Over 900 Disney Vacation Club deeds were foreclosed on in 2015. With DVC contracts maintaining their value far better than most timeshares, why do many financed purchases go into foreclosure?
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Back in September, our WIl Lovato examined the world of buying Disney Vacation Club deeds at public auction. Disney sold more than 200,000 deeds over the last 12 months, of which nearly 75% are financed according to a 2009 disclosure. With so many contracts being purchased--many at prices exceeding $20,000--foreclosures seem unavoidable. A story in today's Orlando Sentinel cites a Disney Vacation Club foreclosure percentage of "about half of one percent of its membership", which is significantly lower than the industry rate of 6.3%.
Long time members may question why there are any foreclosures on a product that holds its value so well. Early buyers at many resorts including Disney's Old Key West Resort and Disney's Beach Club Villas typically find that they can resell points for more than the originally paid. The Villas at Disney's Grand Californian Hotel has seen its resale value exceed original selling prices within 6 years of the resort's opening.
Even the newest resort to hit the resale market--the Villas at Disney's Grand Floridian Resort--has current resale asking prices settle in the range of $145-150 per point, very close to original selling prices.
Even if buyers are forced to liquidate their contract within a year or two of the purchase, they should be able to at least break even by selling rather than going into foreclosure, right?
Not necessarily.
Two resorts in particular faced dramatic price hikes over their lengthy sales windows--specifically Disney's Animal Kingdom Villas and Disney's Saratoga Springs Resort & Spa. Animal Kingdom Villas debuted at a net price of $93 per point (with incentives) and rose to over $140 per point while still actively selling in 2013. Similarly Saratoga Springs began selling back in 2003 at $79 per point and saw its price rise to well over $100 before being declared "sold out."
Meanwhile the resale prices for these resorts settled toward the low end of that pricing spectrum. Current listings with resale vendor The Timeshare Store reflect asking prices of $85-90 per point for both Animal Kingdom and Saratoga Springs. Factors like resort size and buyer demand have not been sufficient to push prices higher.
Individual variables like purchase price and amount owed on a loan will utimately determine a contract's solvency, but many owners could find themselves "under water" with the amount owed exceeding the expected resale proceeds.
To illustrate, in October 2013 Disney Vacation Club's asking price for the Animal KIngdom Villas was $150 per point with a discount of $8 per point offered on purchases of 220-319 points. Ignoring closing costs and other fees, a contract of 250 points retailed for $35,500.
Assuming a 10% deposit, the balance of $31,950 could be financed for up to 10 years with a best available interest rate of 12%. At those numbers, the buyer would still owe approximately $27,699 as of December 2015 on a 10-year mortgage.
With Animal Kingdom Villas' points fetching around $90 per point resale, the 250 point contract is likely to return only $22,500 if sold. Subtract broker commission of 10% and the resale proceeds fall more than $7000 short of satisfying the original mortgage.
Even owners at the popular Bay Lake Tower at Disney's Contemporary Resort may find themselves in a similar postion as prices escalated from the low $90s to more than $160 per point during its active sales window. Most Bay Lake Tower resale asking prices are currently in the $115-120 per point range.
This situation is not uncommon in the timeshare world as buyers routinely find that the resale value of their ownership is far less than what they originally paid the developer. Nevertheless, the brisk resale market for Disney Vacation Club points makes this scenario the exception rather than the rule.
Ignorance may also play a role in foreclosures as some owners are simply unaware that the resale option exists. However, Disney Vacation Club owners who find themselves in financial straits--similar to the example above--may see no other option to going the foreclosure route.
