Terminating a Timeshare Community
Timeshare ownership has seen its ups and downs over the years. In the current economy, many people who would like to sell their timeshare, can’t. This is not true for all timeshares, but for older timeshare complexes known as legacy projects, this is becoming the norm. The solution is to terminate the timeshare community.
Legacy projects tend to be older condominium projects with 40 or fewer condominiums divided into 52 interval weeks running from Friday/Saturday to the next Friday/Saturday. Each week is separately owned as a deeded interest in real estate. It is this deeded interest in real estate that is the source of most of the problem.
Colorado’s tourism industry has changed dramatically over the last two decades to meet the demands of the tourism consumer. Consumers shop for airfares over the Internet tailoring plane flights with work schedules and airline discounts. With the rise of online hotel reservation systems and vigorous competition, the dollar spread between the rental value of a timeshare and the maintenance fees has narrowed. Add to that older, smaller legacy projects with little or no commercial tenants, rising labor costs and deferred maintenance, the market for these fixed week timeshares has stalled.
Timeshare owners are looking for solutions. One solution is to terminate the timeshare community and revert from 52 ownership weeks to a wholly owned condominium. The process is neither easy nor inexpensive, but it can be done providing a modest return on the timeshare owner’s investment and freedom from maintenance fees.
The challenges in terminating a timeshare community are many. Initial hurdles include site managers, lawyers and other businesses that provide services to the timeshare community and in return receive money. Site managers may see the idea of terminating the timeshare community as a job killer and actively work to squelch any suggestion to terminate the timeshare community. However, some managers with vision welcome the change and are re-tooling to provide services to wholly owned condominiums.
Lawyers, like site managers, may see the termination of the timeshare community as a loss in business.
Terminating the timeshare community starts with a careful reading of the governing documents by legal counsel. However, lawyers like site managers, may view the termination of the timeshare community as a lost client. Governing documents tend to be complex, hard to read and chocked full of legal jargon that only the lawyers can understand. If the lawyer so desires, it is easy just to say that it cannot be done and end the discussion. However, an independent lawyer may have a totally different opinion.
Ultimately, the ability to terminate the timeshare community turns on whether a title company will issue title insurance. A 40 unit timeshare complex with 52 weeks per condominium less 2 weeks per condominium reserved for maintenance equals about 2,000 deeded interests in the timeshare complex.
Statistically speaking, there will be a significant number of those deeded interests with title problems that have to be cleaned up or insured over in addition to title issues unique to developers, declarants and older governing timeshare documents. If a title company is not willing to issue title insurance or if the exceptions to the title insurance policy impact the marketability of title, this is reflected in the market value of the timeshare complex and in some situations makes reverting to whole condominiums cost prohibitive.
Despite the challenges in terminating a timeshare community, more and more legacy timeshare projects are studying their options as current owners default, pass away or abandon their ownership interest. As delinquency rates rise, terminating the timeshare community, no matter what the challenges, becomes a necessary option.
