

Some timeshares (both deeded and right to use) are sold in one-week intervals, which are generally numbered 1 to 52 (because there are 52 weeks in a year). You can buy as many weeks as you’d like, which are fixed, floating, or rotating. With a fixed week schedule, your week to use the timeshare falls at the same time each year. With a floating week schedule, your week differs from year to year. In a rotating schedule, your week also differs from year to year, but it changes based on a fixed schedule. For example, if you are on a three-year rotating week schedule, you might get week 10 the first year, while the next year you get week 27, and the following year you get week 44. Then in the fourth year the schedule restarts and you get week 10 again.

Timeshare Points

Deeded and right-to-use timeshares can also be point-based. They’re attractive to purchasers who are interested in vacationing not only at the main property, but at other places, too. In a deeded points-based timeshare, you buy an ownership interest at one location—your “home resort”—and you’ll receive a deed. Your interest in the property is also worth a certain amount of points each year. You can either go to your home resort during your designated time, or you can use points to visit a different resort within the same development. The number of different locations you can choose from varies widely among timeshare developments.

Some points-based plans have no home resort. Instead of buying ownership in a home resort, you typically buy into a timeshare trust. This is a right-to-use point-based system. This means you won’t get a deed, because you aren’t buying an ownership interest in real property. In this type of points-based timeshare (sometimes called a vacation club or vacation plan), you buy a certain number of points, and exchange them for time at different resorts.

As you can see, timeshare arrangements are complicated. Before you buy a timeshare or join a points-based program, make sure you fully understand the deal.

Upsides and Downsides to Timeshares

Timeshare salespeople are very adept at pointing out the supposed benefits to owning a timeshare. For example, you’ll hear enthusiastic descriptions like these:

  • You can save money! When compared to paying for hotel stays over your entire lifetime, a timeshare is a bargain.
  • If you like going to the same vacation spot each year, you get a guaranteed spot at a particular resort.
  • If you like going to different vacation spots each year, you can exchange your timeshare week (or use your points) to go to another participating location.
  • You can always resell the timeshare later if you decide you don’t want it.

For some buyers, one or more of these attributes might make sense. Perhaps you know exactly where you want to spend the first two weeks of August, every year, and have no desire to try new places; and maybe the cost of hotel bills in that area is really so high that the timeshare cost is truly a good deal. It’s possible that you like the idea of staying in a spacious condo or suite-style accommodations (which timeshare properties regularly offer) rather than a small hotel rooms, or perhaps the thought of having a timeshare that you can let your family and friends use for free is appealing.

However, there are plenty of drawbacks to buying a timeshare. For example,

  • You’ll have to pay an annual maintenance fee. Maintenance fees range from a few hundred to a few thousand dollars per year. Maintenance fees tend to go up each year and can become a huge burden.
  • You might also have to pay special assessments at various times. A special assessment is a large, unexpected expense. For example, timeshare owners might have to pay a special assessment to pay for repairs after a property suffers weather damage, or to pay for renovations that cost more than the annual maintenance fees can cover. If you have a deeded timeshare and can’t afford to pay the maintenance fees or assessments, you could lose the timeshare to a foreclosure. Many timeshare sellers will tell you that you can avoid a foreclosure by giving the timeshare back to the resort with a deed in lieu of foreclosure. But most of the time the resort will ask for a substantial lump sum of money before agreeing to the deal.
  • Despite the airy assurances of the timeshare seller, it’s tough to find a buyer for a timeshare if you want to sell it later. So many timeshares are on the market that they’re typically re-sold at a deep discount. Even if you can find a buyer, you certainly won’t get back what you originally paid. Many websites, such as eBay and RedWeek, advertise timeshares for $1 because owners just want to get rid of the timeshare and the required annual fees.
  • Because so many people are desperate to unload their timeshares, scammer timeshare resellers are numerous. They’ll charge you an upfront fee to sell your timeshare, but the sale won’t ever happen. You’ll just be out more money.

Should You Buy a Timeshare?

To make a good decision about whether to buy a timeshare, learn as much as you can before buying one. The Federal Trade Commission website is a good place to start. If you’re thinking about buying a timeshare and need help understanding the terms and conditions of the deal, consider talking to an attorney.

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