Timeshare companies declare war on cancellation firms

[Roger830]

Brian and TUG well represented in well written article.

http://www.orlandosentinel.com/busi...are-cancellation-lawsuits-20170814-story.html

 

[TUGBrian]

That author is great, he stays on top of most industry issues and we speak pretty regularly when hes got a story to write!

I absolutely love that he keeps owner issues in the mainstream news! be sure to like his page and or send him a thank you email if you enjoyed the article!

 

[dominidude]

That author is great, he stays on top of most industry issues and we speak pretty regularly when hes got a story to write!

I absolutely love that he keeps owner issues in the mainstream news! be sure to like his page and or send him a thank you email if you enjoyed the article!

Hello Brian,
I have a question.
I understand that the loan companies that lend the owners money to buy a timeshare are not related to the timeshare companies.

So, what, in your experience, happens if a timeshare company agrees to take back the timeshare, but the loan is not yet paid off, and the timeshare owner is in arrears and unwilling and/or unable to pay?

To me this situation seems similar to credit card companies who lend money to unworthy borrowers. in other words, wouldn't the lender just be limited to giving the borrower a black eye in their credit report?

I mean, if a borrower cannot figure out that most timeshares sold by developers are a bad deal, it seems to me that the lender should be in the hook for lending money to an unworthy borrower. In other words, it seems to me the lender should suffer the consequence of lending money to an unworthy borrower, meaning, not getting paid back in full.

 

[tschwa2]

Hello Brian,
I have a question.
I understand that the loan companies that lend the owners money to buy a timeshare are not related to the timeshare companies.

So, what, in your experience, happens if a timeshare company agrees to take back the timeshare, but the loan is not yet paid off, and the timeshare owner is in arrears and unwilling and/or unable to pay?

To me this situation seems similar to credit card companies who lend money to unworthy borrowers. in other words, wouldn't the lender just be limited to giving the borrower a black eye in their credit report?

I mean, if a borrower cannot figure out that most timeshares sold by developers are a bad deal, it seems to me that the lender should be in the hook for lending money to an unworthy borrower. In other words, it seems to me the lender should suffer the consequence of lending money to an unworthy borrower, meaning, not getting paid back in full.

I don't think a timeshare company cannot take back the timeshare unless they hold the mortgage or are willing to pay of the loan to the company holding the note for the timeshare.

 

[TUGBrian]

why would the borrower be unworthy? the owners simply made a very big (and expensive) mistake and want to cancel. cancelling your ownership would eliminate your obligation to pay the future maintenance fees...not eliminate the loan they took out to pay for it. note we arent discussing folks who are in severe financial distress here, those folks couldnt afford to pay the multi-thousand-dollar upfront fees.

 

[dominidude]

why would the borrower be unworthy? the owners simply made a very big (and expensive) mistake and want to cancel. cancelling your ownership would eliminate your obligation to pay the future maintenance fees...not eliminate the loan they took out to pay for it. note we arent discussing folks who are in severe financial distress here, those folks couldnt afford to pay the multi-thousand-dollar upfront fees.

Let me explain my question.
My understanding is that from the viewpoint of a lender, a borrower who wont pay but is able to is indistinguishable from a borrower is unable to pay. this is almost always the case with unsecured loans, such as credit cards, because with unsecured loans it is not worth it to the lender to pay for an investigation to find out why the borrower is not paying.

The best course for lenders in the credit card business, to my knowledge, is to stop trying to collect on the debt after several years of not getting any payments.

The borrower is called unworthy because they are unworthy of the loan they were given in both situations (when a borrower wont pay but is able to and when a borrower is unable to pay).

So my question is this:
What, in your experience, happens to the timeshare owner when they are in arrears and unwilling and/or unable to pay?

Does the lender take the same route as the credit card industry? in other words, do they try to collect for a few years, then give up.
Does the timeshare loan lender take a different route?

I get that the timeshare owner will get a (really bad) black mark on their credit. is there anything else?

 

[TUGBrian]

i think the staggering high interest rates that apply to these deals ensures that even with a significant percentage of defaults the creditor is still making money (if not, there simply would be no financing available for timeshares).

most creditors are well versed in collections, as their sole source of income is repayment of loans with interest. if they simply let people walk away without any attempt to recover the funds...that creditor wouldnt be in business very long.

 

[LannyPC]

This is just speculation but I am guessing that with the high risk of TS loans coupled with the high number of defaults, the borrower has to pay some sort of default insurance that is put into the payments. As we know with so many developer TS purchases, the buyer rarely looks fully over his paperwork. I mean, if all buyers did fully look over their paperwork, there would be a lot more rescissions.

Here in British Columbia, if someone wants to take out a mortgage for a property and deposits less than 25% of the purchase price, he is required by law to purchase mortgage default insurance. So I am thinking that such insurance is in each TS mortgage loan, it's just that the borrower is probably unaware of it in the mountain of paperwork he signed while in the mental condition he was when buying at a TS sales presentation.

This also leads me to believe (and it's just a personal opinion and speculation) that, with such insurance in place, this is what a lot of these "cancel your TS/mortgage" companies use. They will somehow leverage that default insurance and then the lender will get paid out by the insurance.

 

[TUGBrian]

I believe most if not all of the loans for timeshares are merely "signature" type, or just lines of credit...vs those of the typical real estate/mortgage variety...this would explain the ridiculous interest rates that are regularly reported as well (15 to 25%)...i dont believe there is any requirement for mortgage insurance on a loan like this like there is with a home loan.

 

[Bunk]

When these loans are made to timeshare purchasers, do you know whether they are unsecured loans or whether the lender holds a security interest in the timeshare as collateral
.

 

[dominidude]

When these loans are made to timeshare purchasers, do you know whether they are unsecured loans or whether the lender holds a security interest in the timeshare as collateral
.

While I am not entirely sure, my understanding is that the timeshare is used as collateral, which is why the timeshare resorts cannot take back a timeshare week with a mortgage lien recorded against it.
Because most timeshares that act as collateral are worthless, the timeshare owner who stops paying gets black marks on their credit report from both the loan company and the timeshare resort. In other words, it's a double whammy for the timeshare owner.
If these were totally unsecured loans, nothing would stop the timeshare resort from getting the timeshare week back, except perhaps their unwillingness to forgo payment of the maintenance fees. As a matter of fact, most timeshare sales people that I have talked to want prospective timeshare owners to use their own financing. My guess is that when an owner uses their own financing (i.e., when they charge it to their credit card) it is easier for the resort to justify taking the timeshare week back, and prevents defaults on the loans from the timeshare money lender.

 

[LannyPC]

.i dont believe there is any requirement for mortgage insurance on a loan like this like there is with a home loan.

It might not necessarily be a requirement. It might be something that is slipped into the contract that the lender hopes the borrower does not see. Or it could be that the lender, with all its profits from the high interest rates, pays into insurance premiums.

Either way, I am just thinking that there is some sort of default insurance considering that there are many defaults on TS mortgages. After all, how many times have we TUGgers suggested to people who come on here saying that they have already paid, say $2000 on a $16,000 property bought retail, to cut their losses and stop paying MFs and mortgage?

 

[TUGBrian]

im not sure what the answer to that is...id say just as many people have come here to claim they walked away from a loan scott free as have claimed they were sent to collections by the creditor and had a judgement filed against them....both would be zero =)

I cant recall ever seeing either of these claims happen in regards to the actual loan taken out to buy the timeshare. for the former, i just dont think it happens...for the latter...i doubt anyone would want to share that particular story with the general public.