February 21, 2024
When a timeshare member or owner wishes to extricate themselves from an unwanted timeshare, or resolve a timeshare dispute, contacting their resort should be the first step. However, when results fall flat, should you simply stop paying, retain an attorney, sign up with an exit company, or fight the battle yourself? This has been an unending question, so we reached out to attorneys and other sources to learn more.
Introduction by Irene Parker, MBA
Timeshare loans are financed at high-interest rates ranging from 12% to 19%. Given little resale value, and no resale value if there is an outstanding loan, timeshare members often find themselves stuck if life takes an adverse turn. Hardship releases are not always forthcoming. Members of the military, or those who work in a field requiring a security clearance, should do considerable due diligence before buying a timeshare as more than a few in this situation have found their security clearances in jeopardy because of a timeshare loan default.
In 2022, I contacted attorney Dennis Beaver, Esq., a Kiplinger author, after reading an article in which Mr. Beaver quoted another attorney who said nothing would happen if you stopped paying maintenance fees or even loan payments. That's not accurate. We appreciated hearing back from Mr. Beaver. This article followed:
Kiplinger - Best Way to Exit Your Timeshare
If you own a timeshare or, God forbid, are considering buying one, I have one word of advice that has made the timeshare industry mad at me following my April 2021 article quoting Salem, Ore.-based attorney Eric Olsen, founder of HELPS, a national nonprofit law firm that helps lower-income seniors with debt they can’t afford to pay.
In that article, replying to my question, “What do you risk by not paying the timeshare maintenance fee or loan?” Olsen stated, “I can’t recall a single instance where a client was ever sued. Timeshare companies never sue.”
In the time since that article was published, timeshare-collections practices have become much more predatory.
It doesn’t seem fair that if someone defaults on a timeshare loan, the Developer can foreclose, sell the timeshare to someone else tomorrow, then turn around and double their money by suing on the promissory note. To our knowledge, this doesn’t happen often, but it has happened. Also to our knowledge, Developers have not prevailed in these efforts.
Given we’re in tax season, and given that, if a timeshare borrower does foreclose, or has a loan forgiven, they may receive a 1099 c claiming taxes are owed on the forgiven debt, we offer the following advice. The tax is unfair, as the buyer is left with nothing of value. The following article was provided by a tax preparer as to how to dispute the tax.
The irksome 1099 c or 1099 a, that may be issued after “loan forgiveness”
https://tarda.org/the-timeshare-tax-trap-%E2%80%93-1099-c-question-revisited
Timeshare Users Group (TUG). TUG has been tracking outcomes provided by defaulting timeshare members. Survey results are included at the end of today’s article. Join TUG to get clarification and updated information.
Stats (as of November 26, 2021):
18 percent of MF defaults get reported to the credit agencies, compared to 71 percent for mortgage defaults.
Information, opinions and advice from: Attorneys, Westgate Resorts court documents, and the timeshare industry's Political Action Committee, ARDA-ROC.
We always appreciate advice from members of the legal community. Attorney Michael Finn is always there for us when we have a legal question. The following article, authored by Mike, includes ready made answers to our question about timeshare defaults. It delves deeply into the issue. We promote self-advocacy, but there are times when a legal opinion is needed, and not everyone has the time or temperament to self-advocate.
If I stop paying maintenance fees and loan payments, what happens?
https://finnlawgroup.com/defaulting-timeshare-credit-report/
I asked Mike to review what the attorney below had to say about timeshare defaults:
I did want to point out an inaccuracy; when the attorney states that maintenance fees are not included on a credit report because they are "not credit". Maintenance fees, like any other contractual obligation, particularly upon default, can be on a credit report. The issue is whether or not the HOA subscribes to a credit reporting agency or not, most don't.
An attorney, who asked to remain anonymous, offers her opinions and advice:
In most instances, nonpayment of maintenance fees do not show up on credit reports because maintenance fees are not credit, BUT, the exception is, if a debt collector gets involved – a debt collector CAN report nonpayment of fees to collections. Monterey Financial, a debt collector, is notorious for doing this for Mexican and US resorts.
Unfortunately, we are seeing more and more owners associations sue owners in Small Claims Court for outstanding maintenance fees – especially the smaller resorts – and we see lenders suing on the promissory notes. I am not talking judicial foreclosure – I am talking suits for money judgments (Westgate Resorts, Holiday Inn Club Vacation, Hilton Grand Vacations).
Nonpayment of fees may work for some resorts, but it does not work for all!
Despite ridiculous commercials on the radio by exit companies that act like getting out of a timeshare is “one size fits all” …it is not. Each resort contract is different, each state has different laws – for example, some states do NOT allow nonjudicial foreclosure. In those states, the lender or association must sue to foreclose – which then often includes a request for a deficiency judgment and requests for attorney fees.
The only entity that can “guarantee” an exit is the other party to the contract; Read the fine print on those scam exit company “guarantees” and you will often find a loophole for the company to keep your money…for example, they “guarantee” an “exit option” – not that you will actually like the option they give you, just that they give you one…so here is an option you may hear after you sign up… “Pay off your mortgage and then stop paying the maintenance fees and hope the association seizes your timeshare” – it’s likely you don’t like that “option” but hey…the exit company gave you an option, so now their contractual obligation to you is satisfied according to that exit company … their guarantee was an option… no refund for you… or, the exit company just doesn’t answer your phone calls anymore.
The timeshare industry has attacked lots of law firms and exit companies. As far as I know, the cases never go to trial. Here is my theory…the main claim the timeshare entities make against exit companies and law firms is tortious interference. Lawyers are the agents of clients. We step in their shoes and act on their behalf, so lawyers cannot tortiously interfere in a contract when representing a client in a contract dispute. Can you imagine if Developers were right about that??? Then no lawyer in the US could represent any client for a contract dispute ever!! That would be crazy.
Many resorts will now work with individuals for a release of their contract but are very clear – if you hire an exit company you no longer qualify for that program.
What Happens When a Westgate Owner Defaults?
According to 2021 Joint Pre-Trial Statements, Case 6:18-cv-01088-GAP-DCI:
Out of 621 original owners, Westgate only brought foreclosure proceedings against 244 accounts. Of the 86 remaining owners, only four testified they were foreclosed. With respect to the 86 owners Westgate decided to foreclose upon, none testified that their credit was damaged as a result of nonjudicial foreclosure, or were aware of any such impact. Westgate had not sought deficiency judgments as a matter of policy and is not entitled to under Florida law and the law of almost every state.
The timeshare industry position
ARDA-ROC engages in key issues affecting timeshare owners, such as consumer protections against scams, accountability for fraudulent timeshare exit companies, taxes on owners, non-judicial foreclosure, and timeshare owner privacy laws.
Legislative Hypocrisy
According to ARDA-ROC’s 2019 website for timeshare members:
ARDA-ROC is currently working on legislative issues in 14 states. There are four core state issues (including): Non-Judicial Foreclosure
Supports non-judicial foreclosure laws which provide strong consumer protection provisions.
https://www.redweek.com/blog/2019/12/02/arda-roc-maintenance-fees
ARDA’s message to industry peers delivered by ARDA-ROC Chairman Kenneth McKelvey, as stated in letterhead minutes of the April 10, 2019 ARDA-ROC meeting at ARDA’s World annual conference:
“The best thing we can do with exit (is) judicial foreclosure, ruin the credit and enforce the contract,” McKelvey said.
Today’s article may provide more questions than answers, but the best takeaway is that your default outcome may be your outcome, but that doesn’t mean someone else will experience the same outcome. As our anonymous attorney declared,
“One size does not fit all!”