Timeshares Buying Cautions

Words of Caution

Now that you have researched your choice, it is time to make a deal. First, here are a few words of caution:

Ø If you have attended a promotional event

Study the paperwork outside of the presentation area. If you are not allowed to remove documents, you should decline the offer.

Have a real estate professional or lawyer review any documents you can collect.

Obtain contact information (name, address, phone, etc.) of other company representatives who can answer your questions, before, during and after purchase.

Ask that any promises or offers be extended for a specific period while you review the program and contract. If refused, explain that you must make an informed decision and it will take some time to gather personal financial data. If the company is still reluctant, then consider declining the offer.

Ø While you are reviewing a contract

Ensure that all promises and offers made by the seller or representatives are included in the agreement. Verbal agreements are rarely enforceable.

Examine closely any articles that explain your rights and responsibilities and the company's responsibilities and obligations.

Ask about your ability to cancel the contract, commonly called a "right of rescission" or "cooling off period." Most US states and some foreign countries require this caveat in every timeshare contract. This provides you a period of time (typically several days) during which you can cancel without incurring penalties. If your state or province does not require this caveat, ask that it be included anyway.

Clarify which jurisdiction covers this agreement; larger companies operate in several locations, so make sure you understand who is legally overseeing this transaction. Review your rights under that jurisdiction, in the event you are damaged or unsatisfied with the company's performance under the contract.

Be wary while considering international agreements. Contracts signed outside the US are rarely protected by US laws and regulations. It is strongly advised by experts to seek international legal assistance when dealing with these situations.

Examine occupancy rights, ownership rights (for example joint tenancy), escrow conditions (if used), and any warranties.

If you are buying a deeded unit, make sure you purchase title insurance to protect you if errors or problems exist with the title.

Ø When you are considering the program

Compare how this unit matches up to others on the same property or in the same area (use the chart you developed earlier). Could you find a better deal at a nearby resort? Are there comparable amenities? Are there comparable intervals available on nearby properties? Look at other opportunities closely unless you are absolutely sold on your chosen property.

Examine the company you are dealing with. What is their reputation? What is the track record for the property? How popular are their units? Is the property completed? Resort owners like Hyatt and Marriott carry strong reputations and have well established properties.

Interested in learning more? Why not take an online Timeshare Basics course?

Look at your choice from the eyes of another owner or renter. Would your unit be attractive to others? Is the time interval popular? This analysis will be helpful if you are planning to exchange or rent the unit or if you need to sell it. High-demand locations and prime seasons give you plenty of bargaining power. Las Vegas, Nevada; Mexico; Orlando, Florida; and the California coast are a few examples of "hot spots."

Above all, make sure you are dealing with a licensed or certified professional when considering a program.

Try to get the best deal you can. Be very deliberate when dealing with sellers and don't succumb to pressure. Research historic prices for the region you're interested in. Contact resellers or owners as you are likely to find cheaper prices than through retailers, such as resorts and developers. Purchase prices have been known to be 50-90% higher than "used" timeshares.

One other thing to remember: if you decide to cancel your agreement, do so in writing. Make sure you send your cancellation by certified, rush delivery mail, and request delivery notification. Keep copies of your correspondence and any additional materials. The more documentation you have in case of a disagreement, the better.

What is the Buying Process like?

Timeshare sales are handled much like a real estate purchase. There will be a closing with a closing agent who prepares and/or obtains all the necessary documentation; for instance, an Estoppels letter may be required from the facility releasing the rights to you to occupy the unit. (The closing agent should be bonded and insured.) Closing funds are collected and a transfer of ownership takes place. Transfer can be either by a Warranty Deed or Quit-Claim Deed. Except for right to use agreements, you will receive title and deed; the deed is recorded at the registry of deeds in the property's jurisdiction.

The process can take a few days to several weeks, depending on the program, location and the closing agent. Although the resort may recommend a closing authority, you have the right to choose your own agent. A qualified representative can come from an online transfer company, local title companies or real estate attorneys.

Once the closing takes place, you are free to manage your timeshare as you choose (within all restrictions and covenants).

The Contract

After examining your purchase inside and out, you are ready to sign the contract. What are you going to be looking at? Though many different contracts exist, let's discuss some commonly accepted components of a timeshare agreement.

1. Buyer and Seller Information – This section should include all parties agreeing to the contract.

2. Property and Interval Description – This should include the physical address and, if it is a fee simple agreement, the county or province the deed is registered with. This section will also define the weekly interval you are buying.

3. Purchase Terms – Here you should find price and payment terms details. You may find fees here, including closing costs, title insurance, recording fees and escrow requirements, or they may be listed separately.

4. Title or Occupancy Rights – Ownership rights and title information should be clearly defined here. Make sure that, in the event of problems with the title during the closing process, there is a clause releasing you from obligation and returning any deposits you may have made.

5. Conveyance Details – If property is to be owned then a description of how the deed will be transferred is detailed here. You should also find the tenancy requirements (e.g. Joint Tenants) in this section.

6. Date and Manner of Closing – This section should detail when the closing will take place and sometimes the location of the closing.

7. Declarations – There should be a section containing declarations pertaining to covenants and restrictions, ownership association regulations and exchange rights. You may be informed of where to obtain company financial information or other pertinent data.

8. Assessed Value – Most deeded contracts should disclose the current assessed value on your interest at the property. This value is calculated using the location and season you have purchased.

9. Special Assessment Details – This section should describe the situations whereby the management company has the right to assess unusual fees, as in extreme weather damage or installing a pool. Make sure you understand clearly when the resort can charge you for additional expenses.

10.Appraisal Value – Some contracts will list an appraised value of your timeshare.

11.Additional Agreements – There may be other details covered pursuant to the contract, like non-performance or non-disturbance explanations, recourse options, arbitration requirements or other protections.

12.Rescission Rights – The contract should clearly stipulate your right to cancel the contract and the period allowed for you to decide.

13.Disclosures on Radon, Lead, etc. – Depending on the legal requirements in the jurisdiction providing consumer protection, certain disclosures will be listed. This may contain contact information for reporting violations of law.

This is not a complete list and, again, any legal document should be reviewed by a credential professional. Contracts will not usually list all restrictions, obligations or governing principles like homeowners' association (HOA) bylaws. Be especially wary if you are buying property in foreign countries, and remember to check the consumer protections your state or province provides when dealing with foreign entities. For instance, the state of New York requires that any timeshare dealers be registered with the state while doing business with its citizens.

Rights and Responsibilities Under the Law

We have advised previously (and will continue to do so) that timeshare transactions should be reviewed by a licensed or certified professional. The information herein is designed to provide guidelines, not exact standards.

You have purchased your timeshare and are ready to enjoy years of relaxation at your chosen location. Hopefully, you've researched and analyzed your "investment" so that you are satisfied with your purchase. What does the law say about your situation as a timeshare owner? Let's look at some general principles that apply:

Q: What happens if I cannot use my timeshare during a particular year?

A: You are not legally obligated to use your timeshare; however, you are still responsible for the annual maintenance fee and other ongoing charges. The resort is not legally obligated to replace your lost interval or to fill your unit during that time.

Q: Who is responsible for damages to my unit while it is occupied?

A: If the damages are caused by you or your guests – including renters – then the timeshare owner is liable, but if the operator or a designated party (like a painting company) causes the damage, the operator is responsible for repairs.

Q: Who is liable when catastrophic events (e.g. hurricanes) occur at the facility?

A: Timeshare operators are required to carry insurance that covers against loss. Be aware that some policies offer provisions such as weather-related or act-of-war clauses for an extra cost, and some operators decline this coverage.

Q: What happens if I cannot pay the maintenance fee or other charges?

A: The developer or resort holds a blanket lien which provides it with authority over your timeshare. If maintenance fees and other assessments are not paid, you might be considered to have defaulted on your agreement, and the resort has the right to restrict your entry and possibly foreclose on your interest.

Word to the wise: If you have disagreements with management, continue to pay any fees or charges due while trying to resolve the issue, because the timeshare company can, in most cases, apply a lien on your interest.

Q: Can the resort be held liable in the event my unit is robbed?

A: Though some resorts provide security, criminal activity protection is not a right held by timeshare owners or an obligation of the property management company. For deeded properties, your homeowners' insurance should cover theft. You can also purchase timeshare insurance (vacation coverage) to protect you each time you visit.

Q: What laws apply if I own a foreign timeshare?

A: Generally speaking, international law does not provide adequate consumer protection when it comes to timeshares. The country in which the unit is located may have some regulations, such as requiring a cancellation or rescission policy, but there are no requirements that all countries must follow.

In fact, the US State Department reminds consumers that a foreign company cannot be sued in the US unless that company has offices or other business presence within the 50 states.

Q: What happens to my interest if a resort or developer declares bankruptcy or my contract is sold?

A: You may be protected, depending on the contract you sign. Review the agreement for a non-disturbance clause and a non-performance clause. A non-disturbance clause can protect you if the developer claims bankruptcy. A non-performance clause ensures your rights if your contract is bought out by a third party.

Q: Is the resort liable if I am injured on the property?

A: You are not protected by the resort operator if you are injured onsite, unless you can prove there was negligence involved on behalf of the operator. A timeshare insurance policy can provide protection in this instance.

In several states - California, for example - there are laws requiring a developer or resort to file a timeshare plan, describing the property, construction, marketing plan and other factors. Most states require that a salesperson operate under a licensed real estate broker. Check with the Attorney General's offices in your community and the property's jurisdiction to find out if the timeshare operator you are dealing with is complying with regulations. This could reveal improper activities and raise a red flag about your deal.

Timeshare operators are required to follow state and federal advertising and marketing laws when selling units within and between state lines. Many foreign countries with timeshare developments have similar regulations. If you feel uneasy about the deal you are being offered, consult appropriate authorities (in the US, contact the Federal Trade Commission, Attorney General's Office or Federal Communications Commission) or an attorney who specializes in marketing law.

Keep in this in mind: Generally speaking, the property owner, developer or management company has the right to exclusively control the property, even if you own a piece of it. Management can legally assess late payment fees, fines, special assessments and other penalties as it sees fit. Also, it can create bylaws and restrictions. On the other hand, it is responsible for repairs on the property and maintaining the quality of your surroundings.

Right To Use agreements can be especially risky, as you normally lose all rights if a timeshare company declares bankruptcy. Examine all documents associated with this type of purchase; your rights may be severely limited in some cases.

Additionally, community regulations like condominium bylaws can affect your ownership experience, like the ability to make choices about your unit. Many states and provinces have written regulations governing commonly-owned property. It may seem overwhelming, but analyzing these rules can help you become aware of your rights and responsibilities.

The best approach to take when considering a timeshare is to be cautious and prudent. This could possibly be a lifelong decision you are making. Again, understand as much as you can about the legal obligations, liabilities, rights and protections associated with timeshare ownership before making your purchase. As Missouri State Attorney General Jay Nixon explains, "A timeshare often carries with it a potential for liability for the owner or member. Be sure to obtain and read any restrictions and covenants filed with the recorder of deeds in the county where the timeshare resort is located."

Considering that the resale market is not ordinarily advantageous (discussed further in Module XI) and many real estate brokers will not list your timeshare, you should expect this purchase to be a serious commitment. Don't get caught by surprise, or feel pressured, when deciding on a timeshare.