The economy and timeshare bad debt

[dougp26364]

All of our resorts don't report the allowance for bad debt as a line item but, four of those we own do. For anyone interested these are the figures I have for the last few years. It makes one wonder about the ability of timeshares to overcome this bad debt, how aggresive they are at recovering debt and what can be done to slow it down.

Marriott's Ocean Pointe:
2006 $46,978
2007 $48,641
2008 $186,558
2009 $303,170
2010 $561,034

Marriott's Grand Chateau:
2008 $37,098
2009 $173,169
2010 $746,300

Villa's at Polo Towers:
2009 $20,088
2010 $212,812
2011 $744,688

Suite's at Polo Towers:
2009 $37,098
2010 $173,169
2011 $746,300

Those that just walk away hurt us all. They hurt themselves by severely damaging their credit and those that remain are damaged by having to pick up the tab. There are some good reasons for having to default but, walking out of convenience doesn't hurt the developer, who's already been paid for the unit. It hurts the other owners who pick up the defaulters responibilties.

 

[alwysonvac]

All of our resorts don't report the allowance for bad debt as a line item but, four of those we own do. For anyone interested these are the figures I have for the last few years. It makes one wonder about the ability of timeshares to overcome this bad debt, how aggresive they are at recovering debt and what can be done to slow it down.

Marriott's Ocean Pointe:
2006 $46,978
2007 $48,641
2008 $186,558
2009 $303,170
2010 $561,034

Marriott's Grand Chateau:
2008 $37,098
2009 $173,169
2010 $746,300

Villa's at Polo Towers:
2009 $20,088
2010 $212,812
2011 $744,688

Suite's at Polo Towers:
2009 $37,098
2010 $173,169
2011 $746,300

Those that just walk away hurt us all. They hurt themselves by severely damaging their credit and those that remain are damaged by having to pick up the tab. There are some good reasons for having to default but, walking out of convenience doesn't hurt the developer, who's already been paid for the unit. It hurts the other owners who pick up the defaulters responibilties.

Yikes !!

Thanks for sharing. Wow, I can only imagine the MF increases we'll see at the end of the year
Hopefully they will come up with ways to help cover MFs (i.e. offer greatly reduced rental rates to resort owners; resell weeks obtained via foreclosure to current resort owners at greatly reduced resale rates)

 

[timeos2]

And the bigger problem is these numbers are getting worse, have not in far too many cases been addressed by management in an aggressive, timely way and in fact were ignored to keep sales levels up.

Now it is critical especially for those resorts under developer thumbs that they DO address this and not simply bill mre to those that pay to cover those that don't. They need to do it at low cost, not to bill extra for it (that is what management is PAID to do and they failed!) - it is a real problem issue that owners need to carefully monitor and demand performance.

In the best run places back when things were good delinquencies were reined in & now are up but within reason. Those that were out of hand & now quickly growing are a real threat to your timeshare and your wallet.

 

[carl2591]

Those that just walk away hurt us all. They hurt themselves by severely damaging their credit and those that remain are damaged by having to pick up the tab. There are some good reasons for having to default but, walking out of convenience doesn't hurt the developer, who's already been paid for the unit. It hurts the other owners who pick up the defaulters responsibilities.

You might consider the people that "just walk away" are trying to maybe keep there homes and see a 800 to 1200 dollar MF and maybe payments of 2-300 dollars on top of that something they can live without.. and the part about the credit being damaged that small potaoes when you face being homeless..

hell most timeshare is so overpriced it should be criminal. thats why most places want to tour you the first couple days of a visit so you forget about or they lie to you about the resind period and you are stuck with the timeshare you can not afford..

I am sure there are a lot more but look at the top two names... Marrott.. most overpriced of the bunch..

I do have a question on the dates.. this shows 2011 numbers.. how is that ??

 

[dougp26364]

You might consider the people that "just walk away" are trying to maybe keep there homes and see a 800 to 1200 dollar MF and maybe payments of 2-300 dollars on top of that something they can live without.. and the part about the credit being damaged that small potaoes when you face being homeless..

hell most timeshare is so overpriced it should be criminal. thats why most places want to tour you the first couple days of a visit so you forget about or they lie to you about the resind period and you are stuck with the timeshare you can not afford..

I am sure there are a lot more but look at the top two names... Marrott.. most overpriced of the bunch..

I do have a question on the dates.. this shows 2011 numbers.. how is that ??

There are cases where there just isn't a choice. But there are also cases where it's just more convenient. I've seen advice given on these forums to just walk far to often despite the reason.

Hey, if you don't have the money, you can't pay your bills. That's understandable when situations such as layoff's, job lose et... happen, but that's not always the case.

There are those times when someone makes that poor decision at the round table, buys the timeshare, never learns how to use it and then thinks walking away is going to hurt the developer. In truth, it hurts others just like themselves.

As for the 2011 budget's. Those two timeshares have already set their budget for next year. This is the time of year that HOA's are getting together, looking over past performance, looking at expected bills and estimating future expenditures. DRI has always been early getting their budgets out. In the next 4 or 5 weeks I expect to have the 2011 budgets for all but two of our timeshares. Those final two don't set their budget until December and the MF isn't due until Feb. DRI's MF's are due on Jan. 1st. Marriott's are typically due the second week of Jan.

 

[dougp26364]

Yikes !!

Thanks for sharing. Wow, I can only imagine the MF increases we'll see at the end of the year
Hopefully they will come up with ways to help cover MFs (i.e. offer greatly reduced rental rates to resort owners; resell weeks obtained via foreclosure to current resort owners at greatly reduced resale rates)

All in all, while these numbers look really bad, total increases for those two with 2011 budgets out are less than $100 for 2 bedroom units. The HOA's have done a good job of keeping the budget in line despite the huge increase in bad debt expense. Remember, bad debt is just one item. I wonder if there might not have been any increase at all if the economy wasn't so bad.

 

[Tommart]

Bad Debt

Thanks for the numbers. Looks very bad. I'm sure we'll see some significant increases in maintenance fees as a result.

I'm President of an HOA and it's not easy to collect bad debt.

When someone doesn't pay, we put a lien on their house. This just stops them from selling the home.

If we go to court, lawyer's fees are about $300/hour. It's easy to run up a $1K of legal expenses. We always win in court, but the court generally only awards about 30% for legal expenses. So if the homeowner owes $1,000, the judge usually awards an additional $300 for legal expenses. So we may have $1,000 of non-reimbursed legal expenses.

As a result, we usually wait until the amount owed exceeds $2,500 before going to court.

If someone owns a T/S, they may walk away from it, and still not respond when the court rules in favor of the HOA.

 

[dougp26364]

Thanks for the numbers. Looks very bad. I'm sure we'll see some significant increases in maintenance fees as a result.

I'm President of an HOA and it's not easy to collect bad debt.

When someone doesn't pay, we put a lien on their house. This just stops them from selling the home.

If we go to court, lawyer's fees are about $300/hour. It's easy to run up a $1K of legal expenses. We always win in court, but the court generally only awards about 30% for legal expenses. So if the homeowner owes $1,000, the judge usually awards an additional $300 for legal expenses. So we may have $1,000 of non-reimbursed legal expenses.

As a result, we usually wait until the amount owed exceeds $2,500 before going to court.

If someone owns a T/S, they may walk away from it, and still not respond when the court rules in favor of the HOA.

Is going to court more cost effective than highering a collection agency?

I wasn't aware that putting a lien on a house prevented someone from selling. I thought that it only reimbursed the debt out of any profit from selling at the closing.

 

[alwysonvac]

All in all, while these numbers look really bad, total increases for those two with 2011 budgets out are less than $100 for 2 bedroom units. The HOA's have done a good job of keeping the budget in line despite the huge increase in bad debt expense. Remember, bad debt is just one item. I wonder if there might not have been any increase at all if the economy wasn't so bad.

Good news
Hopefully the others will figure out how to manage their huge increase in bad debt expense.

 

[Bunk]

Does anybody know what percentage of the units of those 4 time shares named are still owned by the Developer.
As bad debt mounts and the developers find it more difficult to sell, I assume the developer has to pay its pro rata percentage of the bad debt.

Also, I wonder whether there are any time shares in which the developer is not paying its maintenance fees.

 

[dougp26364]

Does anybody know what percentage of the units of those 4 time shares named are still owned by the Developer.
As bad debt mounts and the developers find it more difficult to sell, I assume the developer has to pay its pro rata percentage of the bad debt.

Also, I wonder whether there are any time shares in which the developer is not paying its maintenance fees.

Ocean Pointe, the Suite's at Polo Towers and the Villa's at Polo Towers are all sold out properties and have been for a number of years. Only Grand Chateau is still in the developement process. There is almost zero developer owned inventory at those three resorts.

There is an agreement between the original developer at Polo Towers (DRI) and the HOA in which DRI pays/buys the bad debt for 75% and assumes all the expenses associated with the collection of the bad debt. I assume this is mutually beneficial as the resort incures no cost yet gets a majority of the bad debt while the original developer gets to collect all fee's and, probably get the foreclosed inventory to sell again.

 

[Patri]

These figures with the big boys add credibility to the smaller independent t/s, with control locally-based. They may not have all the amenities and trading power, but when the board is personally involved, and most owners are within driving distance, I doubt the debt will be as dramatic. Likely most of these smaller resorts were sold out years ago, so the huge debt for the owners is long gone.

 

[Numismatist]

First and foremost, I'm for personal responsibility. These people should pay and not walk away; however, more should be done at the initial marketing end to better screen those who buy.

The problem is that they will sell timeshares to just about anyone with a pulse. Naturally, you're going to get a higher percentage of walk-away folks who didn't really have the means to buy them in the first place.

Now we're all stuck with that aftermath.

 

[Rent_Share]

Is going to court more cost effective than highering a collection agency?.

Under FDCA - There is a limit to the harrasment an agency can apply - eventually they need to put up or shut up and file suit

I wasn't aware that putting a lien on a house prevented someone from selling. I thought that it only reimbursed the debt out of any profit from selling at the closing.

If the lien exceeds the proceeds, a majority are short sold, a foreclosure whipes out all of the junior liens . . . .

 

[Rent_Share]

Marriott's Grand Chateau:
2008 $37,098
2009 $173,169
2010 $746,300

Villa's at Polo Towers:
2009 $20,088
2010 $212,812
2011 $744,688

Suite's at Polo Towers:
2009 $37,098
2010 $173,169
2011 $746,300

IMHO [20+ years setting bad debt reserves] 2008 through 2010 were woefully unreserved. The 2011 is not a quadrupling of the forecast but a truing up of the underestimate of uncollectibles from the prior three years that have not be written off

With the temporary shortfall in MF's comes the deed to the unit which can then be sold into the points program without incurring the cost of developing a new resort

 

[Tommart]

Lein

Is going to court more cost effective than highering a collection agency?

I wasn't aware that putting a lien on a house prevented someone from selling. I thought that it only reimbursed the debt out of any profit from selling at the closing.

For all practical purpose, you are correct. If the money owed is paid "from proceeds in the sale" and the HOA agrees to withdraw the lien, the sale can go through. The HOA doesn't care if the monies come from the seller, or buyer.

But if the money owed is not paid and the HOA doesn't release the lien, the sale can't go through.

The trouble with many timeshares is that the owner may just "walk" and never try to sell the timeshare. In these cases, the lien has little value in collecting monies owed.

Going to court can be difficult as well if the person never responds -- even to a court summons.

So we didn't take residents to court until they owed over $2,000. Still, we lost money two ways. One, after being notified of a court date, the resident often pays what they owe. We cannot charge them for the legal expenses we had incurred to date. Two, we go to court, but don't get reimbursed for the full cost of the legal expenses.

The problem with collection agencies is that their fee is about 50%, and collection is still not guaranteed.

If two owners each owe $2K, and both are sent to a collection agency, you might have one owner pay the $2K. The HOA gets $1K of the $4K owed.

Tom

 

[Tommart]

Lein

Is going to court more cost effective than highering a collection agency?

I wasn't aware that putting a lien on a house prevented someone from selling. I thought that it only reimbursed the debt out of any profit from selling at the closing.

For all practical purpose, you are correct. If the money owed is paid "from proceeds in the sale" and the HOA agrees to withdraw the lien, the sale can go through. The HOA doesn't care if the monies come from the seller, or buyer.

But if the money owed is not paid and the HOA doesn't release the lien, the sale can't go through.

The trouble with many timeshares is that the owner may just "walk" and never try to sell the timeshare. In these cases, the lien has little value in collecting monies owed.

Going to court can be difficult as well if the person never responds -- even to a court summons.

So we didn't take residents to court until they owed over $2,000. Still, we lost money two ways. One, after being notified of a court date, the resident ofter pays what they owe. We cannot charge them for the legal expenses we had incurred to date. Two, we go to court, but don't get reimbursed for the full cost of the legal expenses.

The problem with collection agencies is that their fee is about 50%, and collection is still not guaranteed.

If two owners each owe $2K, and both are sent to a collection agency, you might have one owner pay the $2K. The HOA gets $1K of the $4K owed.

Tom

 

[vaterp37]

If HOA's were run anything close to a private for profit enterprise, they would look introspectively to see how they can better manage their costs rather than pass thru to the end client (the owners). Bad debt are non-controllable items but there are plenty of controllable levers that can be shaken and rung out. If it was up to me, I would be on the phone negotiating with all the vendors and suppliers asking for a 10-20% reduction or to seek another strategy to reduce costs (i.e outsourcing or recompete a contract). My guess is that you can easily reduce the overall cost structure by 10-20% without breaking a sweat. HOAs, on the other hand, take the passive approach and spread the pain across the board.

 

[Tommart]

HOAs

As a HOA member for 12 years, and President for 8 years, I can state with conviction that the seven Board members did everything possible to keep costs low. In fact, we probably cut too many corners. Most residents who join the Board do so for one major reason -- to lower costs and assessments.

I've not been involved in a Timeshare HOA, but I suspect they come in two flavors.

1. HOAs controlled by residents that are very tight with spending. That's why some of the older units need updating (furniture, painting, etc.) that's not being done.

2. HOAs controlled by developer whose emphasis is to keep the units like new, and the size of the assessments is a secondary concern. Their main constraint is realization that a high maintenance fee will discourage sales.

 

[rickandcindy23]

Owner-controlled HOA's of timeshare resorts have a huge responsibility, and I have become involved in two different resorts that are owner-controlled. I can tell you that the management company takes all direction from the board with older resorts, and if you want to be involved on a timeshare board, there isn't a long waiting line for volunteers.

Alderwood has been very receptive to any and all ideas the board has (I am no longer a board member) for solving the bad debt problems. Increasing fees was actually a concern to our manager, whom I respect for her opinions on such matters. I wanted to increase fees to build a reserve, and she had the opinion that owners would walk away more readily. The board voted, and I was outvoted. I needed to see some improvements to the resort, but the rest of the board saw no need and like the place the way it is. I respect that the management company brought another perspective, but I lost, and I walked away a bit frustrated with the thought of the resort falling apart further, just to keep fees low. But that doesn't mean I don't support the new board or the management, because I do.

Americana Resort Properties in Dillon/ Frisco definitely listens to the board in all matters. They won't make a move without us, making our board kind of the micro-managers, and we like it that way. I just got on the board, and Americana doesn't replace a broken stove or hot tub without okaying it with a vote via email. I love that. But I also love that the board made a long list of ways we could improve the place without breaking the bank, and we made many improvements to the units for just a few thousand dollars.

 

[Tommart]

Woodstone Bad Debt

I just compared the 2007 and 2010 budgets for my two-bedroom lockable unit at Woodstone at Massanutten.

In 2007, the maintenance fee was $330, and bad debt was estimated to be $8.88 of that amount.

In 2010, the maintenance fee was $525, and bad debt was estimated to be $31.50.

So I paid $31.50 for bad debt in 2010.

Note: the developer controls the budget and decided to update the units even though most were less than five years old. Now all units have flat screen TVs, and other upgrades. That is why the fee rose so much.

It's a catch 22. The more the fees are raised, the greater will be the bad debt.

Not sure if it works like this, but my maintenance fee is $493.50 less the bad debt. Dividing this by the bad debt estimate $31.50 is 15.7. Mathematically, this suggests that one out of 15.7 owners will not pay their maintenance fee.

 

[AwayWeGo]

A Catch-22 That Cuts Both Ways.

It's a catch 22. The more the fees are raised, the greater will be the bad debt.

True.

But if management lets the timeshare get run down & shabby, that also will encourage owners to bail out -- meaning more bad debt.

Management's No. 1 imperative is to keep resort ownership & billing records as current & accurate as possible, making collections the top priority & going after all deadbeats promptly & aggressively.

To do otherwise is to risk sinking into a financial death spiral.

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

 

[LannyPC]

All of our resorts don't report the allowance for bad debt as a line item but, four of those we own do. For anyone interested these are the figures I have for the last few years. It makes one wonder about the ability of timeshares to overcome this bad debt, how aggressive they are at recovering debt and what can be done to slow it down.

Marriott's Ocean Pointe:
2006 $46,978
2007 $48,641
2008 $186,558
2009 $303,170
2010 $561,034

Marriott's Grand Chateau:
2008 $37,098
2009 $173,169
2010 $746,300

Villas at Polo Towers:
2009 $20,088
2010 $212,812
2011 $744,688

Suites at Polo Towers:
2009 $37,098
2010 $173,169
2011 $746,300

Those that just walk away hurt us all. They hurt themselves by severely damaging their credit and those that remain are damaged by having to pick up the tab. There are some good reasons for having to default but, walking out of convenience doesn't hurt the developer, who's already been paid for the unit. It hurts the other owners who pick up the defaulters responsibilities.

So are these dollar figures for unpaid mortgages, maintenance fees, or both?

 

[timeos2]

If HOA's were run anything close to a private for profit enterprise, they would look introspectively to see how they can better manage their costs rather than pass thru to the end client (the owners). Bad debt are non-controllable items but there are plenty of controllable levers that can be shaken and rung out. If it was up to me, I would be on the phone negotiating with all the vendors and suppliers asking for a 10-20% reduction or to seek another strategy to reduce costs (i.e outsourcing or recompete a contract). My guess is that you can easily reduce the overall cost structure by 10-20% without breaking a sweat. HOAs, on the other hand, take the passive approach and spread the pain across the board.

Not all of them. Not Cypress Pointe Resort or The Cove @ Yarmouth I can tell you for certain.

 

[LannyPC]

First and foremost, I'm for personal responsibility. These people should pay and not walk away; however, more should be done at the initial marketing end to better screen those who buy.

The problem is that they will sell timeshares to just about anyone with a pulse. Naturally, you're going to get a higher percentage of walk-away folks who didn't really have the means to buy them in the first place.

Now we're all stuck with that aftermath.

I know that when we bought our unit in the earlier part of last decade (foolishly from the developer) we had to initial a clause on the contract basically stating that owning and financing this unit would not be a financial burden to us. Whether the resort (or is that developer?) is still doing that, I don't know.

But the deficiency with that clause is that, MFs have skyrocketed since then, and you do not know what your situation will be 5, 10, 20 years down the road. Who would've thought that there would have been that horrible economic downturn some years later?