Even without a mortgage, a timeshare can become a financial burden. The annual maintenance fees can run into hundreds or thousands of dollars per year, and when you combine those with the cost of your mortgage, paying for a timeshare can be crushing. Unfortunately, defaulting on your timeshare mortgage can be as damaging as defaulting on your home mortgage.
Foreclosure and Your Credit
If you stop paying your timeshare mortgage and the lender forecloses, it can do the same damage to your credit as any other foreclosure: A foreclosure can drop your score by up to 160 points. However, before you get foreclosed on, you'll have months of late payments. The damage to your score will make it harder for you to get any additional credit and could also prevent you from getting a job. The one small benefit that comes out of a foreclosure is that you'll also shed responsibility for the timeshare management fees.
Foreclosure and Your Taxes
Letting your timeshare go into foreclosure can also leave you with a tax bill. The IRS considers any debt forgiveness to be income, so any balance that the timeshare developer writes off will come back to you on a 1099-C form. You may have to pay regular income taxes on that debt relief, further harming your finances.
Maintenance Fee Foreclosures
If your timeshare loan isn't a mortgage and is just a personal loan, defaulting on it can still result in a foreclosure, albeit for different reasons. First, when you default on a non-mortgage loan, it will still damage your credit. Second, if you stop paying your maintenance fees after you stop paying your loan, your timeshare association can file a foreclosure against you for nonpayment of those fees. You'll be rid of your timeshare, but you will end up with a foreclosure on your credit.
Rent Out Your Unit
If you can no longer afford your timeshare, can't sell it and don't want to go into foreclosure, renting it out may help you to pay for it. Vacationers will pay to use your timeshare unit instead of staying in a hotel or paying your timeshare management company to rent a vacant unit. You might not be able to get your entire maintenance fee and mortgage payment back, but the rental payment will help.
- MyFICO: Credit Missteps – How Their Effect on FICO Scores Vary
- MOney Management International: I Own a Timeshare I Can't Afford
- Ohio State Bar Association: Vacation Timeshares: Paradise or Problem?
- Daily Finance: What to Do with a Timeshare You No Longer Want
- Federal Trade Commission. "Timeshares and Vacation Plans." Accessed April 20, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.