Some timeshares fall in value so much that the owner sells the property for nothing, and others may try to give the deed back to the developer -- called a deed-in-lieu of foreclosure. While a deed-in-lieu may get you out of a property, you may destroy your credit rating in the process. On the other hand, a deed-in-lieu can save your credit rating.
A deed-in-lieu of foreclosure will affect your credit rating if you have a timeshare mortgage, because the lender -- often the timeshare developer -- usually reports to the credit bureaus that you did not repay the loan in full. A deed-in-lieu takes 80 to 160 points off of a FICO score of 780, and even more for higher scores, according to Les Christie of CNN.
A deed-in-lieu may avert damage to your credit score if you do not have a mortgage. If you have unpaid dues, the timeshare company will eventually sell the debt to a collection agency or sue you, both of which will destroy your credit rating. If you work out a deal to exchange the property to pay the debt, you can avoid a negative account on your record.
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Timeshare companies do not always report a deed-in-lieu to the credit bureaus. For example, you may have a lawyer negotiate with the timeshare company to agree to not report the account to the bureaus. However, you must get the the timeshare company to agree to not report the deed-in-lieu in writing. You have no leverage once you complete the deed transfer.
You probably have options other than a deed-in-lieu that may protect your credit score. For instance, you can trade vacation weeks with timeshare owners at other properties. You can even exchange ownership of the properties. Some charities take timeshares if they think they can sell the property for a quick profit. You can take a charitable deduction on your taxes worth the fair market value of the property or whatever it sells for.