Beware of buying timeshares at a tax lien auction!

Timeshare, Tax lien auction

19 November 2023

Owning a timeshare is like owning real estate in several ways.

1. If you are a deeded owner, it is recorded with the county recorders office.

2. Your property taxes are collected along with your maintenance fees.

3. You may be able to treat it as a second home for tax purposes. (Please note that this is not tax or legal advice. Consult a professional)

So how does a timeshare end up at a tax lien auction? 

As with most real estate properties, if the taxes are not paid on time, the owner is considered to be in default. There is a predictable process of warnings that are sent out to the owner by the county with deadlines for submitting the amount owed before consequences are enforced.

It begins with late fees that accrue at a certain percentage. If the taxes are not brought current, then the penalty escalates to reporting the delinquency to the credit bureaus.  Ultimately, if the taxes and penalties are not paid, the property is foreclosed on, and the county takes possession of the property.

However, the county is not in the business of owning timeshares. So they promptly offer it for sale at a tax lien auction to recoup the amount of their lost tax revenue. 

It may seem odd that this can occur for a timeshare because the owner really only owns time and not the physical property. So when a timeshare ends up at auction, the implications are much deeper.

It speaks to how well the board is managing the money they are entrusted with. 

You see, if a timeshare owner is late on their maintenance fee payments, the timeshare billing department is the first to know about it. And they are keenly aware that if an owner defaults on their maintenance fees for too long, they are responsible to pay the portion that should have been set aside for taxes. And at some point, the billing department would normally revoke the ownership.

The board takes this into consideration when setting the budget and increasing the maintenance fees each year. Therefore, they should have enough funds to pay these taxes until a new buyer can be found.

This is usually handled internally at a sales presentation where the revoked ownership is offered to a new buyer at a deeply discounted rate. This can be a great deal for a new owner to buy a timeshare for pennies on the dollar because what the board wants most is for someone to continue to pay the maintenance fees and taxes on an ongoing basis to keep the budget in balance. 

So if a timeshare is sold at a tax lien auction, what went wrong? It could be one of two things...

1. When the billing department discovered the delinquency, instead of revoking the ownership and giving it to the salespeople for resale, they gave it to the county to find them a new owner instead.

2. Or, the board mismanaged funds so badly that they could not afford to pay the taxes.

If the reason the timeshare is being sold at a tax lien auction is because of poor management, it will leave other clues as well.

If you are thinking of purchasing a timeshare at auction, do your due diligence and pay a visit to the timeshare resort itself. 

If the board is not managing the funds wisely, it should be evident from a simple walk thru.

Note the following:

1. Is the paint fresh, or is it peeling?

2. Are the grounds well-kept, or are there weeds?

3. Is the roof in good condition, or are there signs of leaks and water damage?

4. Have the rooms and decor been updated recently, or are they old and outdated?

And ask other owners. They may make comments like, "My maintenance fees keep going up, but every time I come back, the place seems more run down."

This is a clear sign that the timeshare may not be a wise real estate investment, even if you do get it at a tax lien auction for a song. However, there may be an exception that you should consider.

Read the next post to learn about the other ways timeshares are like real estate...

Share your experience in the comments below.