[2009] Why Do We Shame People Out Of Walking Away?

[DanCali]

There have been quite a few threads/posts on TUG recently from owners asking about the consequences of walking away from their MF obligations.

Most responses on TUG have pointed to the fact that the credit history will be "ruined" and that this is a bad thing to do because MFs will be passed along to other owners. But is this really from anyone's experience or are we just shaming people from walking away because that is right from a social or moral perspective?

I should point out that I am in no way advocating that people should walk away from timeshares and the financial obligations associated with them and thus ruin their credit history or place the financial burden on other owners. I am also not in that position myself and am in fact adding to my timeshare portfolio these days. I just wanted to openly point to what I was observing, and possibly start a civilized debate, in particular in the context of a recent controversial article I read.

Brent White, a U. of Arizona law professor, recently came out with a paper that actually advises homeowners to walk away from mortgages the moment they are underwater. If you take that advice, any timeshare owners that bought from the developer and financed their purchase should just walk away. You can also more broadly extend this argument to timeshares by saying that if the perceived benefit of timesharing is not worth the cost (e.g. MFs higher than rental costs or some more individual subjective measure) and the timeshare cannot be sold for $1 then it is best to just walk away. The article also suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision.

A link to the article is here.

Corporations default on their loans all the time and strategically choose the bankruptcy route. We accept this as a given even though there are obvious impacts to jobs etc. So why the double standard? Why not just let people do what they perceive to be in their best interest? Do we just shame them because we (i.e. other owners) get impacted by their decisions?

 

[DeniseM]

Corporations default on their loans all the time and strategically choose the bankruptcy route. We accept this as a given even though there are obvious impacts to jobs etc. So why the double standard? Why not just let people do what they perceive to be in their best interest? Do we just shame them because we (i.e. other owners) get impacted by their decisions?

"We" do? I certainly don't accept defaulting on loans or bankruptcy as a "given" at any level. I believe in personal responsibility, so I would never advise anyone to walk away from their financial obligations.

There may be people, who through no fault of their own, cannot fulfill their financial obligations, and are forced into bankruptcy, but that's a far cry from someone who is just tired of their timeshare and wants to walk away. But, the posts we get on TUG are not from people declaring bankruptcy, because their TS obligations would be part of the bankruptcy proceedings, and there would be no need to post on TUG.

Folks - This is going to be a tough topic to discuss without making it political, but let's try not to go there - OK?

 

[DanCali]

"We" do? I certainly don't accept defaulting on loans or bankruptcy as a "given" at any level. I believe in personal responsibility, so I would never advise anyone to walk away from their financial obligations.


Folks - This is going to be a tough topic to discuss without making it political, but let's try not to go there - OK?

"We" was figuratively speaking... It does seem that most posters advocate against walking away but certainly not everyone.

"Personal responsibility" is likely one of the social norms the article is referring to. One can argue that decisions shoul be made purely on a financial basis - why throw good money after bad when you always have the option to walk away (and, of course, face the consequences related to that option)?

 

[DeniseM]

If I made my decisions on a purely financial basis, wouldn't I also stick a knife in your ribs and take your wallet?

 

[Patri]

But is this really from anyone's experience or are we just shaming people from walking away because that is right from a social or moral perspective?

Social and moral perspectives hold a society together. We are a civilization that depends on financial responsibility.

 

[TUGBrian]

Social and moral perspectives hold a society together. We are a civilization that depends on financial responsibility.

more importantly, as more people "walk away"...the financial burden is then passed on to the remaining owners.

Quite frankly, I shouldnt have to pay your bill.

 

[aliikai2]

Because in most cases, the HOA won't let them walk away

Unless they are in a specific set of circumstances, i.e. unable to pay because they are out of work, no longer able to travel due to severe health issues, the resorts in most cases will not allow them to walk. They can and do go after non-payment of annual fees using collections companies. So, unless their financial rating is of 0 value, it behooves them to sell it, even if they need to pay the closing costs/ transfer fees, maybe even this next years annual fees.
I don't try to shame anyone into not doing something, but I feel compelled to point out the pitfalls of attempting the bury their head in the sand approach.

fwiw,

Greg

There have been quite a few threads/posts on TUG recently from owners asking about the consequences of walking away from their MF obligations.

Most responses on TUG have pointed to the fact that the credit history will be "ruined" and that this is a bad thing to do because MFs will be passed along to other owners. But is this really from anyone's experience or are we just shaming people from walking away because that is right from a social or moral perspective?

I should point out that I am in no way advocating that people should walk away from timeshares and the financial obligations associated with them and thus ruin their credit history or place the financial burden on other owners. I am also not in that position myself and am in fact adding to my timeshare portfolio these days. I just wanted to openly point to what I was observing, and possibly start a civilized debate, in particular in the context of a recent controversial article I read.

Brent White, a U. of Arizona law professor, recently came out with a paper that actually advises homeowners to walk away from mortgages the moment they are underwater. If you take that advice, any timeshare owners that bought from the developer and financed their purchase should just walk away. You can also more broadly extend this argument to timeshares by saying that if the perceived benefit of timesharing is not worth the cost (e.g. MFs higher than rental costs or some more individual subjective measure) and the timeshare cannot be sold for $1 then it is best to just walk away. The article also suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision.

A link to the article is here.

Corporations default on their loans all the time and strategically choose the bankruptcy route. We accept this as a given even though there are obvious impacts to jobs etc. So why the double standard? Why not just let people do what they perceive to be in their best interest? Do we just shame them because we (i.e. other owners) get impacted by their decisions?

 

[DanCali]

If I made my decisions on a purely financial basis, wouldn't I also stick a knife in your ribs and take your wallet?

Well - that would be a felony...

Conversely, I haven't heard of anyone going to jail for not paying MFs.

 

[geekette]

Unless they are in a specific set of circumstances, i.e. unable to pay because they are out of work, no longer able to travel due to severe health issues, the resorts in most cases will not allow them to walk. They can and do go after non-payment of annual fees using collections companies. So, unless their financial rating is of 0 value, it behooves them to sell it, even if they need to pay the closing costs/ transfer fees, maybe even this next years annual fees.
I don't try to sham anyone into not doing something, but I feel compelled to point out the pitfalls of attempting the bury their head in the sand approach.

fwiw,

Greg

Exactly. I would not suggest someone torpedo their credit history, financial "reputation" to ditch a timeshare. not worth it.

Maybe unpaid maint fees get stuck on me, maybe they don't - I believe that depends on the resort. Advocating "personal responsibility" is not necessarily something I would do, since it's a losing battle.

So when telling someone, hey, you're stuck with it, you're stuck until you can dispose of it, it's due to financial realities of the world we live in, not thru fear of getting stuck with their bill nor some hope for World Responsibility.

Shame them? Not me. My horse is not tall enuf.

 

[ace2000]

It's a worthy question... it's obviously a dilemma for some, and you can easily tell by the advice that is given out. Your word 'shame' is accurate on some of the responses, and sometimes the advice is not even valid or given out halfway.

It does get interesting... some will only provide accurate advice via PM, or not all, because they don't want the masses to take advantage of some kind of a loophole and have the company (developer, Wyndham, RCI, II, etc) close it in the future. Some will not provide valid advice about 'walking away from their timeshare' because they are looking at the process from their own interests and their higher maintenance fees that they'll be stuck with.

Anyway, everyone has to do what they feel is right in their own mind and decide on what level they want to help. So, you have to take it with a grain of salt, and just realize some see their own interests above others.

 

[bnoble]

I think most people give that advice at least in part because they don't want owners at their own resorts just walking away on their obligations. In short, the advice is partially out of self-interest.

There are, of course, some penalties associated with a foreclosure. Whether those penalties outweigh the cost of continuing to meet your obligations is probably a case-by-case basis. Someone who still owes $10K on something that wouldn't resell for 1/10th of that might well be better off just defaulting; the total costs in the end might be lower. Someone worried about $700/year MFs---that may be something else.

But, that's a purely economic analysis. For many of us, there is also a notion that one should honor one's commitments, even if doing so is not the most financially rewarding thing one could do.

 

[DanM]

A lawyer I know who knows I know about timeshares (ya know?) called me recently on behalf of a client who owned a January Virginia beach week who wanted to get rid of it. The lawyer wanted to know what was "wrong" with transferring the timeshare to a corporation or LLC and then letting the timeshare association foreclose? The question wasn't about the morality of it, just whether it had been done and if it worked. Lawyers.

As for the general question of walking away, the law lets you walk away from some things more easily than others. If I abandon a car registered in my name I will probably get a ticket and maybe a towing fee. If I have an outstanding loan, the lender won't care that I abandoned it. I think most of the "you can't or shouldn't walk away" advise here is rooted in the knowledge that it just isn't easy to walk away from real property and mortgages without consequences. People just use shorthand for the consequences.

 

[ace2000]

Currently, about one out of every four mortgages is 'underwater' - meaning the loan amount is valued higher than what a seller can get for it. In some geographic areas, the amount is in the 35%-50% range or even higher.

If you were in a position where you HAD to move out of your house, and it was underwater, what would you do?

I have a feeling that several of these people 'shaming' others into paying their timeshare maintenance fees would have no trouble at all giving their home back to the lender or even performing a short sale. Anyway, just food for thought...

 

[dougp26364]

Why? Because what good is anyone's word if they are allowed to break it all the time? What would the credit markets be like if everyone who agreed to the terms of a loan just walked away? To me it's not honorable to agree to something, then back out when it no longer fits your needs. There is a degree of responsibility that comes with borrowing money and it should not be taken lightly. If everyone walked away from their obligations, what sort of world would we be living in? How tuff will it become to get loans at reasonable interest rates if everyone else has to pick up the losses from those that just walk away?

Encouraging people to walk away from their obligations and believe there are no consequences is a slippery slope we step onto. It's bad practice all the way around and hurts not just the individuals involved in the pracitce but everyone else as well. People complain about 21% interest rates and annual fee's on credit cards but, that's a direct result of people who just walk away from their debts. Those that honor their debts pay for those that do not.

HOA's will also suffer heavily when people just walk away. Who do you think picks up that tab? The remaining owners do, that's who. If 10 owners out of 100 walk away from the obligation they agreed to in writing, the remaining 90 must pick up their tab.

What happens when the credit markets dry up for timeshare securities because people are defaulting on their loans? Developement stops like it has now. Banks aren't going to take that chance at any interest rate. They just won't loan money for developers to build new timeshares. When that happens, it will become a cash business. New resorts and developement will be stopped dead in it's tracks.

I don't recommend just walking away because it's bad for personal finance, it's bad for the local economy, it's bad for the global economy and it's not an honorable thing to do. Some may say my one little loan won't hurt things but, when there's a lot of people thinking the same thing, that one little loan turns into a lot of little loans that turn into a major propblem for everone else.

 

[AwayWeGo]

There Is An Orderly Way To Walk.

Plenty of people under water on their personal home mortgages keep on making their monthly payments anyway, mox nix that the principal amount owed now exceeds today's fair market value of the property. The way those people figure, a deal is a deal. Sometimes we bite the bear. Sometimes the bear bites us.

Same thing with timeshares.

If our outgo far exceeds our income, we can just walk & take the consequences.

In the alternative, we can file for personal bankruptcy & let the court sort out who gets how much of whatever we have left, minus any lawful exclusions.

When we choose that orderly way to walk, we can hold our heads up high with each step.

When we merely stiff our creditors willy nilly, not so much.

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

 

[b2bailey]

A Personal Perspective...

Just last night I had a tough conversation with the Owner's Services dept of one of many timeshares that we own. This is the one that comes due in July, so it was several months overdue.

My husband has been out of work for a year this week. We have a house in foreclosure. No, there just isn't any money for timeshare maintenance fees at the moment. I feel bad about others getting 'stuck' with my inability to pay.

I also feel bad for me. We've been paying what I would consider 'overinflated' MF at this particular timeshare. It's a tiny place, few amenities, with MF's MORE than we owe to Marriott. My husband suggested for several years that we just 'walk away' but I felt the personal responsibility and kept paying. I don't know what happens next -- but we lose everything we have paid.

Sadly, this is a timeshare that nobody would even take off our hands for free because of the outrageous MF.

 

[JMAESD84]

Many advise NOT walking away because they are protecting their own self interest (calculating that their cost will increase as a result).

I say do whatever it is that you have to do to effectively managae you own finances. Defaulting on a loan or obligation will have consequences. If in the balance of things that is the lesser of two evils then it becomes the reasonable choice.

As a timeshare owner if I pay my fees every year and EVERYONE else walked away would the resort charge me the entire budget and expect me to pay that for my one week? I don't think that they legally could or that any judge on the planet would hold me responsible for such a charge.

The attitude that each owners only solution is to find the "next sucker" (at whatever cost) that will keep paying fees is outdated. IMO - Every resort should have provisions for supporting resales and taking deedbacks. Would an owner choose to walk away if they could simply arrange a deedback to the resort?

 

[Bill4728]

Just last night I had a tough conversation with the Owner's Services dept of one of many timeshares that we own. This is the one that comes due in July, so it was several months overdue.

My husband has been out of work for a year this week. We have a house in foreclosure. No, there just isn't any money for timeshare maintenance fees at the moment. I feel bad about others getting 'stuck' with my inability to pay.


Sadly, this is a timeshare that nobody would even take off our hands for free because of the outrageous MF.

Once you have to choose between paying on your home or paying on your TS, IMHO the choice is clear. Walk away from your TS.

The damage a TS foreclosure can do to your credit is nothing like the damage a home foreclosure can do.

 

[Bill4728]

Many advise NOT walking away because they are protecting their own self interest (calculating that their cost will increase as a result).

I don't believe that the advice given here is given in that state of mind (protecting their own self interest). I believe that most TUG members try to give advice which we think is the best advice for the person asking the question.

I say do whatever it is that you have to do to effectively manage you own finances. Defaulting on a loan or obligation will have consequences. If in the balance of things that is the lesser of two evils then it becomes the reasonable choice.

Very True

As a timeshare owner if I pay my fees every year and EVERYONE else walked away would the resort charge me the entire budget and expect me to pay that for my one week? I don't think that they legally could or that any judge on the planet would hold me responsible for such a charge.

I do not understand this whole thought that as more people walk away, the other owners should pay a greater share of the MFs. What should be happening is that at a certain point of being behind in your MFs, you should have to forfeit the use of your week to allow the HOA a chance to rent it and recover some of the overdue MFs.

IMO - Every resort should have provisions for supporting resales and taking deedbacks. Would an owner choose to walk away if they could simply arrange a deedback to the resort?

Agree completely!

 

[DanCali]

Just last night I had a tough conversation with the Owner's Services dept of one of many timeshares that we own. This is the one that comes due in July, so it was several months overdue.

My husband has been out of work for a year this week. We have a house in foreclosure. No, there just isn't any money for timeshare maintenance fees at the moment. I feel bad about others getting 'stuck' with my inability to pay.

I also feel bad for me. We've been paying what I would consider 'overinflated' MF at this particular timeshare. It's a tiny place, few amenities, with MF's MORE than we owe to Marriott. My husband suggested for several years that we just 'walk away' but I felt the personal responsibility and kept paying. I don't know what happens next -- but we lose everything we have paid.

Sadly, this is a timeshare that nobody would even take off our hands for free because of the outrageous MF.

Yes, it is true that other owners get stuck with the MFs of non paying owners. But that is part of the risk of buying a timeshare... just like the risk of getting a special assessment - if people don't like that risk, they don't have to buy. This is not a new thing - there are advantages and disadvantages in owning versus renting a house, buying versus leasing a car etc... You may pay more if you rent but you avoid a lot of the hassles associated with ownership.

I really don't see why it is necessary to give non paying owners a guilt trip... If the value to ownership was there then owners would pay. And if they wanted to stop paying and the value to ownership was there then it would be relatively easy to find a buyer - for a price greater than $1. In fact, if there was value to owning then HOAs should resell thse units for a profit...

It is probably the management company's fault that MFs have risen to such a level that resale prices are zero and many owners are not paying MFs. Owners should focus on firing them and bring in someone else who can manage the resort more effectively. Lower MFs generally mean higher resale prices (and vice versa).

I own at Starwood and Starwood has several resorts where MFs increased by 25% or more this year because many owners stopped paying. What other owners seem to disregard is that Starwood has been jacking up MFs during the "good years" by 10% a year, every year, at those resorts - way beyond the cost of inflation, hotel cost increases, or increases at comparable resorts nearby. Owners have been taking those increases as a given even though simple math reveals that resorts cannot sustain themselves for long in the face of such MF increases. I'm not sure it's right to blame people for doing what may in fact be the optimal thing to do - at least for them.

 

[brawney]

I don't believe that the advice given here is given in that state of mind. I believe that most TUG members try and give advice Iin which we think is the best advice for the person asking the question.

I agree. I'm new here, but thats my impression too.

 

[DanCali]

I do not understand this whole thought that as more people walk away, the other owners should pay a greater share of the MFs. What should be happening is that at a certain point of being behind in your MFs, you should have to forfeit the use of your week to allow the HOA a chance to rent it and recover some of the overdue MFs.

I don't think anyone has a problem with that but I also don't think that solves the problem in many cases. If renting was that easy the owner would have done it...

Moreover, I suspect that for some of the Starwood resorts the math works something like this:

Starwood rents the delinquent unit on behalf of the HOA via its website and charges a pretty big commission, probably 50%. It also charges 7 housekeeping fees because rentals get daily housekeeping. So how much is left over to cover the unpaid dues?

Take for example Sheraton Vistana Villages (SVV) - MFs for a 2BR are $1300 over there...

If Starwood rents the unit at $200 a night that's $1400 out of which they collect $700 in commissions and 7 housekeeping charges. So if cleaning a 2BR villa costs $100/night all the rental revenue went to Starwood (commissions + housekeeping) and none is left in the owners account to cover unpaid MFs. If cleaning charges are more than $100 a night maybe the HOA even owes them money...

 

[e.bram]

I believe most(if not all) of the posters who use the morality reason for not bailing are motivated by enlightened self interest. ie. They own prime weeks in seasonal resorts and do not want to pick up the costs of the the dog bailed out units. (prime units pose no threat since they can be resold).
If you want legal advice ask a lawyer.
If you want moral advice ask a clergy.
I believe we are dealing witha legal issue here.
PS I don't believe one hit on a TS default will have a serious lasting effect on your credit rating if it is the only negative report. Collecting the MFs will probably cost the TS more than they will collect.

 

[ace2000]

I don't believe that the advice given here is given in that state of mind. I believe that most TUG members try and give advice in which we think is the best advice for the person asking the question.

I agree. I'm new here, but thats my impression too.

Sorry, but people give advice on this matter according to their own self-interest. Many on TUG have already admitted to it.

Telling people to sell their timeshare on eBay or donate it to charity is sending them down a wasted path for over half the timeshares out there... many ask what's going to happen if they 'walk away' and get all kinds of doom and gloom responses. Trying to cast all kinds of guilt and 'shame' is another way of not providing help - especially when many of these are desperate pleas for help.

Everyone has to live with their own conscience on this matter...

 

[ondeadlin]

Sorry, but people give advice on this matter according to their own self-interest. Many on TUG have already admitted to it.

Telling people to sell their timeshare on eBay or donate it to charity is sending them down a wasted path for over half the timeshares out there... many ask what's going to happen if they 'walk away' and get all kinds of doom and gloom responses. Trying to cast all kinds of guilt and 'shame' is another way of not providing help - especially when many of these are desperate pleas for help.

Everyone has to live with their own conscience on this matter...

I completely disagree with this.

In 99 percent of the cases on TUG, the person asking the question and the person offering advice don't own at the same resort. That goes a long, long way toward taking self interest out of the equation. If you're arguing that people on TUG are perpetuating some sort of culture of shaming in an unspoken and uncoordinated vast conspiracy to keep MF low ... well ... it's a theory, I guess.

Ultimately, when you get right down to it, why pay any bill? It's a bit of a philosophical question on the larger scale, and yet a very simple one on the small scale (i.e. because you took the services or goods, duh!)

We live in a computerized age where defaults can haunt you even longer than the historical 7-year bankruptcy punishment.

Forget about costing you a mortgage, bad credit can cost you a job if the other qualified candidate has good credit.

Look, if the question is "Should I feed my family or pay these fees ..." or "Should I pay my mortgage or pay my timeshare loan ..." the question is so obvious you shouldn't be asking it on TUG.

But in many cases the question is posed as ... "I'd rather not pay these fees, what happens if I walk away ..."

And the truthful answer is this: Your credit will likely be destroyed and you may have to pay the fees anyway.

That's the answer. That's the truth. You might not like it, but it is what it is.

Armed with that, everyone is free to make a choice, and no one from TUG will hunt them down regardless of what choice they make.