My husband and I have owned a timeshare for a long time and enjoyed using it. But now it's time to sell. I have listed my property on RedWeek and recently found a very good buyer. But he is insisting that I get title insurance to make sure the deed is good. Is this necessary?
Answer: YES! The whole concept of title insurance may be one of the dullest issues on earth, but for anyone who hopes to buy or sell a timeshare on the resale market, it is the key to a happy transaction. To address this seller's question, RedWeek interviewed Dave Heine, owner of Timeshare Escrow and Title in Orlando, Florida. Dave handles dozens of timeshare title issues every month, and frequently talks about title issues at timeshare conferences, so he knows the subject. Here is our report.
Savvy Buyers Insist on Getting Title Insurance for DIY Transactions
Title insurance is a necessary evil to closing a timeshare resale transaction, especially for do-it-yourself sellers and buyers on RedWeek. If you don't get title insurance, you may find, months or years later, that the transaction never really happened, legally — and you could be stuck with the bill to clear up a so-called "clouded" title.
So, what is it? Title insurance is a guarantee that what you sold, or bought, had a clear title that says you were the bonafide owner/seller of a timeshare (or any other real estate, for that matter). According to Heine, most sellers never even think of title insurance; smart buyers, meanwhile, always insist upon it.
Why is title insurance, and clean title, a big deal? RedWeek has communicated with numerous legacy resorts across the country where owners have given away, deeded or sold timeshares — or so they thought — to third parties to transfer ownership. Many signed quit-claim deeds saying, in effect, "I'm giving or selling my interest in this timeshare to you for XXX dollars (or none at all)." Unfortunately, many of those types of deed-transfers fall apart, later, when someone subsequently tries to transfer or sell the timeshare to a new buyer. That's when all hell can break loose — even for a $1 timeshare resale.
Here's a typical example provided by Heine's firm: Husband and wife buy a timeshare in 1990 with both listed on the purchase agreement and deed. Twenty years later, one spouse dies while the other continues using the timeshare. Some time later, the surviving spouse decides to sell by listing the timeshare on RedWeek or through a licensed timeshare resale broker. When a buyer emerges, they sign all the papers, notarize a bill of sale or quit-claim deed, shake hands, and move on.
Years later, Owner #2 also decides to sell. Another buyer emerges. They agree on a price and sign all the papers, but then the new buyer asks for title insurance. This request triggers a background study, through local tax and recorder offices, to find out if there are any liens or other complications that would prevent a clear transfer of title to the new buyer. It also adds $100 to $200 to the transaction.
Title Cops Protect Timeshare Owners from Bad Deeds
Here's what that search --- which Heine does every day of the week as a title detective — can reveal.
The original title is still held in the names of the original husband and wife owners. Since the husband failed to file a death certificate for his wife during the first resale, she remained on title as an owner. So, without her signature, the first resale was never totally consummated. The husband successfully sold his share of the timeshare, but not his wife's.
"If you just record the deed without the wife's death certificate, it conveys only one-half interest in the title since nobody knows your wife died," Heine said.
The title search also reveals that the original seller — the former husband — is now also deceased. To clear up the ownership conundrum, the new buyer may have to file a quiet title action, usually in a circuit court or its equivalent, or find heirs of the original owners to correct the defective deed. That process can cost hundreds of dollars, maybe thousands.
Sound daunting? It is. What's more, according to Heine, a background title search can also turn up tax liens and legal judgments that (someone) will have to resolve to, finally, secure a clear title on the property. That's where the phrase "clouded title" comes from --- it refers to all those leftover issues that must be cleaned up during resale.
Plenty of do-it-yourself timeshare sellers can handle these issues, if they have the time, inclination and expertise, to satisfy a title search for a new buyer. But most don't. More than 50 percent of Heine's customers are do-it-yourselfers who thought, mistakenly, that all they had to do was sign over a deed to transfer their timeshare to a new buyer. The problem with that, unfortunately, is that many deeds have defects that a typical buyer/seller would not recognize.
"Most people call me because they want title insurance but don't know what to look for on their own," Heine said. 'So I have to track down who was on the original title and what happened after that."
Many sellers also work under an assumption — an understandable one — that if an old deed was notarized and recorded, it must be valid.
"People think a deed cannot be wrong because it was recorded, but they're wrong," Heine said. "County recorders simply record deeds and other documents; they don't verify their accuracy. The recorder is not the document police."
Here's the good news about timeshare title: if you purchased a timeshare from a major developer, your title and deed are probably accurate and clean. You can then try to sell it on RedWeek, but you'll have to make sure that all the signatories on the original documents (usually husband and wife, as joint tenants, but that "vesting" description varies by state) also sign off on the resale contract.
"There's no one formula for this since the laws differ state by state," Heine said, which explains why his company is licensed to do business in all major timeshare states (Florida, South Carolina, Arizona, etc.) plus two dozen others.
Example: In Florida, which is home to 50 percent of all timeshares, buyers may take title as husband wife, which is similar to a joint tenancy ownership. In South Carolina, buyers must take title as joint tenants with rights of survivorship for a surviving spouse.
The types of deeds that are used in resale — quit-claims, general warranty deeds and special warranty deeds --- also have different specifics. A general warranty deed, with the seller warranting a good clean title, offers the most protection for buyers.
'We find lots of owners who thought they got rid of a property, but they did not," Heine said. "Sometimes we have to find the old owners, but they may not want to spend the money (to clean up title), so they let the property go into foreclosure. Sometimes, foreclosure is the best thing that can happen to a timeshare, because it will fix all of the bad title problems."
Bottom line: title issues can be easy or nightmarish. They are important to resolve, but one thing's for sure: they are not for amateurs.
Most title search-and-insurance issues are handled by Heine (and other firms) through the closing process. Rates differ by state but can range from $350 in Florida to $600 in Arizona and $1,200 or more in Hawaii. The services include deed prep, escrow, title search, title insurance, recording and notification of your resort.
While adding costs to a resale transaction, securing title insurance offers an obvious benefit for buyers.
"Title insurance is peace of mind," Heine said.
For more information, you may reach Heine and his company, Timeshare Escrow & Tile, at 833-372-7699 or online at timeshareresaleclosings.com.
