Are Timeshares a Scam?

Are timeshares a scam? Not exactly. But they're also typically not a good deal. If you're considering buying a timeshare or plan on attending a sales presentation to get a free hotel stay or another gift, you should go into a sales presentation fully prepared so you can avoid timeshare scams.

And if you've already bought a timeshare and want to unload it, you need to protect yourself from the many timeshare resale scammers who will try to take advantage of your situation.

What Are Timeshares?

A "timeshare" is a form of shared property ownership where instead of owning a property outright, you share the ownership with others. Multiple owners have the right to use the property (at different times) for a limited amount of time during the year.

How Do Timeshares Work?

Timeshares come in various types and different forms of ownership.

Deeded Timeshares vs. Right-to-Use Timeshares

With a deeded timeshare, you own an interest in the property, typically a percentage of a timeshare unit, along with other people who purchased interests. You'll get a deed that lays out your ownership rights, and your interest is legally considered real property.

If you take out a loan to buy a deeded timeshare, you'll ordinarily sign:

• a purchase contract
• a promissory note, and
• a mortgage (or deed of trust). (In this article, the terms "mortgage" and "deed of trust" mean the same thing.)

You'll have to make mortgage payments, typically monthly, until you repay the debt. In addition to making mortgage payments, you'll ordinarily have to pay annual maintenance fees, special assessments, utilities, and taxes.

You don't get a legal interest in real property if you purchase a right-to-use timeshare interest. Instead, as you might expect, you're buying the right to use the property. Right-to-use timeshares often expire after a certain number of years, like 20 or 99 years, and at the end of this time, your right to use the timeshare ends.

Week-Based System Timeshares vs. Points-Based System Timeshares

With deeded and right-to-use timeshares, weeks or points are commonly used to allocate the property's use.

Week-based system. In a week-based system, the timeshares (both deeded and right to use) are sold in one-week intervals, typically numbered 1 to 52 (because there are 52 weeks in a year). You can purchase as many weeks as you want, which are fixed, floating, or rotating.

• With a fixed-week schedule, your week to use the timeshare is at the same time each year.
• With a floating-week schedule, your week to use the timeshare varies from year to year.
• In a rotating schedule, your week also changes from year to year, but it rotates based on a fixed schedule. For example, if you're on a three-year rotating week schedule, you might get week 11 the first year, while the next year, you get week 28, and the following year, you get week 45. Then, in the fourth year, the schedule restarts, and you get week 11 again.

Point-based system. Deeded and right-to-use timeshares are also sometimes point-based. A points-based timeshare generally appeals to purchasers interested in staying at the main property and other places. With a deeded points-based timeshare, you might get an ownership interest at one location, commonly called your "home resort," and a deed to that property. Your interest in the property is also worth a certain amount of points each year, which you may use to visit your home resort or a different resort associated with the same development. The number of different locations you can choose from varies widely among timeshare developments.

Sometimes, points-based plans don't have a home resort. Generally, rather than purchasing an ownership interest in a home resort, you buy into a timeshare trust. You won't receive a deed. Basically, you buy a certain number of points and exchange them for time at different resorts. The number of points you need to use to book a stay varies depending on factors such as how popular a resort is, the timing of your stay, and the size of the accommodation you want. The points might or might not expire.

These setups are sometimes called a "vacation club" or "vacation plan."

What Does a Timeshare Pitch Usually Involve?

Timeshare sellers are notorious for offering a half-price parasail ride, a free day's rental car, a free hotel stay, or a free gourmet meal (you name it) to get you to attend a sales pitch. The presentations vary, but many include high-pressure sales pitches.

You'll likely hear about the money you'll save over the years by buying a timeshare or timeshare plan instead of paying for hotel rooms. The salesperson will probably downplay how much the timeshare will cost you, including the purchase price, special assessments, annual maintenance fees, and other fees that might and probably will go up.

In addition, a timeshare seller might say you'll have no trouble getting out of the timeshare deal or you can sell it for a profit if you don't like it.

Are Timeshares Scams?

Timeshares themselves aren't necessarily scams. But they're usually not a wise investment or a good deal.

Why Are Timeshares Bad?

Here's why timeshares typically aren't a good purchase.

• Timeshares are expensive. Purchasing a timeshare often involves a significant upfront cost, which could include not only the initial price, but also closing costs and financing fees. The average one-week timeshare costs almost $24,000. That figure doesn't include what you'll have to pay for transportation, food, and other vacation-related expenses each time you use the timeshare. In addition, timeshare owners typically have to pay annual maintenance fees that go up over time, special assessments, utilities, and taxes.
• You might have difficulty in booking your vacation. You might not be able to use the timeshare when you want or you might have to pay a premium to use it on certain dates. For example, a timeshare resort might require you to "upgrade" to a better plan at an additional cost of, most likely, thousands of dollars to get access to the places and dates you want. Or, once you go on vacation through your timeshare plan, your timeshare company might say you need to attend an owner update meeting where you'll likely face strong pressure to buy an upgrade.
• Timeshares hardly ever go up in value as an investment. Reselling a timeshare for a profit is extremely unlikely; there's basically no after-market for them. In fact, you can purchase most timeshares on the internet for pennies on the dollar. Very rarely does anyone make a profit when selling one.
• Timeshare sales transactions can be predatory. Salespeople are well-known for using high-pressure sales tactics, downplaying the cost of owning a timeshare, misrepresenting a timeshare's value (including how much it might gain in value), and using deceptive marketing practices.

How Can I Avoid Timeshare Scams?

Many people who attend timeshare sales presentations walk out as timeshare owners, whether they plan on buying one or not. To stop this from happening to you, go into a presentation fully informed about how timeshares work so that you can make a rational decision about purchasing one.

What to Know Before You Commit

If you're considering buying a timeshare in a particular resort, evaluate the developer before entering the presentation. Even if you think you won't be tempted to purchase a timeshare, it's a good idea to investigate the developer or seller ahead of time so you'll know who you're dealing with and, perhaps, their tactics. Here's how to start:

• Check the Better Business Bureau website.
• Run an online search to find out if there are complaints against the timeshare offeror. Timeshare owners and potential purchasers who've had difficulty dealing with the resort often post their experiences and warnings online.
• Local real estate agents can also provide information about the resort and developer.

Don't Sign Anything at the Meeting

Don't sign a contract at the initial presentation with the seller. Get a copy of the documents, such as the contract and public offering statement, and take them with you when you leave the meeting so you can read the fine print. (A public offering statement has information about the timeshare development.) Read the documentation thoroughly to ensure you understand all of the costs involved and the program offered—for example, whether it is a weeks-based program or points-based system. Talk to a trusted advisor, like an attorney, if you don't understand the paperwork.

If the salesperson says today is the only day the deal is available and you shouldn't delay by taking the documentation with you to review, that's not true. This statement should be a red flag that the salesperson doesn't want you to understand what you're signing up for.

Don't Believe Everything a Salesperson Says

Don't believe everything the salesperson tells you. You must be extremely wary of any deal that sounds too good to be true. Most timeshare contracts disclaim any statements or promises the salesperson made when selling you a timeshare. If a timeshare salesperson won't put something in writing, don't complete the sale.

Also, do your own due diligence. If the salesperson says you can sell the timeshare for a profit, research whether this statement is true. The resale value of most timeshares is minimal or nonexistent.

Can I Sue a Timeshare Seller if I'm the Victim of a Timeshare Scam?

You might bring several types of claims against a slippery timeshare seller.

Breach of Contract

The first, breach of contract, involves promises explicitly made and set forth in the sales agreements. If the size, location, condition, or some other important fact about the timeshare is materially different from what you agreed to in the sales contract, you might have a basis for claiming a breach of the contract.

But beware: the timeshare sellers' attorneys carefully draw up these contracts and are likely to cover almost any contingency—scrutinize the contract carefully before signing.

Unfair Business Tactics, False Promises, or Fraud

You may also bring claims based on tactics used and promises made before you agreed to purchase your timeshare. These claims might be covered under state laws prohibiting unfair business practices or those designed to prevent fraudulent inducement.

In both cases, the idea is that the seller used unfair sales tactics or outright lies to get you to buy the timeshare. You will have to show:

• what the seller said or did
• why it was misleading
• that you wouldn't have bought the timeshare if the seller hadn't used misleading tactics or promises and
• that you suffered some monetary loss because of the purchase.

Timeshare sales contracts usually include clauses that disclaim any promises made during the sales pitch. The contract you sign will ask you to agree that you are making the purchase only based on the representations in that contract.

Prospective purchasers who notice differences between what is in the contract and what was promised by the salesperson are likely to be told that the contract is only legal jargon, which isn't true. If a timeshare salesperson won't put a promise in writing, don't go through with the sale. Otherwise, you might have to argue afterward that you relied on that promise, even though you signed a contract that explicitly says you didn't rely on any promises.

Do People Regret Buying Timeshares?

Many people who buy timeshares regret their purchase. In some cases, a timeshare is more expensive than expected, both initially and over the long term. In other cases, it isn't as easy or convenient to book time at the timeshare as anticipated. Or a timeshare owner might have trouble exchanging their weeks or points.

Cooling-Off Laws for Timeshare Purchases

If you buy a timeshare and regret it right away, most states have "cooling-off" laws. These laws let you get out of a timeshare contract if you act within a few days after signing, usually within three to ten days, depending on the state. In cases where state law doesn't provide a cooling-off period, or if you change your mind after the time has passed, your only recourse might be a formal lawsuit. Timeshare sellers are accustomed to handling claims from unhappy buyers and are unlikely to refund your money unless they're forced to do so.

As you can see, there aren't many options if you regret a timeshare purchase. So, to avoid regretting a timeshare purchase, be sure to consider your financial circumstances (which could change), weigh the pros and cons (especially the cons), and fully understand your timeshare works, including how and when you may use it and the overall cost of owning it.

What Happens If I Let My Timeshare Go Into Foreclosure?

If you take out a mortgage loan to buy a deeded timeshare and stop making the payments, the lender, usually the resort developer, will probably foreclose the timeshare. Also, in most cases, timeshare owners must pay annual maintenance fees and special assessments to an owners' association. If, as an owner, you don't pay the fees and assessments, the association may sue you for money or foreclose your timeshare.

Depending on the circumstances, going through a timeshare foreclosure could result in lower credit scores, difficulty is getting credit, a deficiency judgment, or tax consequences.

What Is a Timeshare Reseller?

Unfortunately, if you get roped into buying a timeshare and your cancellation period has already expired, you'll probably have trouble unloading it. So, people who want to unload a timeshare (but don't have the option to cancel the contract or file a lawsuit against the seller) sometimes turn to resellers.

"Timeshare resellers" are companies or individuals that sell timeshares on the secondary market (where timeshare buyers purchase timeshares from owners, not from a resort), facilitating sales of timeshares from current owners to buyers. But you need to be careful to avoid resale scams.

How to Spot Timeshare Resale Scams

Again, there's virtually no resale market for timeshares, and finding a buyer can be next to impossible. This is where the scammers come in.

Sample scam #1. In a common scam scenario, a timeshare reseller promises to set you up with a buyer, but first, you must pay an upfront fee. Timeshare scammers often convince owners to pay large upfront fees by saying they have someone ready and willing to buy the property or that the timeshares would be sold in a specified period of time. Once the timeshare owner pays the fees, the scammers either disappear or claim that they were simply offering to advertise the timeshare unit, and no buyer ever materializes.

Sample scam #2. In another common scam, the supposed reseller might or might not ask for an upfront fee to sell your timeshare to a new owner. You'll also have to pay "tax fees" (such as a "federal tax" or "state tax"), "insurance premiums," "gains taxes," "customs fees," "title fees," "transfer fees," or something similar—but fake—before the deal can happen. Fees will keep popping up for various hurdles that supposedly need to be overcome before you can sell the timeshare and collect your money. As long as you pay these fees, the scammer strings you along, maybe telling you that you'll get reimbursed or a refund. But no buyer exists, and you won't recoup your money. This scam might also involve fake lawyers and documents.

Many states have strict laws governing timeshare resales, including restrictions on collecting advance fees. Talk to an attorney in the state where the timeshare is located to learn about relevant laws.

How to Avoid Timeshare Resale Scams

Many timeshare exit companies that claim they can get you out of your timeshare are scammers. They'll take various types of upfront fees from you and then either stall while not resolving your timeshare problem or simply disappear with your money.

Don't Sign Anything Right Away

Don't sign up with a resale company right away. Read the contract carefully and make sure it includes the services the reseller will perform and the total cost to you. If specific promises are made, make sure those promises are covered in the contract. You should also consider reviewing the contract and documents with an attorney.

Don't Believe Promises About Selling the Timeshare Fast

Only a scammer says they already have a buyer lined up for your timeshare or guarantees they'll be able to sell a timeshare. Once you pay, your money is gone, and there's no buyer. Along these lines, don't pay upfront fees. If you decide to use a reseller, only use a company that gets paid after it sells your timeshare.

Know Who You're Dealing With If You Use a Timeshare Reseller

If you decide to pay a fee to a timeshare resale service to help you sell your timeshare (even though you probably shouldn't), investigate it thoroughly before moving forward with the deal. Ask lots of questions and verify everything the company tells you.

• Licensing requirements. Only licensed real estate brokers may list and sell timeshares for resale in some states. If your state requires a real estate or timesharing sales license, check with the state's Department of Real Estate to ensure the agent has a valid license. If the agent is licensed, check to see if any disciplinary actions have been taken against the agent. You might also check to see if the company is registered with the secretary of state or local chamber of commerce. (However, even if the company is registered, this doesn't necessarily mean the company is legit. You need to do more research.)
• Check with the Better Business Bureau and government agencies. If you're thinking of using the services of a timeshare resale company, be sure to check the Better Business Bureau website for any complaints that might have been registered against the timeshare company. Don't do business with the company if grievances are filed against it. Also, contact the state attorney general's office and local consumer protection agencies in the state where the reseller is located. Find out if there are any complaints on file.
• Search the internet. You can also run an online search to learn more about the company you're dealing with—again, timeshare owners who have previously been scammed often post their experiences and warnings about scammers online. Include the words "scam" and "complaint" in your search.
• Learn more online. New timeshare scams seem to pop up all the time. Check online to see what others have gone through to ensure you don't get similarly taken. The Federal Trade Commission website is a good place to start, and be sure to read people's comments.

Where Can I File a Complaint About a Timeshare Scam?

If you think you've been a victim of a timeshare scam, contact:

• your state's Department of Real Estate (if a real estate license is involved)
• the Federal Trade Commission (1-877-FTC-HELP)
• your state attorney general's office, and
• your local Better Business Bureau.

Reporting unscrupulous timeshare schemes can help prevent others from becoming victims.

Getting Help With Timeshare Issues

Before you buy a timeshare, consider talking to a local real estate attorney who can review the contract and go over your legal rights and obligations.

If you need more information about timeshare laws, how to cancel a timeshare purchase, whether you should sue a timeshare seller, or your options if you're facing a timeshare foreclosure, consider talking to a local consumer protection lawyer, foreclosure attorney, or timeshare attorney.