Should You Buy Distressed or Foreclosed Timeshare Deeds?

We’ve all been approached by the hard-core salespeople hawking free show tickets, free overnight stays, and even complimentary meals and gifts in exchange for sitting through a sales pitch for a timeshare. The vast majority of us keep moving, knowing that no matter how firm our resolve to deliver an emphatic “No!” at the closing table, timeshare sales professionals are some of the most persuasive in the business. However, for the thousands of vacationers who said “Yes,” the problem of paying for and maintaining a timeshare often becomes something of a nightmare, often ending in foreclosure. These days, with former owners walking away from timeshares in droves, the issue is one for municipal government as well.

In Ellsworth, Maine, so many former timeshare owners gave up on their timeshares that “sets” of units at a local resort have succumbed to foreclosure. The timeshare property itself, unable to pay property taxes on the massive volume of unused and unpaid units, has surrendered nearly 95 percent of the units in its development to Ellsworth at this time (March 2019). Those units represent more than 2,000 tax deeds, for which the city is taking bids at this time.

Let the Bidder Beware

Ellsworth officials say bids for the properties must be enough to cover back taxes in the amount of $200 to $500. If an investor were to pay all the taxes on all the properties in question, total taxes owed would be about $11,745. Before you jump at the possibility of owning a 37-unit resort property, however, remember how timeshares work. Although you would own a physical deed on the property, you would own a small portion of the time spent at the property. This caveat and investor misunderstanding of what they were really purchasing led to a “crazy” number of bids on the tax deeds when the city first started auctioning them off, said deputy tax collector Ginny Derise, but lately that onslaught has slowed as the new owners also walk away.

At present, the city owns about 230 timeshare properties (despite there being only 37 physical units in the mix), “mostly for weeks between October and April,” Derise said. They are purportedly valued between $1,800 and $5,600, “depending on date and size of the unit.” Interestingly, despite tax deed issues with Ellsworth, the resort reports that more than 90 percent of the 39 units are filled, thanks to the cumulative 2,300 owners.

The Truth About Timeshare Tax Liens

Ellsworth is not alone in its attempt to recoup lost property taxes by selling tax deeds to timeshares. In fact, the Lake Tahoe area usually has between 200 and 300 timeshare tax deeds on the books, and Palm Springs posts similar numbers. However, experts in the field warn that just as if you purchased the timeshare directly from the resort, you will still owe maintenance fees, which may be astronomical, and other associated penalties. Furthermore, if the resort has a large number of timeshare deeds in delinquency, you should expect the cost of maintaining the property to fall heavily on everyone who is paying bills.

Tax Deeds for Title to Physical Property, Not Time

Unless you really just want to own a timeshare for personal reasons, purchasing the tax deed to a timeshare is probably not a particularly sound investment. The concept of using it as a rental property may seem sound, but there are regulations against this in many resorts and, furthermore, competition in these developments is fierce among owners who do not want to pay the costs associated with ownership anymore or are unable to do so. You will certainly not be the only person out there looking to pay for their timeshare using creative methods.

Tax deed investing is best conducted in the “old-fashioned” way, by buying title to real estate that has been sold by the government for nonpayment of taxes. At the end of the transaction, you own the tax deed and have the right to the debt related to the property or, in some states, you have the right to the property itself at time of purchase. You will either receive payment (and interest!) on your investment or you will end up in a position to take ownership of that property at a fraction of the market value.

Because every state has slightly different regulations governing how tax deeds and tax liens may be bought, sold, and enforced, it is important to understand just how the process works in your target market.

  • Will you need judicial involvement to obtain title to the property?
  • Do you receive title directly at auction?
  • What are your responsibilities as far as removing clouds on the title or paying off other debts?

Do not further muddy the waters by getting involved in purchasing time instead of property unless you just really always wanted a timeshare to enjoy with your family. As the Ellsworth resort manager himself stated, “I’m convinced it’s the best way to travel, [but] if you don’t use it … it’s just not worth it.” Doesn’t sound like much of an investment, does it?

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