# What happens when owners default



## Bunk (Oct 4, 2010)

There is a discussion on the TUG site about the increase in reserve for bad debts.

Does anyone know how Marriott handles foreclosures for failure to pay maintenance.  If the Owner does not pay maintenance, the Association should foreclose and either sell the timeshare (if it can recoup the back maintenance fees) or take title and try to sell the week/points.  That really should be done by the Association or Trust and not by Marriott as developer.


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## BocaBoy (Oct 4, 2010)

Bunk said:


> There is a discussion on the TUG site about the increase in reserve for bad debts.
> 
> Does anyone know how Marriott handles foreclosures for failure to pay maintenance.  If the Owner does not pay maintenance, the Association should foreclose and either sell the timeshare (if it can recoup the back maintenance fees) or take title and try to sell the week/points.  That really should be done by the Association or Trust and not by Marriott as developer.



Unless the defaulting owner has a Marriott mortgage on the property.


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## Bunk (Oct 4, 2010)

Does Marriott hold its own paper or are the mortgages held by banks?


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## dougp26364 (Oct 5, 2010)

Despite the drastic increase in the total bad debt expense, when I calculate the impact of my share of the expense, it's between 1.7% and 2.7% depending on resort and size of unit. When you're talking very large numbers, and with >17,000 intervals at one resort and >20,000 intervals at the other, the percentage isn't nearly as scary.


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## dougp26364 (Oct 5, 2010)

Bunk said:


> Does Marriott hold its own paper or are the mortgages held by banks?



I believe Marriott bundles the loans and sells them as junk bond type securities. Very few developers keep their own loans. That's why when the banks clamped down and the economy went south they stopped building. When you can't sell the paper you can't get capital funding to build.


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## Bunk (Oct 5, 2010)

If an owner pays neither the mortgage or the maintenance, do you know who has priority, the mortgage holder or the timeshare Association?

In New York, for example, in a foreclosure, the mortgage holder wipes out the homeowners association lien for maintenance/assessments.


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## lll1929 (Oct 5, 2010)

Bunk said:


> If an owner pays neither the mortgage or the maintenance, do you know who has priority, the mortgage holder or the timeshare Association?
> 
> In New York, for example, in a foreclosure, the mortgage holder wipes out the homeowners association lien for maintenance/assessments.



I believe it would be the mortgage holder.  Marriott starts foreclosure proceedings after 6months of delinquency.  In many cases they offer deed in leiu of foreclosure.  With that offer, they take to maint fees.


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## timeos2 (Oct 5, 2010)

*Is that Fox nibbling on that chicken?*



lll1929 said:


> I believe it would be the mortgage holder.  Marriott starts foreclosure proceedings after 6months of delinquency.  In many cases they offer deed in leiu of foreclosure.  With that offer, they take to maint fees.



And there is another problem. How aggressive is the management going to be about foreclosure when it it another division that will be paying the fees (and most likely wants to avoid it as long as possible) once it happens? Might they tend to be a bit slow on the trigger? And who watches them to ensure they act as quickly as possible?  It's one fox (developer) watching the fox (manager) watching the henhouse (Association / still Developer) - see the problem? The duty to act quickly is there but it's far too easy to be human and go slow when your friend down the hall may lose his job if the overhead rises (more fees the responsibility of the Developer as they foreclose & thus now owe more fees) - soon the whole process is out of control or unmonitored and the little guys pay because all they need to do is  bill delinquencies/bad debt to paying owners another year to protect themselves. 

Thats among many reasons an independent management is a must once the initial sales period of 3-5 years go by.  Sticking with the same opertionsal/management/sales group is simply too much for most to handle even if they have the best of intentions. At least the original timeshares of the late 90's were specifically designed to operated by the owners and that plan helps protect everyone IMO.


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## BocaBoy (Oct 6, 2010)

Bunk said:


> Does Marriott hold its own paper or are the mortgages held by banks?



They originate the mortgages but they don't hold the paper in most cases.  They do, however, continue to administer the loans, much like many mortgage companies do.


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## trim (Oct 6, 2010)

Bunk said:


> Does anyone know how Marriott handles foreclosures for failure to pay maintenance.  If the Owner does not pay maintenance, the Association should foreclose and either sell the timeshare (if it can recoup the back maintenance fees) or take title and try to sell the week/points. * That really should be done by the Association or Trust and not by Marriott as developer.*



Marriott has typically managed this process on behalf of the Association, at least that has been the experience at the Kauai Beach Club.  In 2010 Marriott notified the Association that they would no longer do so, but later in the year, advised that they would continue the practice. The process is foreclosure.  It involves notices being given, court filings being made, periods for the owner to clear the default, then more court filings, a notice of sale, more waiting periods, and finally a sale of the property. It can take a couple of years.


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## timeos2 (Oct 6, 2010)

*Downplaying is a real disservice to owners*



trim said:


> Marriott has typically managed this process on behalf of the Association, at least that has been the experience at the Kauai Beach Club.  In 2010 Marriott notified the Association that they would no longer do so, but later in the year, advised that they would continue the practice. The process is foreclosure.  It involves notices being given, court filings being made, periods for the owner to clear the default, then more court filings, a notice of sale, more waiting periods, and finally a sale of the property. It can take a couple of years.



???? Typically managed the process? That is a CORE requirement of a management company being PAID (plenty) by the owners to run the Association for them. This isn't some favor or an option - this should be a top 5 item on the management list. 

Trying to make it sound like Marriott (or any other management) is somehow doing the owners a favor oir offering a deal to do the basics is totally misrepresenting what a management company does and is to an Association and its members. This is a critical area that far too many developers / management treat as a secondary consideration when it is anything but that. It is a key to the very operation and survival of any Association - timeshare or not.


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## sea&ski (Oct 6, 2010)

*A question concerning Marriott and COA inventory*



Bunk said:


> There is a discussion on the TUG site about the increase in reserve for bad debts.
> 
> Does anyone know how Marriott handles foreclosures for failure to pay maintenance.  If the Owner does not pay maintenance, the Association should foreclose and either sell the timeshare (if it can recoup the back maintenance fees) or take title and try to sell the week/points.  That really should be done by the Association or Trust and not by Marriott as developer.



I tried my question once before on a thread dealing with MMside proxies, with no response.  This seems like an appropriate thread to seek an answer.

Meeting minutes from 5/7/2010 state that "Marriott will purchase only Condominium Owners Association owned inventories.  and  Repurchase Agreements will cover all 2010 inventory for a one year term from January 1, 2010."  This seems to have something to do with "Foreclosed Inventory Purchase Agreement with Marriott Ownership Resorts Inc."

What exactly does this mean?  Thanks for any insight.


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## trim (Oct 6, 2010)

timeos2 said:


> That is a CORE requirement of a management company being PAID (plenty) by the owners to run the Association for them. This isn't some favor or an option - this should be a top 5 item on the management list.
> 
> Trying to make it sound like Marriott (or any other management) is somehow doing the owners a favor or offering a deal to do the basics is totally misrepresenting what a management company does and is to an Association and its members. This is a critical area that far too many developers / management treat as a secondary consideration when it is anything but that. It is a key to the very operation and survival of any Association - timeshare or not.



This might be true.  I have not researched the controlling documents, but I expect that the fee collection responsibility is clearly defined therein as that of the Association.  Can anybody here quote them accurately?  I'll bet we were all given a copy when we purchased our units, and none of us have read all of them.


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## Bunk (Oct 6, 2010)

Those of you who said that Marriott is wearing too many hats are spot on.  It is in the interest of the timeshare association to see whether it can find a new owner willing to pay future maintenance.  I don't know how aggressive the mortgage holders are, since the units are no doubt worth much less than the notes. So they may not be willing to foreclose, since the costs of carrying the timeshare unit may be more than they will realize on a sale of the unit.


I just read that Florida passed a law this spring that makes it easier for Timeshares to foreclose against owners who don't pay maintenance.  It looks to me that the Association can complete the foreclosure relatively quickly and inexpensively, but may have to waive any claims for unpaid maintenance.  I don't believe this type of foreclosure affects the underlying mortgage on the timeshare unit, but it is unclear what happens when the Association forecloses on the lien and there is a mortgage on title.  Presumably the Association becomes the owner, subject to a mortgage which the Association has no obligation to pay.  So the Association can't sell the unit, since there is a mortgage on it.  I wonder if that the Association can rent the unit (and apply the rent to maintenance) while waiting for the mortgage holder to foreclose and subsequently sell the unit.

If Marriott on behalf of the mortgage holders is willing to take a deed in lieu of foreclosure and not pursue the unit owner, that is a win for all of us, because the law also allows a quick mortgage foreclosure if the mortgage holder waives a deficiency.

Here is a summary of that Florida law:
HB 1411
Trustee (non-judicial) foreclosure: The bill creates Section 721.855, Florida Statutes, providing for trustee foreclosure of timeshare assessment liens and Section 721.856, Florida Statutes, providing for trustee foreclosure of timeshare mortgage liens outside of the court system. For assessment liens, the process applies to any default giving rise to the imposition of an assessment lien which occurs after the effective date of the law. However, for mortgage liens, the process applies only to mortgages executed after the effective date of the law and that contain specific disclosure language, and to pre-existing mortgages only if the specific disclosure language is added to the mortgage with the consent of the borrower. In addition to providing for the specific procedures necessary to initiate and conduct a trustee foreclosure action, which procedures include requirements to deliver notice of the initiation of the process to an affected timeshare owner, the bill provides the timeshare owner with the right to opt-out of the trustee foreclosure process in favor of the judicial foreclosure process for any reason and at any time prior to the issuance of a certificate of sale by the trustee. In addition, lienholders may not proceed against the timeshare owner for any debt deficiency resulting from the trustee sale of the foreclosed timeshare interest. The bill also provides for the payment of a $50 fee for the recording of the trustee’s deed upon completion of the trustee sale. Attorneys who are in good standing with The Florida Bar and have been licensed to practice law in Florida for at least 5 years and title insurance companies authorized to conduct business in Florida for at least 5 years are authorized by the bill to provide trustee services.
Applying the business judgment rule: Similar to a provision for the benefit of condominium associations already contained in Chapter 718, Florida Statutes, the bill creates subsection 721.13(13), Florida Statutes, providing that officers, directors and agents of a timeshare owners’ association must discharge their duties in accordance with the "business judgment rule." Specifically, the business judgment rule provides that officers, directors and agents must discharge their duties in good faith with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in the best interests of the association. Provided that they do not act in bad faith or in their own personal interest, such officers, directors and agents will be exempt from liability for monetary damages by following the business judgment rule in the same manner as provided in Florida’s not-for-profit law contained in Chapter 617, Florida Statutes.
Referrals without Chapter 475 licensure: Currently, Section 721.20(2), Florida Statutes, exempts any timeshare purchaser who refers no more than 20 prospects each year to a developer from the licensure requirements of Chapter 475, Florida Statutes, Florida’s real estate broker law. The bill expands this exemption by providing that the prospects may be referred to a managing entity of a timeshare plan, as well as to a developer. This change will benefit timeshare owners’ associations that are seeking to sell off timeshare interests acquired by the associations through assessment lien foreclosure or otherwise.


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## Bunk (Oct 6, 2010)

dougp26364 said:


> Despite the drastic increase in the total bad debt expense, when I calculate the impact of my share of the expense, it's between 1.7% and 2.7% depending on resort and size of unit. When you're talking very large numbers, and with >17,000 intervals at one resort and >20,000 intervals at the other, the percentage isn't nearly as scary.



Doug: I'm not disputing your arithmetic, but the percentage of owner defaults must be significantly higher than that.
In the best of times, any landlord or association would be thrilled to have a default rate of less than 3%.  Just considering the fact that people die, get divorced, lose jobs, get sick,  and encounter a host of other life-changing events and factoring in the recession, the default rate in payment of maintenance must be significant.

I can't see what standard is being used to determine the bad debt reserve, unless somehow the units are being rented out for the benefit of the Timeshare Association and the rent is applied to maintenance.


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## dougp26364 (Oct 6, 2010)

For Ocean Pointe, the HOA is proposing changes to go along with the change in FL law. Owners are voting on a bylaw amendment:

_The Association currently opertaes on a Judicial Foreclosure process. The process is both lenghty and costly. On May 27, 2010, Florida Governor Charlie Crist signed into law HB 1411 (the "ACT") creating for the first time a Non-Judicial Foreclosure process for condominium assessment liens associated with timeshares. In an effort to alleviate partial legal fees and to ensure that the foreclosure process is not delayed, the BOD proposes to implement a Non-Judicial Foreclosure process. The Non-Judicial Foreclosure will reduce the length of time it takes to complete a lien foreclosure caes, reduce the expense of the lien foreclosure and reduce the Association's bad debt carry._


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