A timeshare is typically not a good investment and can be a burden if you do not use it and still have to pay your maintenance fees. (Learn more about timeshares and why you may want to think twice before purchasing one in Nolo’s article Top Ten Reasons to Think Twice Before Buying a Timeshare.) However, if you want a timeshare for your own personal use for future vacations, it is possible to purchase one for a reduced price at a foreclosure sale.
While you might be able to get a sweet deal on a timeshare this way, you should go into the foreclosure auction with your eyes wide open because there are several downsides to this as well. Read on to learn more about how timeshare foreclosures work, what to watch out for when making the purchase, and tips for buying a foreclosed timeshare.
A timeshare is a form of shared property ownership where several owners have the right to use the property for a certain amount of time during the year. Often, a timeshare purchaser will take out a mortgage to purchase the timeshare interest. The purchaser is then deeded a small portion of a property, typically a certain number of weeks every year.
In addition to making monthly mortgage payments, the timeshare owner will also be responsible for paying annual maintenance fees, special assessments, and utilities pertaining to the property.
In tough economic times, one of the first things that people tend to cut out of the family budget is making payments on a timeshare mortgage and annual maintenance fees. The timeshare can then go into foreclosure. (To learn more about the timeshare foreclosure process, see Nolo’s articles Timeshare Foreclosures and Can a Timeshare Be Foreclosed for Nonpayment of Fees or Assessments?)
The foreclosure will either be judicial or nonjudicial, depending on state law. (Some states, like Florida and Illinois, allow nonjudicial foreclosures for timeshares even though residential foreclosures are judicial.)
Either way, the timeshare interest will ultimately be sold at a foreclosure auction to pay off the debt.
Notice of the timeshare auction will be given in the local newspaper. Once you find out when and where an auction will take place, you can attend the auction. If you are the high bidder, you will be the new owner of the timeshare. In this way you can often purchase a timeshare interest for far less than the timeshare prices offered by the resort.
Warnings for Buying Foreclosed Timeshares
While this might seem like a great way to get a timeshare for a bargain price, there are certain downsides that you should be aware of before you jump in and decide to purchase a foreclosed timeshare.
You’ll Be Responsible for the Assessments
When you buy a foreclosed timeshare, you take on the responsibility for the annual assessments from that date forward. This means you’re stuck with this payment, which will probably increase each year, unless you resell the timeshare. (Learn how to watch out for timeshare resale scammers in Nolo’s article Timeshare Resale Scams.)
You May Need a Title Search
If you buy a deeded timeshare at a foreclosure sale, the timeshare could be subject to certain liens, such as tax liens, that aren’t eliminated by the foreclosure. To make sure there aren’t any surprises on title after you purchase a timeshare, you may want to pay for a title search before bidding on the property to ensure a clear deed is conveyed after the sale. (However, if you plan on purchasing the timeshare interest for just a few hundred dollars, you may not want to spend a similar amount for a title search.)
Timeshare Foreclosures Don’t Happen All the Time
Timeshare owners are usually in default for quite a while before the association eventually decides to foreclose. (The association would prefer to attempt to get additional payments out of the owner before finally giving up and paying for a foreclosure.)
It is only once the association determines there is little likelihood of getting any more money out of the current owner that it will decide to pursue a foreclosure. So, there might not be a foreclosure sale occurring around the time you want to purchase your timeshare.
Tips for Buying a Foreclosed Timeshare
Even after considering the downsides, if you still want to purchase a timeshare at a foreclosure sale, here are a few tips to so you don’t make a mistake with your purchase.
Get a Copy of the Public Offering Statement
If you plan to make a bid on a timeshare interest at a foreclosure sale, you should take the time to research the timeshare resort so you know what you’re getting into. Before the sale, you should obtain a copy of the public offering statement.
A public offering statement contains important matters to consider when buying a timeshare interest, such as:
- a general description of the property and units
- a description of all charges and assessments
- potential future expenses, and
- any restrictions on transfers.
Do an Internet Search
Check the Better Business Bureau website (www.bbb.org) and run a Google search to find out if there are complaints against the timeshare resort or developer.
Visit the Resort
Before purchasing a timeshare at a foreclosure sale, you should be sure to visit the resort and take a look at the facilities. It is also often helpful to speak with current timeshare owners about their experiences. Ask current owners about how easy (or difficult) it is to book time at the resort, find out about maintenance, and ask about resale value.
It might also be helpful to sit through a timeshare sales pitch at the resort. You don’t have to purchase from the resort directly, but this way you’ll have access to all of the pertinent information about the resort (including the public offering statement) and can ask all the questions you want.
Talk to a Broker
Local real estate agents can also be helpful resources for information about the resort. If you are having difficulty finding information on your own, speak to a licensed timeshare sales broker who is reputable and knows the market.
Alternative to Buying a Foreclosed Timeshare
As an alternative to buying a foreclosed timeshare, you can also look for deals on the Internet at sites like eBay.com.