A crash course on the netherworld of Colorado timeshare foreclosures
Foreclosure has always been a dirty word in the real estate world.
Back in 2008, shortly after the housing bubble burst, tens of thousands of homeowners across the U.S. were slapped with the F-word. Summit County saw roughly 350 foreclosures in 2010.
Today, in the second quarter of 2015, the housing market is back on its feet, at least on a spreadsheet. Only eight foreclosures have been filed since the start of the year, according to the county Office of the Public Trustee, which oversees foreclosure sales.
Oddly enough, Colorado is the only state in the nation to handle foreclosures at a state level. It traces back to the silver crash of 1893, when a sketchy Front Range sheriff made a killing in the foreclosure business. For the majority of Colorado counties, state-appointed public trustees oversee all foreclosures — the process falls on private trustees or attorneys in the other 49 states — and local trustee Bill Wallace has noticed a dramatic decline since the economic crisis of 2008. Through the end of 2014, 82 foreclosures were started. If the remainder of 2015 stays on pace with the first quarter, just 32 properties will make the trustee’s list.
But what of timeshare foreclosures? In Summit, 60 percent of property tax notices are sent outside of the county, according to Wallace.
Like vacation rentals and second homes, timeshares are part and parcel of the resort real estate market. And so are foreclosures: Timeshares outpaced every other category last year with 32 of the 82 total foreclosures, while they only accounted for 51 of 350 total in 2010.
Yet timeshares in general are a dying breed. With the exception of big-name local players like Valdoro Mountain Lodge (a Hilton property), Mountain Valley Lodge (a Marriott property) and Breckenridge Grand Vacations — owner of three properties with another on the way — most timeshare complexes are small and independently owned. The rest have been weeded out through bad business practices.
“The timeshare business has kind of a lousy reputation, to say the least,” said Noah Klug, owner of the Klug Law Firm in Dillon and legal representative for several major local clients processing foreclosures. “In general they rely on high-pressure sales tactics, so you see lots of buyer’s remorse on these properties.”
LENDERS AND HOA’S
In the timeshare market, buyer’s remorse is the first sign of a probable foreclosure. If timeshare owners live hundreds of miles from Summit County — and the majority do — simply arriving at their unit can be expensive. From there, hefty dues and less-than-ideal weeks can make a deal seem more like robbery, leaving timeshare complexes sitting on empty yet valuable units.
For any foreclosure in Colorado, a mortgage or deed of trust has to be in default for four months before the lender or a lienholder can kick-start the foreclosure process. The time line is built into the public trustee guidelines.
After a foreclosure has been started, though, the defaulting party still has seven months to make good on debts — again, it’s built into state guidelines.
Across Summit, timeshares are overseen by one of two entities: a lender, such as a bank, or a homeowners association, with a board of directors and governing documents. Neither entity owns the timeshare, per se — they’re considered creditors with a security interest in the unit.
If a timeshare is overseen by a lender, Klug says, the unit will have a deed of trust and a foreclosure is handled like that of a private home. When one or several timeshare owners default on dues or fees, the lender can go directly to the public trustee with little court involvement.
If a timeshare is overseen by a HOA, the process is a bit more cumbersome because HOAs often hold statutory liens on units. These judicial foreclosures require a bit of legal footwork. The lienholder must first file a lawsuit and serve the client before handing the sale over to the local sheriff’s office, not the public trustee.
Still, defaulting parties rarely fight a court order requesting dues, particularly if they can no longer afford to visit their timeshare in the first place.
No matter what, the foreclosure process can be expensive when a lender or HOA files against an individual timeshare buyer — often more expensive than the unit is worth.
“For the value of the timeshare, it’s not worth it for Joe Schmo in Illinois to come fight a foreclosure in Colorado,” Klug said.
THE SKIER’S EDGE CASE
To skirt procedural costs, timeshares are testing the boundaries of a relatively new legal theory: quiet title action. Instead of filing a foreclosure — a process that can cost several thousand dollars when legal and officer fees are totaled — a lender or HOA can argue that defaulting parties have more or less abandoned a property, giving the creditor legal grounds to take it back. If a buyer doesn’t respond to the claim, courts often approve the motion.
Skier’s Edge outside of Blue River recently used this tactic when converting from a timeshare complex to a traditional lodge. The Skier’s Edge Condominium Board of Managers filed two types of documents for the entire complex: one a foreclosure, one a quiet title action. The foreclosure was never processed and the property was sold in late 2014 for $2.25 million, according to the assessor’s office. Before the sale, the property was declared obsolete by the board, but it still had to go through the process of filing both documents. When timeshare buyers didn’t fight either in court, the quiet title action was approved.
Sale distribution checks were mailed to dues-paying timeshare buyers in March, and Skier’s Edge is now undergoing renovations to open this summer as Lodge by the Blue.
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