What happens to owners that don't pay MFs?

With many people trying to sell their TS due to various reasons, and one of them being not able to pay or not wanting to pay for MFs any longer, what happens if an owner decides to stop paying their MFs? Does the TS get taken over by Marriott and Marriott is able to re-sell it? And does Marriott have a hard deadline of paying MFs?

I don't know if there is a hard deadline, but I know that Marriott placed a lien on the timeshare we bought in June for a MF that was due in January. The prior owner had not paid the current year MFs. So they place a lien pretty fast, which this would be the first step toward foreclosure.

If an owner doesn't pay, the other owners do pay the difference in a higher MF which show up as bad debt on the HOA budget. Someone has to cover those bad debts.

Failure to pay the MFs will then lead Marriott to foreclose on the lien on behalf of the HOA. Marriott may have a buy back agreement with the HOA to take ownership of the unit/weeks which they then convey to the trust and sell. Some resorts have their own resale programs where they list weeks for sale instead of selling them back to Marriott. I think Monarch may have such a program.

dioxide45 said:

I don't know if there is a hard deadline, but I know that Marriott placed a lien on the timeshare we bought in June for a MF that was due in January. The prior owner had not paid the current year MFs. So they place a lien pretty fast, which this would be the first step toward foreclosure.

If an owner doesn't pay, the other owners do pay the difference in a higher MF which show up as bad debt on the HOA budget. Someone has to cover those bad debts.

Failure to pay the MFs will then lead Marriott to foreclose on the lien on behalf of the HOA. Marriott may have a buy back agreement with the HOA to take ownership of the unit/weeks which they then convey to the trust and sell. Some resorts have their own resale programs where they list weeks for sale instead of selling them back to Marriott. I think Monarch may have such a program.

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So week owners get a double whammy when other week owners default.
Firstly we get hit by the resulting higher MFs to cover the bad debt.
Secondly we lose a week of inventory into the Trust.
Great!

spaulino said:

With many people trying to sell their TS due to various reasons, and one of them being not able to pay or not wanting to pay for MFs any longer, what happens if an owner decides to stop paying their MFs? Does the TS get taken over by Marriott and Marriott is able to re-sell it? And does Marriott have a hard deadline of paying MFs?

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It actually depends on the state. Some states have a judicial foreclosure process (goes through the court) versus some have a non-judicial process (usually handled by a trustee). Some states treat timeshares the same way as other real property, some don't.

It also depends on whether there is a mortgage or not. If a seller does not pay the MFs and has a mortgage, the HOA can foreclose but this will not clear the primary lien (usually the mortgage). Some HOAs have an arrangement with the management company (i.e. most of Marriott and Starwood) to transfer the property back to the management company so they can sell it.

It really all depends, but the basic process is usually the same:

1. Notice to delinquent party
2. Lien placed on property
3. Public announcement of bankruptcy sale
4. Bankruptcy sale occurs and new buyer is given deed after payment
5. Transfer by resort processed to new buyer

-ryan

bazzap said:

So week owners get a double whammy when other week owners default.
Firstly we get hit by the resulting higher MFs to cover the bad debt.
Secondly we lose a week of inventory into the Trust.
Great!

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At least a week conveyed to the trust is a week that will never be in default again. I would suspect defaults on DC point MFs are spread across DC point owners.

sjsharkie said:

It really all depends, but the basic process is usually the same:

1. Notice to delinquent party
2. Lien placed on property
3. Public announcement of bankruptcy sale
4. Bankruptcy sale occurs and new buyer is given deed after payment
5. Transfer by resort processed to new buyer

-ryan

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6. Bankruptcy trustee pockets a fee
7. Remainder of funds from the sale go back to the Marriott (lienholder).

I know that Bad Debt Expense shows up on the financials, but it's likely offset by proceeds from 7. above under Other Income. I have not clue if there ARE leftover proceeds and if there are do they ever make it BACK to the individual timeshare. Maybe someone closer to the financials can answer this.

Wally3433 said:

6. Bankruptcy trustee pockets a fee
7. Remainder of funds from the sale go back to the Marriott (lienholder).

I know that Bad Debt Expense shows up on the financials, but it's likely offset by proceeds from 7. above under Other Income. I have not clue if there ARE leftover proceeds and if there are do they ever make it BACK to the individual timeshare. Maybe someone closer to the financials can answer this.

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It likely depends who has first lien. If there is a mortgage on the timeshare, then in most states any leftover proceeds go to the mortgage holder. Though in a few states the HOA lien may supersede the mortgage lien. In that case the leftover proceeds will make it back to the individual timeshare HOA.

sjsharkie said:

It actually depends on the state. Some states have a judicial foreclosure process (goes through the court) versus some have a non-judicial process (usually handled by a trustee). Some states treat timeshares the same way as other real property, some don't.

It also depends on whether there is a mortgage or not. If a seller does not pay the MFs and has a mortgage, the HOA can foreclose but this will not clear the primary lien (usually the mortgage). Some HOAs have an arrangement with the management company (i.e. most of Marriott and Starwood) to transfer the property back to the management company so they can sell it.

It really all depends, but the basic process is usually the same:

1. Notice to delinquent party
2. Lien placed on property
3. Public announcement of bankruptcy sale
4. Bankruptcy sale occurs and new buyer is given deed after payment
5. Transfer by resort processed to new buyer

-ryan

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Sorry to be technical, but it has nothing to do with bankruptcy in most cases. It is actually a foreclosure sale, and most of those do not involve a bankruptcy, especially if the delinquency is because they don't want to pay as opposed to having no money to pay.

BocaBoy said:

Sorry to be technical, but it has nothing to do with bankruptcy in most cases. It is actually a foreclosure sale, and most of those do not involve a bankruptcy, especially if the delinquency is because they don't want to pay as opposed to having no money to pay.

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Yes, I mistyped that. Item #3 and 4 should read foreclosure sale.

Note that this has no bearing on the accuracy of the remainder of the post.

-ryan

dioxide45 said:

It likely depends who has first lien. If there is a mortgage on the timeshare, then in most states any leftover proceeds go to the mortgage holder. Though in a few states the HOA lien may supersede the mortgage lien. In that case the leftover proceeds will make it back to the individual timeshare HOA.

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Liens have priority or position based on chronological order of recording (except for redemption rights as in the IRS and other tax liens -- i.e., state tax lien). While a mortgage holder could agree to subordinate their lien to another lien holder, I don't know of any states that specifically give a HOA lien priority over a mortgage lien by statute -- it is all based on recording date. I'm no lawyer so please correct me if I am mistaken.

Your are right that it depends on who has the first lien, and normally that is the mortgage holder as a condition of lending.

-ryan

all other owners have to pony up

At the European Resorts and Phuket beach Club in Thailand, all these resorts are RTU. Failure to pay MFs for two years will result in the forfeiture of the
week(s). The owner loses the week and all usage rights are rescinded. The week is returned to Marriott Developer ownership. MVCI will then pay any outstanding MFs to the resort. In Phuket beach Club, MVCI then sells the week to the MVCIAP Points club. Since the inception of the AP Points Club system several hundred weeks at PBC have been transferred in this way.

In Europe MVCI still sells weeks and the revoked weeks are then available for sale again to new customers at developer prices.

Should the defaulting owner has a loan on the week, that will be with an external finance company or bank and he/she will still be on the hook for the payments. That may all sound brutal but I guess it kind of focuses the mind when an owner might be considering defaulting on the MFs.

If the week is free of debt then the owner may just see it as a way of escaping from the continuing expense of the MFs, especially if they are unable to make use of the week(s).

sjsharkie said:

Liens have priority or position based on chronological order of recording (except for redemption rights as in the IRS and other tax liens -- i.e., state tax lien). While a mortgage holder could agree to subordinate their lien to another lien holder, I don't know of any states that specifically give a HOA lien priority over a mortgage lien by statute -- it is all based on recording date. I'm no lawyer so please correct me if I am mistaken.

Your are right that it depends on who has the first lien, and normally that is the mortgage holder as a condition of lending.

-ryan

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YOu are correct, it is based on order of recording. Nevada is one state that I am aware of that the HOA has super lien. Apparently there are others. This can be a particular problem as foreclosure on the HOA lien can wipe out the first lien holder.

Some States Give HOA Liens Super Lien Status
Approximately 20 states have laws that give HOA assessment liens super lien status under certain circumstances. For example, in Colorado, HOAs have a super lien that has priority over a first deed of trust (mortgage) to the extent of six months worth of delinquent assessments (Colo. Rev. Stat. § 38-33.3-316). In Nevada, nine months of assessments have super lien status (Nev. Rev. Stat. § 116.3116).

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Source: http://www.nolo.com/legal-encyclopedia/homeowners-association-super-liens.html

dioxide45 said:

YOu are correct, it is based on order of recording. Nevada is one state that I am aware of that the HOA has super lien. Apparently there are others. This can be a particular problem as foreclosure on the HOA lien can wipe out the first lien holder.

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Thanks for the reference. I was aware of the Florida statute which allows the HOA to collect for a certain amount of in arrears HOA assessments from the non-association acquiring owner -- it does not prioritize the lien ahead of the superior lienholders in the statute but only states that the superior lienholder is liable for those fees... but I can see Nolo lumping it together with the "super lien" discussion since in effect what they are doing in reprioritizing a portion of the lien.

Reference (See (2)(a through d)): http://www.leg.state.fl.us/statutes...te&URL=0700-0799/0720/Sections/0720.3085.html

Good to know since I bid on timeshare foreclosure auctions from time to time (though mostly in FL).

-ryan

So just to jump in here and clarify, I think I understand that a foreclosure on a TS deed might result in a foreclosure entry on your credit report, but what about non payment of DC MFs? or RTU fees?

do they result in negative credit info for the giver-upper?

zaccaggie said:

So just to jump in here and clarify, I think I understand that a foreclosure on a TS deed might result in a foreclosure entry on your credit report, but what about non payment of DC MFs? or RTU fees?

do they result in negative credit info for the giver-upper?

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I would think it is possible. They might send your past due fees to collection and the collection agency might end up reporting the collection action to a credit reporting agency. That will hit your credit. As for the foreclosure action, I don't really know.

Since the maintenance fees are owed to the HOA, it appears to me that the lien would be that of the HOA, not Marriott. Foreclosure would then result in the deeded week being repossessed by the HOA (after paying accrued taxes, of course). While there might be a pre-existing agreement between certain HOAs and Marriott to deliver foreclosed weeks, I doubt that such a transaction would leave the HOA high and dry. Certainly, I would think a well run HOA would offer repos for sale, either to Marriott at a mutually favorable price, or to the secondary market. So the lament that the HOA somehow loses out when maintenance fees are delinquent appears unfounded. If the week has any value whatsoever, the lost assessments will be recovered in the subsequent sale.

I don't think it has been mentioned on this thread, but if an owner doesn't pay their MF, then the resort can ding the owner's credit rating.

If the resort foreclosures, that's a huge hit on the owner's credit rating.

My question on this topic involves Bronze Weeks at Summittwatch. They sold mud weeks for very little ($1500) some years ago, and are now of no value in the DC Points program and less than no value on the open market. Reportedly many owners have simply walked away from them as maintenance is now too excessive at $1500+ per week.
Anyone have a feel for how much a credit rating gets dinged or any way to defend yourself?