Timeshares appeal to people because they are a way for many people to share the ownership or use of a property, like a condominium in a resort community. People who take out loans to buy timeshares usually plan on keeping up with the monthly payments. But, during a personal financial crisis—like losing a job or getting hit with an unexpected medical expense—paying for a timeshare can seem like a low priority.
If you do get behind on timeshare loan payments, you’ll probably go through a foreclosure unless you work out a deal with the lender. You might be able to avoid a timeshare foreclosure with a short payoff, repayment plan, or deed in lieu of foreclosure.
Types of Timeshares: Deeded and Right to Use
The two main types of timeshare interests are “deeded” and “right to use.” Which type of interest a timeshare owner has affects what happens if the owner falls behind on loan payments.
Deeded. With a deeded timeshare, you and other owners each buy a percentage of the timeshare property. You get a deed describing your ownership rights. For example, the deed might say that you get to stay in the timeshare two weeks every year.
Right-to-use. If you buy a right-to-use timeshare interest, you don’t own the property. Instead, you purchase the right to spend time at the property. For example, you might have the right to use the property for two weeks every year for a certain number of years, like 20 or even 99. You won’t get a deed because your interest is legally considered personal property, not real property.
Taking Out a Mortgage to Buy a Timeshare
Unless you can come up with enough cash up front, you’ll have to take out a loan to buy a timeshare. Seeing as the average price of a timeshare is around $20,000, most people take out a loan to buy one. The price will, of course, depend on the location and amenities. A luxurious ski resort timeshare in Aspen, for example, costs around $70,000 while a timeshare in an over-developed part of Las Vegas goes for around $10,000.
Most banks don’t make timeshare loans. So, timeshare purchasers generally take out a loan from the resort developer (called the “lender” in this article). The purchaser pays the lender back by making monthly payments for typically ten or fifteen years.
How Timeshare Foreclosures Work
When you take out a loan to buy a deeded timeshare, you sign a mortgage or deed of trust. This document gives the lender the right to foreclose your interest on the timeshare if you don’t make the payments. The foreclosure of your interest in the timeshare doesn’t affect the other owners of the property.
In some states, a lender has to file a lawsuit to foreclose on a timeshare property. This lawsuit is a “judicial foreclosure.” In other states, the lender has the option of either filing a lawsuit or using an out-of-court (“nonjudicial”) process to foreclose.
A nonjudicial foreclosure commonly involves the lender:
- sending a notice to the borrower about the foreclosure and
- recording the notice in the county or other public land records.
In some states, judicial foreclosure is for both homes and timeshares; in others, it’s not. For example, in Florida, lenders must foreclose on people’s’ homes through the courts. This process ordinarily takes a year or more. Florida law allows lenders to use a faster, nonjudicial procedure for foreclosing on timeshares. That process normally takes only a few months.
Ways to Avoid a Timeshare Foreclosure
A few ways to avoid a timeshare foreclosure are:
- a short payoff
- a repayment plan, and
- a deed in lieu of foreclosure.
Short payoff. With a short payoff, you try to pay less than you owe while keeping the timeshare. You offer the lender a lump sum of money that’s less than the amount you owe on the loan. In return, the lender forgives the rest of your debt. For example, if you owe $10,000 on the timeshare, the lender might agree to accept $6,000 to satisfy the loan.
Repayment plan. A repayment plan is another agreement that you might make with the lender. A repayment plan allows you to get caught up on overdue payments and keep the timeshare. You pay part of the overdue amount along with your regular mortgage payment over a period of time until you get current on the loan. For example, if you are five months behind on your timeshare payments of $200 a month ($1,000 behind), the lender might allow you to pay $100 extra each month over the next ten months to get caught up.
Deed in lieu of foreclosure. In a deed in lieu of foreclosure or “deedback,” you give your interest in the timeshare back to the lender. In exchange for title to your interest in the property, the lender cancels the foreclosure. A lender will typically ask for a lump sum of money—perhaps a few hundred or thousand dollars depending on how much you owe—before agreeing to a deedback. The benefit to a deedback is that you won't have a foreclosure on your record. Whether a deed in lieu is the right option for you depends on your personal circumstances.
If you’re considering buying a timeshare and want details about how the process works, consider talking to a real estate attorney in the state where the timeshare is located. If you’re facing a timeshare foreclosure, consider talking to a foreclosure attorney for advice on your particular situation and to learn about any other options you might have to avoid foreclosure.