Can you transfer a timeshare to an LLC an then have the LLC stop paying the timeshare fees?

Question

I saw John Oliver's recent episode on timeshares, got an interesting idea for how to get rid of a timeshare. I don't have a timeshare, and am not looking to get rid of a timeshare, but I am curious to see what people think of this idea.

Supposing you want to get rid of a timeshare, so you make a new LLC with $1 in assets, and this LLC purchases your timeshare for its $1. Alternatively, there are timeshares for sale for $0 so for certain timeshares $0 is fair market value, so if the LLC were to purchase the timeshare at "fair market value" that could very well mean paying nothing.

Now the LLC owns the timeshare, but nothing else, and then the LLC stops paying the timeshare fees.

The timeshare company wouldn't like this but if the LLC with no assets is the owner the timeshare company won't be able to litigate against the LLC, because even if it got a judgement against the LLC the LLC has nothing, other than the timeshare itself that no one wants. At this point if the timeshare company went after the LLC for defaulting on the timeshare agreement the LLC could simply declare bankrupcy, and let the creditors have its only asset.

Answer 1

No

Contracts that are not personal services contracts are normally assignable unless there is a clause preventing transfer or requiring the other party’s permission. A timeshare contract will almost surely have such a clause, so your idea would be dead in the water.

However, even if it doesn't, only the rights to a contract are assignable, not the obligations. So, while the LLC can get the benefits of the timeshare, you remain liable for paying for it.

What you are looking to do is called novation, and that requires the permission of all parties to the contract.

However, even if the timeshare company agreed to the novation, if you do it with the intention you have outlined, this is illegal.

Think about your scheme and compare it with the elements of fraud in, say california (other jurisdictions are available):

Every person who knowingly and designedly, by any false or fraudulent representation or pretense, defrauds any other person of money, labor, or property, whether real or personal, or who causes or procures others to report falsely of his or her wealth or mercantile character, and by thus imposing upon any person obtains credit, and thereby fraudulently gets possession of money or property, or obtains the labor or service of another, is punishable in the same manner and to the same extent as for larceny of the money or property so obtained.

Your scheme is a textbook example of fraud. So, you go to jail and the fraudulent transaction is of no legal effect so you still owe the money.