As promised, here is the second part of a multiple part series on how to purchase a timeshare on the resale market.
Part 1, dealing with finding the specific timeshare, is found here.
In this post, I wanted to go through the contracting process. It is very important that all terms and conditions of the transaction are put down in writing and signed by both the buyer and seller.
Once you locate the particular timeshare that you want and both the buyer and seller have agreed upon the price, you should move to the contract stage.
In my particular timeshare purchase, upon agreeing on the price, the Seller asked me for the following information:
1. Legal Names(s) FULL MIDDLE NAMES REQUIRED FOR HAWAII
2. Are you taking title as single person, husband/wife, married as sole owner or joint tenancy.
3. Mailing address
4. Your county of residence
5. Daytime phone number
6. Home phone number
7. SEPARATE e-mail address for EACH INDIVIDUAL TO BE LISTED ON OWNERSHIP
8. Are you a current owner?_____________ Member # __________
9. Copies of photo ids for each individual to be listed on ownership
10. Recent or current bankruptcy or foreclosure? _______
11. If title is to be taken in a Trust, LLC, or Corporation you must provide a copy of the established documents.
The information above was requested in order to properly fill out the Purchase Agreement. It is good practice for the Buyer to provide this information for the Seller as the Seller will generally complete the Purchase Agreement for you to sign.
As you can see, there are personal details that will be required to complete the timeshare purchase so there has to be some level of trust or confidence in the Seller. It is generally recommended to deal with a reputable company for a timeshare purchase. There are too many scams out there concerning timeshares and financial transactions is general so be careful and do your research before providing this information or transferring funds.
Do some research on the Seller before doing anything. As previously discussed, I used Sumday Vacations and had a good experience but there are many reputable companies out there.
Purchase Individually or through an Entity?
One important item to consider before the contracting stage is the way that you will hold title to your timeshare. This can be done individually, as husband and wife or through a legal entity. The legal entity can be in multiple forms but generally a limited liability company (LLC) or a Trust can be a good way to hold title.
This is NOT legal advice but the benefits of holding title in a legal entity is that you are able to transfer ownership of that legal entity without having to inform the timeshare company / developer. For example, if I bought my timeshare through a legal entity, ABC LLC, and I then wanted to transfer it to my children, I can do so by selling or transferring the LLC. You would have to inform the developer of a potential name change on the account but this should generally avoid any transfer fees that the timeshare developer likely charges for transfer.
Also, the other potential benefit to holding title in a legal entity is to have multiple people associated with the entity.
For example, if you are a family of four, you can have all 4 family members as owners of the legal entity and therefore, can make reservations of its behalf. If the parents own a timeshare and wanted to allow your children to use it without you being there, this would generally require a guest certificate which generally costs money. If all family members are owners of the timeshare through the legal entity, guest certificates will be avoided.
The other consideration is liability. One of the downsides to timeshare ownership is that the timeshare will always have maintenance fees associated with it. Those never end and generally will continue to increase year after year. In the event that you cannot afford to pay those and you go into default, the developer will go after the legal entity and not you personally.
While this is technically true, the individual(s) associated with the legal entity will likely be dragged into any legal action but it does provide an additional barrier between you and the timeshare company / developer. Although I am not positive, it is also possible that if the legal entity defaulted and an action instituted against it for non-payment, when you lose or default (extremely likely), the developer will not be able to report the individual to the credit bureaus where it would significantly hurt your credit score.
I'll have to do a more detailed post of defaulting on timeshare fees but generally, it is NOT RECOMMENDED AT ALL, regardless of how you own it. The timeshare agreement is generally rock solid and the timeshare company / developer will likely institute proceedings to foreclose on the timeshare and it will be time consuming, costly and distracting.
Overall, purchasing through an entity can be a smart decision. There are some upfront costs and ongoing filing requirements but it can save you headaches down the road when you want to transfer it and save you some fees depending on how you intend to use it.
Once you decide on how you want to hold title to your timeshare, you will need to execute a Purchase Agreement. I have attached a template of one that I have used in the past.
The above is a decent agreement that you can use. It is not the best but the key is to get the material terms on paper. As you can see, the above contracts makes mention of a Florida statute so if the timeshare is located in another jurisdiction, that should either be removed or replaced with the applicable statute of the jurisdiction where the timeshare is located.
Make sure that the agreement specifies the amount of maintenance fees per year and if there are any maintenance fees that are past due. You should also mention who will be responsible for what during the contract phase.
As previously discussed, when I purchased my timeshare in Key West, while we were in the contracting phase, Hurricane Irma came through and caused significant damage to the resort as well as the entire area. If a special assessment was done during this time, it was important to spell out who would be responsible for it.
In Part III of this series, I will go through some more details on the process following the executed contract. Once the contract is completed, there are additional items to complete including making a deposit or depositing the purchase price in escrow, documentation requesting an estoppel certificate, going through the right of first refusal (if applicable) and getting a deed. In that part of the series, I will also discuss the pros and cons of using a closing company to assist in that process.
Overall, once you have located the particular timeshare that you want and agreed upon a price with a seller, the above contract can be used to negotiate the specific terms of the transfer. This should explain if there are closing costs and if so, who will be responsible for it, who should be responsible for maintenance fees either currently due or which could be due during the transfer process, who is responsible for any special assessments which either occur or which are assessed during the transfer as well as whether an entity or you individually will hold title to the timeshare.
Many people do purchase timeshares without the assistance of attorneys but it could be a good use of time of money to hire an attorney to review some of the documentation before committing to signing a Purchase Agreement. Purchasing a timeshare is almost the same as purchasing a home as the documentation is almost the same.
Stay tuned for Part III!
Make sure to comment below with any thoughts or comments?