People who take out a loan to buy a timeshare normally intend to keep up with the payments. But in tough financial times—like if you lose your job or face unexpected medical costs—paying for a timeshare can become a low priority. If you have a deeded timeshare and fall behind on the mortgage payments, you could lose the property to foreclosure.
Read on to learn more about timeshare properties in general, how the foreclosure process works if you don’t keep up with your loan payments, and whether you’ll face a deficiency judgment following a timeshare foreclosure. (This article applies the timeshare foreclosures in the United States, not timeshares in foreign countries.)
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’s also possible to have a timeshare interest in another type of property like a cabin, RV, or houseboat.
The two basic kinds of timeshare interests are deeded and right to use.
Deeded timeshares. With a deeded timeshare, you buy a percentage of a timeshare unit. You own the property along with other people who bought interests in that property. You get a deed that describes your ownership rights and—because you own an interest in real property—you may sell, rent, or transfer the timeshare.
Right-to-use timeshares. A right-to-use timeshare, however, is more like a lease. You get the right to use the property, but you don’t have an ownership interest in the timeshare. Right-to-use timeshare interests are typically considered personal property rather than real property.
Deeded and right-to-use timeshares can be week-based or point-based.
Week-based timeshares. In a week-based system, timeshares are sold in one-week intervals. You may use the timeshare during the week (or weeks) you buy.
Points-based timeshares. With a deeded points-based timeshare, you get an ownership interest at one location, which is usually called your “home resort,” and you get a deed to that property. Your interest in the timeshare is also worth a certain amount of points each year. You typically may go to your home resort or you may use points to visit a different participating resort. Sometimes, with a points-based timeshare, you buy into a timeshare trust. Rather than getting an ownership interest, you get a right-to-use interest. (To get more information about how different kinds of timeshares work, see our Timeshares FAQ.)
Sometimes people have enough money to buy a timeshare outright. But in many cases, people have to take out a loan to cover the purchase price.
Documents you’ll sign as part of a deeded timeshare purchase. If you take out a loan to buy a deeded timeshare, you’ll ordinarily sign:
Costs associated with the timeshare. If you take out a loan to buy a timeshare, you will have to make mortgage payments—typically monthly—until you repay the debt. In addition to making mortgage payments, you’ll ordinarily also have to pay annual maintenance fees, special assessments, utilities, and taxes.
If you have a deeded timeshare, your interest in the property can be foreclosed if you don’t make your mortgage payments. Also, if you don’t pay the maintenance fees, special assessments, utilities, and taxes you could face foreclosure. (To find out more, see Can a Timeshare Be Foreclosed for Nonpayment of Fees or Assessments?)
State law governs timeshares, and the foreclosure process varies from state to state. Depending on state law, the procedure could be judicial (which means the lender goes through state court to foreclose) or nonjudicial (where the foreclosure takes place outside of the court system).
The procedure for a timeshare foreclosure might be different than the typical process for residential properties. In Florida, for example, residential foreclosures are judicial, but state law allows the lender to use a nonjudicial process to foreclose timeshare properties. (Fla. Stat. Ann. § 721.855 and § 721.856.) (To find out which foreclosure process lenders regularly use for residential properties in a particular state, check our Key Aspects of State Foreclosure Law: 50-State Chart.)
In a foreclosure, the total debt the borrowers owe might exceed the foreclosure sale price. The difference between the total debt and the sale price 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'll face a deficiency judgment after a timeshare foreclosure depends on state law. In Florida, the lender can't get a deficiency judgment against you after a nonjudicial timeshare foreclosure so long as you don't object to the nonjudicial foreclosure process. (Fla. Stat. Ann. §§ 721.81, 721.855, and 721.856.)
Once started, timeshare foreclosures usually move quickly. If you’re facing a foreclosure of your timeshare property, consider talking to a qualified attorney who can advise you about your options and inform you about the applicable timeshare laws.