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Some SC timeshare buyers bail, leave others holding the bag

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Timeshares accounted for 10% of the total overnight stays in Myrtle Beach, according to 2017 economic impact report by the area's chamber of commerce. File/Grace Beahm Alford/Staff

They came, they bought, they bailed. 

That's the abridged version of one of the oddest cases to hit the South Carolina bankruptcy docket in recent years.

It involves hundreds of timeshare owners, who at one point plunked down cash for an annual week of sun and fun along the Grand Strand.

The exact reasons are fuzzy, but the majority of the buyers have since lost interest. They've stopped sending in the yearly fees they had agreed to pay to keep the place up, leaving Sand Castle Timeshare Owners Association Inc. holding the bag.

Essentially a property management firm, the single-purpose company filed for bankruptcy protection in May. What's left of the failed business faced questions from its creditors a few weeks ago in a Charleston courtroom.

"This is the first time I've been involved in something in this particular situation," said veteran Columbia bankruptcy attorney Rick Mendoza of Nexsen Pruet, who represents the owners association with law partner Ron Jones. "It may be the first in South Carolina."

Sand Castle South is tiny by industry standards. It's made up of just 39 vacation units concentrated on two floors of the 14-story Sandcastle Oceanfront Resort in Myrtle Beach.

The Ocean Boulevard property's tiny timeshare element never caught on. It offered buyers 2,028 weekly intervals starting around 2007. Only 35% of them have been sold.

Herbert H. Patrick, whose Zealandia Holdings owns stakes in an assortment of timeshare ventures, got involved in 2013. Festiva Adventure Club, an offshoot of his Asheville-based company, took a gamble on Sand Castle South and acquired the unsold inventory in an effort to stabilize the project and reverse its fortunes.

Patrick, who is president of the bankrupt owners association, estimated in court testimony that his company invested about $1 million to buy into a deal that wasn't "financially well."

"The association was on the verge of bankruptcy," he said at the July 9 meeting of creditors.

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For its part, Festiva Adventure Club brought industry know-how and a steady revenue stream to the table. It was required, like every other owner, to pony up the annual $500 to $800 maintenance fees for the weeks it owned.

But efforts to sell or even rent the empty vacation units online fell well short of plan. 

"There wasn't any usage for those weeks," Patrick said.  

Festiva Adventure Club eventually cut its losses — and its financial lifeline. It handed its deeds back to the owners association last year at no cost, ending what was, in effect, a five-year subsidy. Patrick cited a fiduciary financial obligation to other investors.

The units at Sand Castle South went dormant in March or April, he said. By then, only about 240 owners were still considered to be in good standing.

As for the rest, Patrick could only speculate why they stopped paying. The reasons could include lifestyle changes and unexpected medical expenses, he said.

"You have people who move away from the area, and it becomes inconvenient to come to Myrtle Beach," Patrick said.

The end game — the only game — is to foreclose on the nearly 500 delinquent owners and make a deal with the others to sell the 39 units at a court auction, according to Mendoza and Jones, the attorneys for the owners association.

"We are looking for a buyer," Jones said. 

A likely purchaser would be the group that operates the rest of the beachfront resort property, though no offers  have been submitted. 

Once creditors are paid off, any leftover proceeds could be distributed among the Sand Castle South owners who kept up their payments, even as time ran out for their timeshares.

Contact John McDermott at 843-937-5572 or follow him on Twitter at @byjohnmcdermott

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