Does Foreclosure on a Timeshare Count as a Foreclosure?
A timeshare gives you partial ownership in a resort at the destination of your choice. Over time, payments on the timeshare and ever-rising maintenance fees can take a bigger bite out of your budget than you can afford. Like your primary home, a timeshare will be foreclosed on if you miss your monthly payments or fail to pay maintenance fees. The question then becomes how such a foreclosure will impact you.
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Real Estate
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A timeshare is considered real estate, just like your primary residence. As such, a timeshare is subject to the same rules of foreclosure as any other property you own. The law makes no distinction between a primary home and a vacation property when it comes to foreclosure.
Credit Report
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Even if it didn't cost as much as your primary residence, the foreclosure will look the same on your credit report. A foreclosure on your credit report does not specify whether you lost the home due to missed payments or missed maintenance fees. A foreclosure will remain on your credit report for seven years from the filing date.
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Aftermath
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In addition to the hit to your credit score, a timeshare foreclosure can have lingering effects. If the company who owns the timeshare forecloses on the property, but is unable to resell it for enough money to cover the amount you owe, they can sue you for the difference. They may also report the amount they lost to the IRS and send you a Form 1099-C. You are expected to file the 1099-C with your annual tax return and might be expected to pay taxes on the amount the timeshare company lost. For example, if you owed $125,000 on the property, but the timeshare company sold it for $100,000, you would receive a 1099-C for the $25,000 difference. The exception to this rule occurs when you can show the IRS that you were insolvent at the time of foreclosure. A tax professional can help you with that paperwork.
Negotiations
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If your timeshare company is threatening foreclosure or is already in the process, you should be working with them to mitigate your damages. One way to do this is to ask for a deed-in-lieu of foreclosure. What this does is give legal ownership of the timeshare back to the company on the written promise that they can't come after you for any money in the future. Don't trust that the timeshare company is working in your best interest, but hire your own attorney to look the agreement over before signing anything.
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References
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