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Got a penny? Buy a timeshare

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What do you do with that couch change that turns up every few months? How about buying a timeshare?

If you are savvy on the Internet, you can find timeshare owners who are eager to sell their well-loved vacation spots for $1. That is, of course, if you will pick up the annual maintenance fees. And therein lies the problem.

The housing crunch has hit timeshares hard, as sales have fallen, expenses have risen, and older developments have aged ungracefully. Tight vacation budgets have dampened interest, with sales at resorts tracked by the American Resort Development Association falling almost 40% (from $10.6 billion to $6.5 billion)between 2007 and 2011.

As people default on maintenance fees, older timeshare companies are struggling to operate with lower cash flows right around the time when they need additional maintenance and repairs.

As a result, maintenance costs have increased to an average $776 a year in 2011, u p from $575 in 2007, according to ARDA, straining owners who may have tired of their annual week in paradise, or may not be able to afford their timeshare in retirement or unemployment.

Disenchanted, many owners just want to get out from under the maintenance fees, but they are discovering that it may be even harder to sell a timeshare than it is a single family house in Detroit. And that's why they are putting their units on the market for the equivalent of pocket change, or trying to fob them back on the original developer.

"We never saw this coming as an industry," says Robert Webb, an attorney with Baker and Hostetler who represents timeshare resellers in Orlando, Florida. "Timeshare companies just kept building more and more before the recession hit, and now we do not have an easy legal solution to it."

Timeshare associations are fielding - and declining - more and more requests to take the units back, according to Howard Nusbaum, president of ARDA. A 2011 study conducted by ARDA found that of 134 homeowners association-controlled timeshares, 56% said they did not have a resale program for owners who wanted to sell.

Resorts owned by large companies like Walt Disney Co. and Starwood Hotels & Resorts Worldwide Inc. have management companies to organize sales, so they are more likely to offer resale problems. But many owners say they been sent to third party sales firms where they found poor communication and procedural delays.

SELLERS OFTEN ASKED TO PAY

Bob and Amelia Yarbrough, retirees in Oak Ridge, North Carolina, had owned their Wyndham Resort timeshare for fifteen years when they decided to sell in October of 2011. (Like many timeshares sold by major resort companies, Yarbrough's unit was denominated in points that he could use at a variety of Wyndham locations.) He placed an ad on the selling space of the Timeshare Users Group's website (TUG, TUG2.net), offering his 40,000 points -- usually enough for a week in Daytona Beach with his wife -- for $500.

No buyers emerged, so he bumped the price down to 1 cent and offered to pay some of the closing and transfer costs, leaving the buyer with only the $455 in annual fees for the timeshare.

Even that second ad was met again with silence. "I couldn't understand why it wasn't selling," said Yarbrough. "Apparently not enough people know about TUG and the secondary market. But when that fails to generate a sale, what's the next step?"

Yarbrough spotted a company on eBay that seemed to be selling timeshares left and right. That company deflected his inquiry to a company called Timeshare Refuge in Branson, Missouri that bills itself as the "home of the timeshare dump."

The company offered to transfer the timeshare out of Yarbrough's hands if he would pay them $690 u p front. After searching the internet for any references to the company, and finding nothing alarming (the firm has an A+ rating on the website of the Better Business Bureau), he paid.

More radio silence. "You kind of reach a point where it's been a month and you never heard anything," said Yarbrough.

After many calls, he was told that the timeshare had been sold to a buyer in Los Angeles, and that Wyndham was in the process of drawing up the deed transfer. He is still waiting for written documentation from either Wyndham or Timeshare Refuge, but the bills for the maintenance fees stopped coming, and Wyndham has cut off his access to the website its owners use, so he assumes he is free of the timeshare.

Ray Hinkle, a representative for Timeshare Refuge who helped Yarbrough, said "as with all our customers, I have kept them updated on all activities of the transfers."

THE POSTCARD FLOOD

Owners of older timeshares are used to a pile of postcards being pushed into their mail slots every day, all offering much-needed solutions to offloading a timeshare. These are often sent by organizations that ask for $5,000 or more in advance to sell a timeshare and transfer the deed to the new owners.

Groups like TUG and AARP have used the internet to spread awareness that many of these are scams. In Florida, the state's attorney general logged 12,257 complaints about timeshare fraud in 2010, up more than fourfold, from 2,929, in one year. Florida's attorney general has targeted boiler room fraud operations that have victimized many timeshare owners, and in particular, elderly ones.

Owners who feel stuck with timeshares they can't afford or don't want may not have many options, but they can at least avoid scams by using websites like ARDA's Ardaroc.org or TUG to find advice on selecting reputable timeshare resale realtors. Here are a few other tips:

  • Talk to the resort manager: The resort may be willing to sell the share for a commission. If not, they also may be willing to accept the share in a deedback, which would remove the ownership from you, as long as all maintenance payments are up to date.
  • Rent it: The money raised by renting a week at a timeshare will pay some or all of the annual maintenance fees. To get a good idea of potential renters, ask the resort manager for the names of travel groups or retirement communities that have rented at the resort in the past. Sales sites like Redweek.com, Ebay or TUG are good places to list them.
  • Walk away. You could just stop paying your maintenance fees, just like homeowners defaulted on mortgages that were bigger than the houses they secured. But the consequences could be similar. Just because your monthly payments never showed up on your credit score doesn't mean the delinquent payments will not, said Gerri Detweiler, a personal finance expert at credit.com.
  • The resort can turn you over to a collection agency, which might submit your nonpayments to a credit reporting company. "On a good credit score, this could prompt a 100 point drop," said Detweiler. Furthermore, if the debt is ultimately cancelled, you could end up owing taxes on it.
  • Use it. Thinking about all of that stress may send you running back to the timeshare for your week away. If you can afford to keep it, you may be able to trade it for a different location, donate it for a year or two to a charity, or simply suck it up and enjoy the view until the market improves.
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