What Happens to Timeshare Owners After a Resort Sale or Timeshare Merge?
If you are unhappy with your current timeshare, chances are you have spent some time reading comments and feedback from other timeshare owners in your development. Online research will show that many complaints against timeshare companies occur after the resort has filed for bankruptcy, or after it has merged with a larger resort.
One of the questions our team is asked often, pertains to contract changes when a timeshare is bought out by another company. What is a timeshare merge? Will it mean that your current timeshare contract will be discharged, since the company has changed hands? Or will your membership and maintenance fees go up, because of new ownership? While every timeshare organization is different, we will address some of those concerns in our post, with recent examples.
Why Do Timeshares Go Bankrupt?
The recent turbulence in the American real estate market has also impacted timeshare companies. While industry statistics reveal that roughly 7% of American households own a timeshare, an increase in over 25% in the past two years alone, consumers have little control over the financial operation of the timeshare that they are invested in.
When we counsel our clients, some of them had believed that a change in ownership for the timeshare, or a bankruptcy would invalidate their contract. In other words, some believe that if the timeshare bankrupts, that their contract becomes null and void. This is a concern of course for people who want to retain ownership, but a glimmer of hope for those who wish to cancel and exit their timeshare.
Unfortunately, timeshare customers are viewed as assets of the company. Even when a timeshare files for bankruptcy, it can be purchased outright by a larger resort or development group. The contracts remain in place, with one caveat; fees can (and often do) increase. Administration costs can be added to the maintenance fees for the resort, including legal costs.
A bankrupt timeshare is an opportunity for a new business owner, or sometimes the same business owners under a different name, to rebrand and redefine their earnings at the expense of timeshare owners, who are legally bound to pay higher fees.
Shareholders Like Mergers Because They Make Money
The development or vacation membership club you belong to is not privately owned. For every timeshare organization, there is a board of directors that reports to a multitude of investors, who own shares in the resort. Investors that expect to make a certain level of return on an annual basis.
When a timeshare has been unsuccessful at managing the inventory of space (empty units are a chronic problem with many resorts around the world), they can resort to several marketing and management methodologies to try to increase occupancy, and contract sales. The incentives provided to consumers, including free cruises, dinners, cash or flights are paid for entirely by the resort as an advertising expense. Commissions to those high-pressure timeshare sales teams is also costly, but if the resort is losing money, they are also under pressure to increase sales and revenues from membership fees.
Over time, if the resort is unable to fulfill a profitable level of occupancy, the expense catches up with them. Established timeshares also know that there is a threshold for increasing membership or maintenance fees, before they start to lose customers.
As a matter of public record, a timeshare must show where the funds are allocated for any maintenance fee increase, and this is established to prevent unscrupulous timeshares from deriving additional income from members through that route. However, they can maximize incremental increases to membership fees, which are often tied to ‘inflation’ on a timeshare contract and increased operational costs. Nonetheless, increasing fees can result in more problems for the developer, including litigation and collection costs, where timeshare owners simply stop paying due to escalating cost.
Smaller timeshare companies have a higher probability of litigation, or legal action taken against them due to rising fees, or fraudulent sales and service practices. There is a correlation between the volume of timeshares listed for $1.00 on EBay, and the level of complaints and litigation against certain timeshare companies. Diamond Resorts is one company that has frequently been in the news for what customers call unfounded increases in maintenance fees, and aggressive sales practices.
Stock prices for a timeshare that is bought out by a larger development increase, at least temporarily, which is enough time for investors to benefit by cashing in their shares to recoup their investment. Over time, the stock value typically returns to normal, leaving the resort running at a financial deficit (in some cases) and looking for new ways to increase revenue from timeshare owners.
The stock investors win but timeshare owners lose through increased fees. The resort simply wipes out it’s debt and starts over with fewer long-term consequences than a consumer faces, if he or she is forced to declare bankruptcy due to timeshare fees, and inflexible predatory contracts. Consumers are unable to “bounce back” as quickly, with credit repercussions lasting as long as seven years after a personal bankruptcy.
Our blog is designed to help consumers access the information they need to know, to make a cost saving decision to exit their timeshare for good. If you have found value in the information we’ve provided on our blog, we encourage to you share our articles on social media, or leave us a comment. We value your feedback.