How not to let that timeshare wreck your credit
By Allie Johnson
July 15, 2015
You fell for the sales pitch for the luxury timeshare on the beach. Now you're in over your head – and not in balmy ocean water. Don't panic: you might be able to get out without ruining your credit.
First, know you're not the first person to succumb to a sunny sales pitch. Many who buy timeshares end up regretting the purchase, says Michael Finn, a consumer attorney in Florida who handles timeshare issues.
When you buy directly from a resort, a timeshare can cost $20,000 to $40,000 or more – an amount some consumers finance with a loan, Finn says.
On top of loan payments, timeshare buyers also owe annual maintenance fees that can increase steadily. The average maintenance fee for a U.S. timeshare in 2014 was $880, according to the American Resort Development Association. But fees can run the gamut from under $500 to $5,000 or more, says Brian Rogers, owner of the Timeshare Users Group, a community for timeshare owners. “They tend to go up pretty darn quickly,” Finn says of the fees.
Unhappy timeshare owners, Finn says, typically fall into two groups:
- Once the shine has worn off, some new buyers quickly regret their purchase. Maybe it's too hard to schedule an annual family vacation or they can't afford to buy plane tickets to, say, Maui every year. “They realize they didn't get the benefit of the bargain,” Finn says.
- Other timeshare owners were happy with their vacation properties, but then have fallen on hard financial times, got sick or their spouse died. “They can't travel, so they can't continue to use the timeshare they enjoyed for 20 years,” Finn says.
Timeshare owners in both groups often are surprised to find out that it's not easy to get out from under a timeshare contract.
“Many people don't realize you own it for life,” Rogers says of timeshares. Unless you can sell it or give it away, that is.
How can a timeshare hurt your credit?
If you're having trouble making payments as agreed, a timeshare can hurt your credit in several ways.
First, if yore late making a payment on the loan you took to purchase the timeshare or on your maintenance fees, the resort might report the delinquency as a 30-, 60- or 90-day late payment.
If you stop making payments on your loan, which resorts often incorrectly refer to as a “mortgage,” it might get reported to the credit bureaus as a foreclosure, Finn says.
In fact, Finn is working on a class-action lawsuit against Bluegreen Vacation Club for reporting walkaways to credit bureaus as foreclosures. The lawsuit claims the company violated the federal Fair Credit Reporting Act and Florida's Consumer Collections Practices Act.
Resorts also sometimes report a walkaway as a charge off, though they actually should report it as a default on an installment contract, Finn says.
“They try to pick the category that does the most damage to the consumer,” Finn says of resorts.
Getting out of a timeshare with good credit
Want out of a timeshare? Here are five ways to extricate yourself while protecting your credit:
- Call the resort. If you can't afford to pay maintenance fees, communicate with the resort, says Lisa Ann Schreier, a timeshare consultant and author of “Timeshare Vacations for Dummies.” If you own the timeshare free and clear, some resorts might be willing to take it back from you, she says. In other cases, the resort might be willing to put you on a payment plan. Or, it might be possible to make a change, such as switching from a two-bedroom to a one-bedroom unit to lower the maintenance fees, she says.
- Rent out your timeshare. Did Aunt Martha and Uncle Bert mention they're dying to go to the Bahamas, where you own a timeshare? Call them. Renting out your timeshare can be a great way to cover your yearly maintenance fees if you're going through temporary hard times, but want to use the property in the future, Schreier says. “You might decide you don't want to sell it,” she says. Or, rental income can buy more time while you try to sell. To find a renter, spread the word to friends and family, post something on social media, put up a flier on a bulletin board or run an ad, she says.
- Find a buyer for your timeshare. It is possible to sell your timeshare yourself, though most likely not for an amount close to what you originally paid, Schreier says. In fact, eBay is full of timeshares being sold for $1 with the seller paying any closing or transfer fees. Timeshares have very little value on the secondary market – when one consumer sells to another – Finn says. “In the timeshare world, the seller pays the buyer,” Finn says. “That speaks volumes about the value.”
- Avoid timeshare reseller scams. If you're already unable to afford your timeshare, falling prey to a scam can put you in even worse financial shape. Over the past few years the Federal Trade Commission has cracked down on scammers who target timeshare owners who are desperate to sell. These crooks typically make big promises and request an upfront fee – anywhere from $200 to $8,000 or more. The best way to avoid scams is not to do business with any entity that initiates contact with you, Schreier says. And never pay anyone money upfront to sell your timeshare for you, Rogers says.
- Get legal help. A lawyer who knows the ins and outs of timeshares can negotiate with the resort on your behalf. The National Association of Consumer Advocates, an association of consumer attorneys and other consumer advocates, has an attorney finder tool. If you click on the triangle to the left of the mortgage/real estate practice area, a drop-down menu appears. Check the box next to the word “timeshares,” then hit the search button. You'll get a list of lawyers who handle timeshare contracts. The bad news is you might have to stop making payments to give the lawyer leverage. “It's a lesser-of-two-evils analysis you have to do,” Finn says. “Are you willing to tolerate a drop in your credit score to get out from under a lifelong obligation?”
Once you're locked into a timeshare, it's not easy to get out. But that doesn't mean you should give up. “Some people will pay the darn things for the rest of their lives, and that&'s a shame,” Finn says.