If you are considering buying a timeshare, think twice before signing on the dotted line. Many people get into a timeshare contract without fully understanding the pros and cons of timeshare ownership. Others have no idea what the total cost will be until they get hit with their first special assessment or tax bill. And if down the line you can't make the payments, you'll face foreclosure.
Here are the top ten reasons why it makes sense to think carefully before purchasing a timeshare.
Many people go to timeshare presentations with no intention of buying a timeshare. Often, they want the promised free round of golf, spa treatment, or restaurant meal. Unfortunately, some of those folks walk out of the presentation as timeshare owners. Other people might go into the presentation thinking they might buy a timeshare, but get pressed into signing a contract without carefully weighing the pros and cons or assessing the total cost of timeshare ownership.
Depending on where the timeshare is located, if this happened to you, you may have a right to cancel the contract if you act quickly. (To learn more, see Timeshare Cancellations: Can I Cancel a Timeshare Purchase?)
If you cannot afford to pay cash for the timeshare, you'll have to get a mortgage. But read the fine print of the timeshare contract: You'll be responsible for other costs in addition to the mortgage. In most timeshare contracts, you will be liable for special assessments, property taxes, maintenance fees, and utilities. If you don't pay these, the timeshare developer can foreclose on your timeshare.
(To learn more about these other fees and costs and the consequence of not paying them, see Can a Timeshare Be Foreclosed for Nonpayment of Fees and Assessments?)
There are very few buyers looking to purchase a timeshare in the after-market, which makes them very difficult to sell. The bottom line: You will likely lose money when you go to sell your timeshare.
If you want to buy a timeshare in order to enjoy your vacation time in a particular resort, great. But don't buy one as an investment.
Because it's so difficult to sell timeshare interests, a whole industry of scam artists has popped up, called "timeshare resale brokers." These folks tell you they have a buyer for your timeshare and can broker a sale; but not without a price. The scammers charge you hefty up-front fees and then, lo and behold, never manage to sell your timeshare.
Not all timeshare resellers are scammers. And some states have enacted laws that attempt to protect consumers from timeshare resale scams.
If you sell your timeshare at a loss (which is almost certain), you won't be able to deduct the loss on your federal income tax return. There are a few exceptions. To learn about those, see How to Deduct a Loss on a Timeshare Sale.
When you buy a timeshare, you are purchasing an interest in real estate. If you take out a loan (mortgage) to pay for part of the timeshare price, you will face foreclosure if you default on those payments.
But that's not all. If you default on your other timeshare financial obligations, like special assessments, taxes, and maintenance fees, you will also face foreclosure.
Foreclosures come with negative consequences, including a hit to your credit score, difficulty in getting another loan, and higher cost of future loans or credit. To learn more, see Consequences of a Timeshare Foreclosure.
In many timeshare foreclosures, the sale proceeds are not enough to cover the amount owed on the timeshare mortgage. The difference between what you owe and the sale proceeds is called the deficiency.
Luckily, some states prohibit timeshare mortgage lenders from coming after you for a deficiency after a timeshare foreclosure. But some states don't. If you live in a state that allows for timeshare deficiency judgments, the timeshare mortgage lender can sue you after the foreclosure(or get a judgment in the foreclosure action if it's a judicial foreclosure) for the amount you still owe, and then collect by garnishing your wages, attaching your bank accounts, and using other tactics available to judgment creditors.
(To learn more about timeshare deficiencies after foreclosure, see Options to Avoid a Timeshare Foreclosure.)
While many timeshare contracts allow the owner to rent the timeshare to others, the reality is that this is difficult to do. There are usually many timeshares for rent and few people who want to rent them. In addition, some contracts don't allow one to rent the timeshare at all, and others place restrictions on rentals.
The sales presentation might make it sound like booking the timeshare resort will be a piece of cake. Unfortunately, this is not always true. In fact, misrepresentations about ease of scheduling became such a problem that some states passed laws that specifically outlaw such deceptive statements.
Many people think that buying a timeshare is a great deal, saving them money over booking a hotel room. In fact, in many cases, if you factor in the additional costs that come with timeshares, like special assessments, maintenance fees, taxes, and the like, you'll find that renting a room in a similar resort ends up being cheaper.
(For more on issues concerning timeshare contracts, visit our Buying or Selling a Timeshare topic area.)