Bluebeard’s Castle Foreclosure
We received the following submission from one of our users about their experience with Bluebeard’s Castle Resort in St. Thomas:
“I was roped into buying a timeshare in 1993 on my honeymoon. Once we returned my wife and I realized we couldn’t afford it so never paid for it. We received a foreclosure notice from the bank that financed it and never heard from them again until last month. I received a collection notice from a collection agency saying we owe $25,000 in back maintenance fees and interest. The deed is still in my name? How is that possible when it was foreclosed on 23 years ago? What can they do if I deny owning the property listed on the deed?”
Our first reaction to this person’s story was that it is definitely a strange situation. It makes sense that the property was foreclosed on since it was never paid for, but receiving a single collection notice over 20 years later is unusual to say the least. There are a couple factors that come into play here:
- Deeded vs. right-to-use interest. When you take out a loan to purchase a deeded timeshare, you sign both a mortgage and a promissory note. The mortgage is security for the debt and permits a lender to foreclose if you don’t make the monthly payments. The promissory note promises the lender that you will repay the loan with interest. It is likely that this person’s timeshare was a deeded interest, since right-to-use timeshares are generally “repossessed” instead of foreclosed.
- Deficiency judgment. When a lender forecloses on a mortgage, the lender then obtains possession of the property and sells it at auction. Since timeshares rarely sell at auction for the amount owed on the deed, the lender has the option to take legal action and sue you for the remaining balance owed, called a deficiency judgment. Once entered by the court, the judgment can be executed against the remaining assets of the borrower until the judgment is fully satisfied. *Note: depending on where you live, you might not have to worry about facing a deficiency judgment, since the laws vary by state. It is our understanding, however, that the U.S. Virgin Islands does allow deficiency judgments.
The strikingly odd thing in this person’s case is that the collection notice claimed to be for “back maintenance fees and interest,” not for a deficiency from the foreclosure sale. We’re also curious as to why it was only pursued once by the collection agency, and 23 years after the foreclosure. It’s likely that this was some kind of mistake and requires a phone call to the collection agency. Has anyone else heard of this happening?