Will defaulting on a timeshare contract go on my credit report?
The short answer is that it probably will, but not always. As in many situations, the devil is typically in the details.
This scenario applies to any developer financing of the timeshare’s purchase price.
- If the purchaser bought directly from the timeshare developer and the purchaser financed a portion of the purchase price through the developer, then most certainly a default of that portion of the total debt will end up a ‘derogatory’ late payment on the purchaser’s credit report, as will subsequent missed payments.
- However, if the purchase was through what we call ‘the secondary market’, via a broker or purchased directly from the prior owner, the chances are credit reporting will not come into play because it’s the developer who typically utilizes credit reporting agencies to bolster its collection efforts.
- If the developer is not involved, it is doubtful a credit reporting agency will be involved either. However, since most timeshare transactions are through the developer, the odds are good that credit reporting will be an issue.
There is a secondary annual obligation that attaches to timeshare ownership or membership as well.
- So any discussion of timeshare credit reporting needs to also cover the annual maintenance fee that is legally imposed on all timeshare interest owners or members in addition to the unpaid portion of the purchase price.
- Nonpayment of that maintenance fee obligation can also trigger negative credit reporting as well, but that is not always the case either, in fact, the possibility of the maintenance debt being reported is much lesser.
The average annual maintenance fee is about $1,000 per year but owner/members can also face additional assessments for resort capital improvements, so the amount to be owed is difficult, to pre-determine.
- Also, the annual maintenance fee obligation is, by statute, owed simply by virtue of being either a deeded owner or a ‘right to use’ points-based member.
This debt is not directly related to the previously mentioned purchase money debt as provided by the developer. A governing organization known as the Property Owners Association (POA) is the creditor this debt is owed to. This ‘non-profit’ organization exists independently of the developer, although often the developer exerts a lot of control over it via the management company, often owned by the developer, who is typically contracted by the POA to manage the resort. This POA is unlikely to have a subscriber relationship with a credit reporting agency, so credit reporting is less of a concern as it relates to the maintenance fee obligation. However, once in arrears, if the POA turns to a collection agency to help collect delinquent maintenance fees, that collection agency will undoubtedly have a subscriber relationship with the credit reporting agency and will undoubtedly report the debt as delinquent in an effort to collect it. However, should a maintenance fee debtor have an attorney in place attempting a timeshare termination for the debtor, often the collection agency will not even accept that matter as an active collection file because of a federal statute that restricts their ability to directly contact that debtor if an attorney is involved, and therefore that collection agency has no ability to effectively attempt to collect, and simply returns the file to the POA with no action.
In summary, the question of whether or not a timeshare default debt will be reflected on a credit report has to be determined on a case by case basis because of all of the variables referenced above. However, generally speaking, there’s probably an 80-90% probably that it will be. Only by reviewing the factors as referenced and even then I strongly recommend directly examining the consumers credit report itself, (which is readily available free of charge through www.annualcreditreport.com), in order to conclusively answer the question whether or not it has been reported.