If you own an interest in a timeshare and fall behind in payments, you could face foreclosure.
While some people think of timeshares as a scam, others believe that owning an interest in a timeshare property provides a great opportunity to own a piece of a vacation property at a fraction of the price of a private dwelling. However, during tough economic times, timeshare payments are often the first thing to get cut when owners start reevaluating the family budget.
What many people fail to realize is that deeded timeshares are subject to foreclosure, just like other types of real estate. Read on to learn more about timeshare properties in general, how the foreclosure process works if you don’t keep up with your timeshare payments, and whether you’ll face a deficiency judgment following a timeshare foreclosure.
A timeshare is a form of shared property ownership where several owners have the right to use the property for a specified period each year. Often, timeshare properties are resort condominiums, though it is also possible to have a timeshare interest in another type of property such as a hotel room, cabin, RV, or houseboat.
The different types of timeshare interests are:
- a deeded interest (fee simple) where you have an actual share of ownership in the property, or
- a right-to-use interest, which is more like a lease interest (and typically considered personal property) where you get to use the property, but you have no ownership in the property.
When you purchase a timeshare interest, you are typically allotted a certain period of time every year (or sometimes every other year) to use the property. The rest of the year, other people who purchased an interest in the timeshare get to use the property.
The amount of time you get to use the timeshare depends on the amount of interest you purchase. For example, if you have a 1/52 interest, this means you get to use the timeshare one week per year. The use period is generally:
- fixed (where you use the property at the same time every year)
- floating (where you use the property at different times of the year), or
- point-based (where you purchase points at a specific resort that may also be used at other locations).
Timeshare owners usually can do what they want with their allotted time, including letting guests use it or renting it out to others to use, so long as this is allowed by the rules of the timeshare. Different timeshares have different rules and conditions when it comes to renting out the property. (If you are thinking of purchasing a timeshare intending to rent it out, be sure to read the rules carefully because any violation can result in penalties.)
Purchasing a Deeded Timeshare
Sometimes people pay the purchase price of a timeshare outright, but in many cases they take out a loan to cover the purchase. In a deeded timeshare, there is a purchase contract, followed by a deed of conveyance, promissory note, and mortgage. (With a right-to-use timeshare, there is a membership or vacation ownership agreement, a promissory note, and a UCC-1 financing statement.)
When you take out a loan to purchase a deeded timeshare, you will sign both a mortgage (or deed of trust) and a promissory note. (Learn more in our article What's the Difference Between a Mortgage and Deed of Trust?) For purposes of this discussion, the terms mortgage and deed of trust are used interchangeably.
The mortgage is the document that pledges the interest in the property as security for the debt and permits a lender to foreclosure if you fail to make the monthly payments. The promissory note is the IOU that contains the promise to repay the loan. The purpose of the mortgage is to provide security for the loan that is evidenced by the promissory note.
If you take out a mortgage to purchase a timeshare, you will have to make monthly mortgage payments until the debt is paid off. (In addition to monthly mortgage payments, you’ll ordinarily also be responsible for maintenance fees, special assessments, utilities, and taxes. Find out more in Nolo’s article Can a Timeshare Be Foreclosed for Nonpayment of Fees or Assessments?)
Timeshare Mortgage Foreclosures
People often don’t think of timeshares as real property and, as such, are unaware that they can be foreclosed. If your timeshare is deeded, your interest in the property can be foreclosed if you fail to keep current on your mortgage payments, even though you only own a portion of the timeshare. (if you have a right-to-use timeshare and fail to make the required payments for the purchase or for maintenance, pursuant to provisions contained in the timeshare membership documents, the right-to-use can be repossessed.)
State law governs timeshares and the foreclosure process varies from state to state. Depending on state law, the procedure will be judicial (which means the lender has to go through state court to foreclose) or nonjudicial (where the foreclosure takes place outside of the court system).
(To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see our Judicial v. Nonjudicial Foreclosure topic area.)
The Timeshare Foreclosure Process May Differ From Residential Foreclosures
The procedure for a timeshare foreclosure may be different than the typical procedure for residential properties in your state. For example, in Florida, residential foreclosures are judicial, but state law provides for the nonjudicial foreclosure of mortgages and assessment liens when it comes to timeshare properties (Fla. Stat. Ann. § 721.855 and § 721.856).
(To find out if your state uses a judicial or nonjudicial foreclosure process for residential properties, check our Summary of State Foreclosure Laws.)
Deficiency Judgments Following a Timeshare Foreclosure
When a lender forecloses on a mortgage, the total debt owed by the borrowers to the lender can exceed the foreclosure sale price. The difference between the sale price and the total debt is called a deficiency.
Example. Say the total debt owed for a timeshare is $15,000, but it only sells for $10,000 at the foreclosure sale. The deficiency is $5,000.
Whether or not you face a deficiency judgment after a timeshare foreclosure depends on state law. In Florida, for instance, the borrower is not subject to a deficiency judgment after a timeshare foreclosure even if the proceeds from the sale of the timeshare are insufficient to cover the debt (Fla. Stat. Ann. §721.81(7)).
(To learn more about deficiency judgments in the foreclosure context, see our Deficiency Judgments After Foreclosure area.)
When to Hire an Attorney
Timeshare foreclosure proceedings can move very rapidly. If you are facing foreclosure of your timeshare property, it is recommended that you speak to a qualified attorney who can advise you about what to do in your circumstances and inform you about the applicable timeshare laws.
To learn about different foreclosure defenses, see our Fighting Foreclosure in Court area.