Legal Question in Real Estate Law in Maryland
Timeshare
I read about a man named Ted, who could not sell his timeshare, and was dissatisfied with the operation and management of the property by the management company. Ted claims to have created a corporate holding company, which then bought the timeshare.
The timeshare is now owned by the corporation, of which Ted is an officer. Ted claims the corporation does not pay the annual maintenance fees or taxes. Since the corporation owns the property, Ted claims that he, as an individual, is shielded from an and all legal action that might be undertaken by the timeshare management company or others.
Is Ted vulnerable to legal action by the management company by virtue of being an officer of the holding company created to own the timeshare? Is it legal to create a corporation with the sole intent of avoiding the payment of a debt?
2 Answers from Attorneys
Re: Timeshare
If the corporation was created for legitimate purposes and is the sole obligor on the timeshare, he would be shielded from individual liability. However, as you explained the scenario, he originally bought the timeshare individually and then attempted to transfer it to the corporation he created. This will not work to protect him because his transfer of the timeshare does not relieve him of liability on the original indebtedness.
Re: Timeshare
In the end, this won't work for a number of reasons. The corporate veil could be pierced on
the basis of alter ego (that the corporate entity is merely a sham to insulate liability for the personal acts of its officers).
Other corporate doctrine applies.
Moreover, Ted opens himself up to misrepresentation and possible fraud (albeit fraud being difficult to show where there is an otherwise legal purpose for the corporation).
And lastly, Ted can't release himself from a debt he owes unless the party with whom he is in privity has agreed to the release, or an accord and satisfaction has issued, or a discharge or recission has occurred, or an assumption (with agreement of the seller) has occurred.
Practically speaking, this may prevent obstacles to collection but ultimately collection would be had.
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