The quick answer is, that if owners are successful with their disputes, their credit will not be affected at all—even if they’ve stopped paying on the timeshare at the beginning of the dispute.
If the company decides to cancel the contract and issue a refund, there will be no adverse effect on the credit rating. This is why I’ve emphasized that the dispute must be factually substantial and honest.
There are other solutions for owners who just can’t afford a timeshare they’ve come by honestly and without any deception on the part of the sellers—but that’s for another book.
It’s always a good idea to have in mind the absolute worst thing that could happen if you’re not successful with your dispute. Here it is: if the timeshare company does not agree to cancel your contract and issue a refund—and if you continue to refuse to pay on your loan and on your maintenance fees—the company has the right to foreclose on your timeshare.
They will take it back through a legal procedure. They will restore it to their inventory and sell it to someone else for more money. It is not likely that the company will pursue you for any outstanding debt. You may even get a tax form 1099 from the timeshare company claiming that your forgiven debt is income that you must report. I have not seen this happen very often.
Negative information like this can remain on your credit report for 7 years. But what if there is something still far worse than a foreclosure of a timeshare on a credit report?
For example, what about having to make monthly payments on a high interest mortgage for ten years?
The average $15,000. If you’ve company’s financing option, your payment will probably range between $225 and $350 per month. Using $300 per month, the amount paid out over the life of the loan is $36,000. Maintenance fees over 25 years—if they never go up—would probably add up to another $18,000.
What’s more preferable: taking a hit on your credit for seven years or paying out over $54,000?
Don’t forget the other fees, like exchange company membership and special assessments. While this might be a no-brainer for me—others may feel differently.
The change in the laws in Florida may have alleviated this situation to some extent because it becomes easier for a timeshare to avoid the costly expenses of a foreclosure by offering the owner a deed in lieu of foreclosure. While this may still have a negative effect on a credit report if the owner is delinquent, it may not be as severe as a full foreclosure. If the company offers a deed in lieu of foreclosure to an owner who does not have a really strong case for fraud and misrepresentation, it might be a good idea to accept.