What are Special Assessments and Why you Need to Know?

Hurricane Season

Unfortunately, this has been a very active hurricane season for the Caribbean.  First, Irma came in and destroyed the island paradises of St. Thomas, St. John, St. Martin and Barbuda only to be followed up by Maria which has caused a great amount of devastation in Puerto Rico and other island paradises.

Natural disasters seem to be on the rise with Harvey doing a tremendous amount of destruction in Houston and now Mexico City is digging out from a earthquake.

A lot of people have lost everything and it is truly sad.  

Impact to Timeshare Owners

For timeshare owners, the issue that comes with these natural disasters are what are known as "special assessments". Special assessments are charges for unanticipated or non-budgeted items.  Natural disasters are a key reason for special assessments.    

Most timeshare owners have deeded weeks which are considered real property interests. A timeshare interest is actually a deeded real property interest and like a home, requires maintenance, insurance and constant upkeep.    

As real property owners, timeshare owners are responsible for the maintenance of the property and improvements but can also be held accountable for other economic items that are not budgeted.  

Special Assessments

In almost all governing documents concerning timeshare ownership, the resort will have the authority to issue special assessment(s) to the owners for any unplanned expenses. This allows the resort to obtain funds required for the continual operation of the resort. 

Natural disasters are probably the number one cause of special assessments.  Natural disasters are unplanned and can wreak havoc on the resort.  

With the vast amount of destruction in the Caribbean, I believe that a lot of timeshare owners will be getting a special assessment.

The special assessment will be an additional amount of money required to be paid by the timeshare owner in excess of their annual maintenance fees.  

Unfortunately, these special assessment fees are non-negotiable and timeshare owners are required to pay them when assessed.  If timeshare owners fail to pay them, they will be in default and subject to penalties and potential foreclosure. 

While most resorts should have insurance, some resorts may not have adequate insurance to cover all the damage that occurred.  Like homeowners, some resorts directly on the beach may not have flood insurance or may not be able to secure adequate insurance on the property to cover the complete replacement value. 

If the resort did not have adequate insurance or insurance that did not cover some types of damage, timeshare owners will generally be on the hook for the difference.  The amount will be pro-rated between all owners but the amount of the bill can be a lot and can even be many times the amount of the annual maintenance fees. 

Comparison to Maintenance Fees

Timeshare owners are very familiar with maintenance fees which are the annual assessments that must be paid.  These include all the costs and expenses of running and operating the resort.  These fees are pro-rated to all the owners and generally include maintenance, management, insurance, capital improvements and other items that allow the resort to operate. 

Unfortunately, sometimes that amount budgeted for these items is greater than the amount of money that the resort has.  When this occurs, the HOA or governing body of the resort can assess additional fees to owners which are the special assessments.  

Most HOA's and resorts try not to do special assessments because it is unplanned, unappreciated and generally results in a  lot of disgruntled owners.  Due to this, most resorts try to always have adequate capital reserves in order to have extra funds available to do any maintenance or capital improvements that may not have been foreseen.

If you look at your annual maintenance fee statement, there are usually a item budgeted for "reserves".  This is extra money that the resorts hold for the "just in case" situation.

Most times, for well run resorts,  these reserves should be adequate to cover some unplanned expenses but for those true disasters, special assessments are available for the resorts to get the extra required money. 

Timeshare Owners in Points Based Systems

Many timeshare owners no longer own deeded weeks and instead own "points".  The actual properties are owned in a land trust and owners of points are granted the ability to use resorts based on the exchange charts and use of their points.  

For these types of timeshare owners, special assessments may still be done but the likely result for these timeshare owners will be an increase in maintenance fees.  All costs and expenses of the properties in the land trust are passed through to owners.  

Since there are many more properties and many more owners, the benefit of these land trusts are that expenses are widely spread out so if one resort is underfunded, the land trust still should have adequate funds from other resorts which were over-funded.  

The disadvantage to a land trust is that when something major occurs to one or more properties in the land trust, all timeshare owners in a land trust will likely see an increase in their annual dues even if you never travel to the destination that is causing the increase.  

For example, Marriott is a points based system and the Marriott Frenchman's Cove's property on St. Thomas suffered some significant damage.  The amount is unknown but all Marriott points owners in the land trust will essentially be required to pay their pro-rata portion to fix that property.  Since the pool is large, the amount per owner will likely be relatively small but I would anticipate some increase increase in maintenance fees for the following year for Marriott owners.   

Conclusion

Special assessments are a way for the resort to charge owners for any unforeseen or unexpected costs incurred.  Natural disasters are one of the major reasons that the resorts have this taxing ability.  If you own at a resort that got damaged by the hurricanes, earthquakes or flooding, we hope that the resort was adequately insured.  If not, the next place to look is to the owners.  

Special assessments are part of timeshare ownership and are very unpopular to say the least.

Special assessments are one of the major downsides to timeshare ownership.  While they tend to not happen often, if they do, owners may be subject to additional unplanned expenses simply by being an owner. 

Do you own at a timeshare property that has given a special assessment?  Please leave your comments below.