What Happens When You Foreclose on a Timeshare?
Timeshares are luxury alternatives for your annual vacation. Instead of staying at a hotel, you purchase your own vacation home valid for a specific time frame each year. When you purchase a deeded timeshare, you get property rights to the unit. You pay homeowners insurance, property taxes and maintenance fees on the property. If you finance the unit, you also pay your mortgage note plus interest. Failure to pay your bill results in the timeshare management company taking the unit back and you remind with a summary judgement for the debt.
Timeshare Foreclosure Process.
After sending numerous payment demands and receiving nothing in return, the management company of your timeshare can file for foreclosure with the county in which the property is located. In California, the management company files for a Notice of Default, which gives you 90 days to pay your past-due bill. Failure to do so results in a Notice of Sale. You get three weeks to pay the balance due on the property before the trustee sells the property at auction. The timeshare company buys the unit back for $1 and the remaining balance, plus court costs, and fees are entered into a summary judgment against you. This means you have no ownership but a bill greater than the price of the timeshare.
Defaulted Timeshare Debt Destroys Credit Scores.
The timeshare foreclosure process will affect your credit score. A foreclosure entry appears on your credit report for seven years in the Public Records section. You also might have past-due entries and collection agency entries on your report from previous collection efforts. The foreclosure entry alone drops your credit score up to 160 points. With a foreclosure on your report, you may find it difficult to obtain future credit, including another mortgage loan. You may face increased insurance premiums and a slash in credit lines.
Timeshare Debt Tax Implications.
The IRS requires forgiven debt to be included in your taxable income. The increase in your income level could result in additional taxes owed when you file. Because it was a secondary property, you do not qualify for the Mortgage Forgiveness Debt Relief Act of 2007, which only applies to principal residences. You may be able to exclude the forgiven debt if you can prove you are insolvent, which means your debts exceed your assets.
Your Best Alternatives.
Before going through the foreclosure process, talk to the timeshare management company. You may be able to perform a short sale or a deed-in-lieu of foreclosure. Both of these alternatives negatively impact your credit, but the impact is less than a foreclosure. The management company may set up a payment plan or modify the terms of your contract during your financial hardship.
Finally, talk with a timeshare relief firm. A licensed, insured, and bonded consumer defense company. You want to make the timeshare relief firm has a credit specialty, and debt negotiation skills. Also, check for their licensed due to these industries are regulated.
You want the timeshare relief firm to have a strong focus on relieving you of the timeshare debt, recovering your credit, protecting your credit, stopping debt collectors, and removing any foreclosure from public records. This can be somewhat of a long process if you already are in the foreclosure process. However, hiring a licensed timeshare relief professional costs much less than being foreclosed on your timeshare.
Keep in mind most timeshare relief consultations are free.