DEAR BENNY: My time-share maintenance fees exceed $2,000 per year. While this does not cause a real hardship on me, I was wondering what happens to the time-share ownership if the primary deed owner dies. When I die (I’m 80 now), I assume the time-share points go into my estate. And, if they do, does that obligate my heirs to continue to pay the annual maintenance fees in perpetuity? –Tom
DEAR TOM: I wish I had a dollar for every time-share question I receive from readers. I would take all of that money and buy all the time shares in the United States.
I am not picking only on you. People get enthusiastic about the many claims made by time-share salesmen, and sign up to buy into a week or two (or points) at some luxurious resort somewhere in the world. Sounds good, and in many cases, people have made good use and enjoyed their purchase.
But what consumers do not realize is that this is an investment (to use your words) in perpetuity.
Yes, you and your estate and your heirs will be obligated to continue to pay the maintenance fee, and as the time-share property depreciates in value, I suspect that this fee will also increase — in perpetuity.
I have learned from countless readers that it is next to impossible to sell a time share. Churches and other religious congregations don’t want them as charitable contributions. A priest once wrote me, urging me not to suggest that readers give their time-shares to his religious association.
I actually thought I had found a group that would take charitable contributions, but looking at the Web under "donate a time share to charity," it turns out that there were many negative comments about that company, which I will not name.
So, what can you do? My suggestion: Keep paying the maintenance fee. On your death, leave instructions that your estate administrator is not to make any payments or other arrangements with the time-share operation. What will happen? Either the time-share company will agree to take back the deed or cancel the points (i.e., in lieu of foreclosure), or it will foreclose.
What’s the consequence? First, no adverse credit rating will impact your heirs since they are not being foreclosed upon. Second, the time-share lender will foreclose and — depending on your state law — the lender may or may not be able to get any deficiency (i.e., the difference between what is owed and what the foreclosure sold for) from the estate.
While I am always reluctant to recommend letting property go to foreclosure because of the long-term adverse consequences, with time-shares — and an estate — I am willing to recommend that, but only as a last resort.
Talk to your attorney about your specific situation.
DEAR BENNY: Is a promissory note better than a land installment contract? –LeRoy
DEAR LEROY: Great question (LeRoy was following up on one of my earlier columns).
Let me explain: A land installment contract is a procedure whereby the property owner enters into a contract with a potential buyer. The buyer agrees, for example, to pay $100,000 for the property, but since he can’t afford it (and can’t qualify currently for a loan), the seller says: "I will put the deed in recordable form in escrow with my attorney. You pay me $20,000 a year, and when you pay the entire $100,000, I will release the escrow and the deed will be recorded into your name.
"You can use and live in the property during this period of time since you have what lawyers call ‘equitable title.’ However, should you miss a payment and after I give you 30 days’ notice of default, and you still haven’t paid, you will forfeit what you already paid me and will have to move out."
LeRoy suggested that a promissory note is better. Under his scenario, the seller actually transfers title to the buyer, but takes back all (or a substantial portion) of the financing. The note is secured with a deed of trust (called mortgage in parts of the country), which is recorded among the land records in the jurisdiction where the property is located. If the buyer defaults — and after proper notice — the seller has to foreclose on the property.
I don’t think there is any question that a properly created land sales contract is far better protection for a seller than is a promissory note. With a note and deed of trust, you have to foreclose on the property, and more and more states are enacting strong anti-foreclosure legislation, making it very difficult (and more expensive) to foreclose.
With the land sales contract, however, title does not transfer. If the payments are not made, the seller still owns the property. Yes, he may have to file an eviction action against the delinquent contract purchaser, but, in my opinion, going to a landlord-tenant court with clear facts is easier and cheaper than fighting a foreclosure defense action.
DEAR BENNY: Did the mortgage cancellation relief get extended for this year? –Jenny
DEAR JENNY: Yes. On Jan. 2, 2013, President Obama signed into law the legislation designed to avoid the so-called "fiscal cliff." Included in the law was an extension of the law that helps homeowners whose property has been foreclosed from having to pay income tax on the debt that they no longer have to pay.
This is a complex issue. Oversimplified, in most situations if a debt is canceled, unless there is an exclusion or exception in the law, you will have to pay tax on the money that you did not receive. We call it "phantom income."
For years, there were only a few exclusions, such as debt canceled in Title 11 bankruptcy or a debt canceled during insolvency. However, in 2007, faced with a growing volume of foreclosures and short sales, Congress passed the Mortgage Forgiveness Debt Relief Act. In general, this allows homeowners to exclude up to $2 million ($1 million if married and filing separately) of the cancellation or forgiveness of debt on their principal residence. However, this law was scheduled to expire at the end of 2012.
It is, however, alive and well this year. How do you know how much of your debt has been canceled or forgiven? If the debt is $600 or more, your lender is required to send you, by Feb. 2 of each year, Form 1099-C ("Cancellation of Debt"), which must state the amount of the debt forgiven as well as the fair market value of any property given up through foreclosure or a short sale.
Readers should beware: Some lenders, even if they tell you and the IRS that your debt has been "canceled," still attempt to collect any deficiency, often by turning the matter over to a debt collection company. This has become especially true involving short sales. If you are involved in such a short sale, make sure you know all the terms and conditions before you complete the deal.
For more information, go to IRS.gov and type in "Cancellation of Debt." Also, Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, may be of assistance.
