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Risks of walking away from time share
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DEAR BENNY: I have read your articles regarding time shares but I still feel at a loss as to how unload it. It is completely paid, with the maintenance fees paid every other year. I have offered it on Craigslist but still no bites. I visited a licensed real estate broker and he has the same problem trying to sell his time share.

What would be the worst-case scenario if I don’t continue to pay the maintenance fees? I don’t mind losing this time share and I would like to know if doing this will affect my credit. Can I “abandon” the time share? Do I try another real estate broker? --Pat

DEAR PAT: If this were your principal home and you wanted to walk away from your mortgage, I would say “absolutely no.” That is, in my opinion, the worst thing you can do. Your lender will sue you (or foreclose upon you) in order to be able to have the title to sell the property to someone else; and unless you are in one of the 12 states whose laws do not permit lenders to go after the deficiency, the lender will look to you for the balance of the moneys.

Having said that, however, I am having second thoughts about walking away from a time share. It is true that the same consequences can apply; your credit will be impacted, and you may be hit with a lawsuit for the deficiency. More significantly, the Internal Revenue Service may hit you with what we call “phantom income” -- namely, a tax on the money that was canceled in the transaction.

Having studied this situation carefully -- and having received numerous letters from readers with the same problem -- I am almost reluctantly prepared to say “give it up.”

However, before you do that, you should talk with a representative with authority at your time-share community. I have heard of consumers who just had to sign a simple agreement, pay a nominal fee and were able to walk away.

You should also talk with a financial adviser before taking that step. You have to go into the transaction (actually get out of it) with your eyes wide open as to the tax and legal consequences of your action.

DEAR BENNY: I own a lot in a subdivision on the West Coast. There are approximately 20-25 undeveloped lots and 725 lots with homes built. Those of us who have undeveloped lots pay the same homeowners association (HOA) fees as those with homes on them. Is this customary or are there examples of HOAs that charge lower fees if there is no home on the lot? --Pamela

DEAR PAMELA: The fee that you pay should have been spelled out in the legal documents that you received at settlement. In fact, many states have laws requiring sellers -- both developers as well as resellers -- to provide disclosure about the association in advance, and giving the potential buyer a set number of days to cancel the transaction if they are not satisfied after reviewing the documents.

I agree that at first blush it makes no sense to pay the same HOA fee for a vacant lot as you would for a house on a lot. But how is the fee used? If it is only to pay for expenses relating to the lot itself -- and not the house -- then perhaps equality makes sense.

For example, maintenance of the common roads. While you could argue that homeowners use the roads more than lot owners, the opposite argument is that the roads are for everyone’s use and everyone should pay their fair -- and equal -- share.

Look in your legal documents -- perhaps you are paying too much.

DEAR BENNY: How does one find a legitimate agent/company when selling a time share? Do any real estate licensing boards, real estate associations or attorneys general put together and distribute a list of lawful and legitimate resellers? I would be surprised if at least one real estate association does not have a subsidiary group of time-share resellers, seeing as only real estate agents can legally resell time shares!

As far as not buying a time share in the first place, that is water over the dam for many of us who have made such a purchase. We have enjoyed having ours, but are getting to the point where we soon will not be able to travel. Certainly there are others who’d be interested in selling a time share (as one can sell a home they no longer can handle) without running into a scam.

Perhaps it is time to legitimize this industry and start prosecuting those who would solicit business only to take “your money and run.” --Hope

DEAR HOPE: Your name says it all. I completely agree with you, but columnists can only call attention to the problems and expose them. I do know, however, that at least in Florida, the attorney general is actively pursuing scam artists in the time-share arena.

DEAR BENNY: What if one has a mortgage on a home that is seriously damaged in a tornado, flood, earthquake or some other disaster for which one does not have the appropriate insurance coverage? It would seem the only option the homeowner would have is to “walk away,” even though there may not be anything to walk away from. What happens to the mortgage? --Gail

DEAR GAIL: Despite the disaster, you remain legally obligated under the terms and conditions of your mortgage. Are you sure that you do not (did not) have adequate insurance coverage? This is surprising, since every mortgage lender I have ever worked with (or against) always requires proof of insurance before the loan is funded.

Walking away, in my opinion, is a cop-out. Your lender will track you down, so it’s better to contact the lender first before they try to reach you. Discuss the situation with the lender and talk to a person at a bureaucratic level where he or she has authority to make decisions.

See what assistance the lender can provide you; perhaps there is insurance that you don’t even know about, such as private mortgage insurance that would cover a good part of the outstanding balance.

Also, talk with a local attorney about other options, such as selling the land or filing for bankruptcy relief.

DEAR BENNY: Quite some time ago we began to think about renovating our home and obtained preliminary approval from the village regarding the footprint, setbacks, etc. Due to serious illnesses and other factors, we set it aside until the beginning of 2009, at which time we were ready to go. By then village personnel had changed.

The problem is that there is an underlying lot line shown on an old plat of the subdivision, and one village official is interpreting that as a lot line going through our property. He says you cannot cross a lot line. This old line was just an out lot line, which existed before the second phase was subdivided into the lots.

This line goes right through the middle of our dining room, and the house was approved by the village when it was built in 1978. But now we are being told we are a nonconforming structure and we cannot do anything to our home, not even increase the patio size by 1 inch.

We have spent 2 1/2 years in time, money and energy trying to get this rectified, but the director of economic development will not entertain the correct reading of the plat. We cannot understand why. We can find no other person who can even understand the village position let alone agree with it.

We filed a claim with our title company. It was denied because they determined it was a municipal misreading of the plat by the village. The village did not accept the title company’s explanation.

We contacted our original surveyor, who also could not understand the opinion of the village. They had taken it off our survey because it was meaningless. The village said, “Just because it was taken off, that doesn’t mean it is not there.”

Thinking that maybe we did not have the skills to work with municipalities, we hired an attorney. We had a meeting with the director, but eventually he walked out of the room and the meeting was over. We are now out $5,000 and have made no progress.

We were told the only thing we can do is to go to court. Yet after spending so much already on legal fees, we are reluctant to do that, as the director of economic development has unlimited access to village attorneys, which does not come out of his pocket.

We have respectfully requested a meeting, made phone calls, and sent emails to the mayor and the board of trustees. There has been absolutely no response to any of our requests. --Julie

DEAR JULIE: I took the liberty of shortening your question, but it is an interesting one. You clearly have exhausted all of your remedies short of litigation. But now, I believe that you have no alternative but to file suit.

Before doing that, however, I would consider asking your title insurance company to file a lawsuit on your behalf. The fact remains that you have a “cloud on your title,” and in my opinion, that’s why people pay for title insurance.

If the title company denies your request, consider filing a claim against both the village and the title company. You would be asking a judge to determine whether that old lot line exists.

And since the village cost you a lot of money, I would also ask for reimbursement in your lawsuit. However, I cannot provide you with legal advice here, and you should discuss all of this with your own lawyer.

DEAR BENNY: My husband and I have wills leaving our house and a separate lot to our sons upon our deaths. Will these go to our sons without having to go through probate? --O.B.

DEAR O.B.: It is always difficult to answer a question where state laws are involved, as there are a lot of different approaches. However, in general, your sons will have to probate your estate.

I suggest you ask the attorney who drafted your wills this question and also ask him or her if it would make sense for you to put the properties into a trust. If properly drafted, and if all properties are in fact formally deeded into the trust, this should avoid probate.

You should also ask your lawyer what the fee will be for creating a trust. In some cases, going through probate is easier than having to deal with trust documents. Let your sons deal with probate.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to