I own a timeshare at the Manhattan Club in New York, which is a wonderful place, but I am extremely frustrated because I cannot easily make reservations to use my unit. I also know the Club is being investigated for possible civil and criminal fraud by the New York Attorney General's Office. In light of what has happened, I am seriously considering NOT paying my maintenance fees for next year. What will happen if I decline to pay my fees?
To answer this question, Redweek interviewed lawyers familiar with the Manhattan Club case, as well as HOA Board members at legacy resorts who see rising numbers of delinquencies from owners who cannot keep up with (or refuse to pay) their maintenance fee obligations. We also consulted with collection companies that pursue owners for payments when their accounts go delinquent. Here is what we found.
Happy Holidays and Hello Maintenance Fees
Maintenance fee bills for 2017 started hitting mailboxes around Thanksgiving, welcoming timeshare owners to another year of usage, endless vacations — and increasing fees for the right to make reservations. With maintenance fees (and taxes) ranging from $500 per week at a legacy beachside timeshare to $3,000 per week at a new brand-name timeshare on Maui, the choices are daunting. Multiply that financial choice by two or more for multiple-week owners (an estimated 50 percent of all owners own more than one timeshare interval).
As a matter of policy and ethics, RedWeek recommends that all owners pay their maintenance fees if they intend to continue using their timeshares. However, every year during the holidays, a growing number of timeshare owners reconsider their options when confronted with a bill that pits their vacation issues against their pocketbooks. This year, most maintenance fees are expected to increase two percent or more (and higher, for some Hawaii owners). For those who choose NOT to pay, here are the likely consequences of failing to keep your account current:
- Your resort will refuse to process reservations going forward until all fees are paid. Failing to pay maintenance fees is a violation of the purchase contract.
- Your developer and/or resort may pursue you, aggressively, with phone calls and letters, to pressure you to pay maintenance fees. Alternatively, after a few months or more, they may turn your account over to a third-party collection agency to handle the phone calls. The major threat, typically, is that the resort or developer will report your delinquency to a credit-reporting agency, a move that could hurt your credit score (and, perhaps, impair your ability to get a future mortgage or car loan). Some companies are much more aggressive about pursuing this tactic, but all of them reserve it as an option to scare owners into paying. It works, too, since many timeshare owners — even those in their 70s — would rather keep paying maintenance fees than risk hurting their credit.
- Your developer, or HOA board, will eventually pursue foreclosure against your ownership. This is a process that typically takes many months, if not years. Some legacy HOAs don't pursue foreclosure actions for years, hoping, instead, that a delinquent owner will eventually bring his or her account up to date. Foreclosure proceedings can be expensive, which is one of the reasons that formal foreclosure proceedings sometimes lag many months behind a delinquency.
If You Don't Pay, Other Owners Will
Beyond the personal ramifications, the most damaging consequence of a default on maintenance fees is its impact on other others. Because of the basic economics of running a resort, when an owner fails to pay his or her maintenance fees, the resort absorbs the loss, then passes it along to other owners who are in good standing. This process also takes time, but is inevitable. Big developers, with many resorts, resources and relentless sales organizations, can absorb these losses better than smaller companies. They just write off bad-debt, foreclose, and move on. Stand-alone legacy resorts, in contrast, survive year to year on their maintenance fees. They rarely have a reserve cushion to cover losses, or a resale organization to recycle delinquent units. (Legacy resorts strapped with double-digit delinquencies, in fact, are resorts on the verge of insolvency.)
Here are some statistics about collections that owners at legacy resorts should consider. For every month that a resort postpones pursuing a late-paying owner, the resort loses money. If the resort turns an account over to collections after three months, the chances of making a recovery are 70 percent. At six months, the recovery rate is 55 percent; at nine months, 40 percent; at two years, 15 percent.
(These statistics were presented to the Timeshare Board Members Association, by collections companies, in October.)
The Manhattan Club is a Special Case
While maintenance fees can irritate any owner — especially if they seem to go up, drastically, year after year, or are linked to a special tax assessment — they are particularly galling for owners at the Manhattan Club, which has been embroiled in legal controversy for three years. A partial result of that controversy, which we have covered extensively in other RedWeek forums, is that owners don't know whether they should continue paying maintenance fees that average $2,500 per one-week interval. Many of these owners, meanwhile, say they've been unable to use their timeshares for years, so why pay maintenance fees?
"This is the number one question I get all the time," said Douglas Wasser, a New York attorney who works on behalf of several dozen Manhattan Club owners as a liaison with the Attorney General's office.
"The answer is, it all depends on their tolerance for risk. I think Manhattan Club owners would have a very good defense to justify non-payment. Some are so adamant about not getting any benefits, for years, that they refuse to pay. That's a reasonable position to take."
To date, Wasser has not heard of any instances where the Manhattan Club (which is now barred by court order from selling timeshares) filed negative credit reports against owners who are behind in payments. The Club has, however, aggressively contacted owners about late payments.
To Pay or Not to Pay...?
"I tell folks that they may have a good faith defense against the payment of dues," Wasser said. "The timeshare agreements imply that if a TMC unit owner pays their dues, then he is entitled to membership benefits. But many TMC unit owners who have paid dues loyally, for years, and been denied their benefits. That's a good faith defense against the payment of those dues."
The dues-paying questions at the Manhattan Club will be resolved, presumably, when the NY Attorney General concludes its investigation of allegedly fraudulent business practices at the club. For now, though, many owners who have contacted RedWeek plan to continue paying, hoping the AG's case will somehow conclude with some rulings that benefit longtime owners. Others are just walking away, happy NOT to contribute to the club's finances one day more.
"The Attorney General is investigating the manner in which TMC skewed and subverted the market to its own benefit, thereby depriving TMC unit owners of a fair shot at redeeming their benefits," Wasser said. "If the Attorney General wins, hands down, and finds a fraudulent scheme at TMC, then I would expect there to be little penalty in withholding annual maintenance fee payments. However, should TMC win, there could be the possibility of late payment penalties for nonpayment."
Maintenance fee payments for Manhattan Club owners also include property tax payments to the city. According to Wasser's count of units owned by his member clients, the club's tax payments to the city may be behind by as much as a year. This unpaid tax issue will have to be resolved, down the road, when and if owners try to sell their units. New buyers will have to pay off all back taxes to secure clean title to any Manhattan Club timeshare. Not an issue for the moment, however, since the legal complications hovering over TMC have all but killed all resale activity for the once mighty Manhattan Club. Rental activity at the club, according to postings on RedWeek, continue to be robust.