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What happens when your hotel is in foreclosure?

By Brad Tuttle
October 3, 2012

The recession in wreaking havoc in the hotel industry, especially in California, where no fewer than 32 hotels are in foreclosure, and 174 more are in default of loans. This is obviously bad news for investors. But what does it mean for hotel guests?

The San Francisco Chronicle recently reported that the hotels in shaky financial shape run the gamut from high-end to low-end and everything in between, including brands like W, Residence Inn, and Four Seasons, as well as many independent properties.

A traveler with a reservation at a hotel in foreclosure might understandably be concerned. Will the reservation be honored? Will the service be bad? Will the hotel even be open? How can you learn if a hotel is in foreclosure in the first place?

Unfortunately, there is no central resource for finding out if a hotel is in foreclosure or default. But, as Joe McInerney, president and CEO of the American Hotel & Lodging Association, puts it, hotel guests don't have much to worry about. "When a hotel is in foreclosure, it's business as usual from the guest's point of view," says McInerney. "All commitments are honored. If new operators have taken over, it's generally a seamless procedure."

When a bank has to take possession of a hotel, it installs a management group accustomed to overseeing a hotel of like quality, explains McInerney. "Banks are going to keep people working at these hotels and maintain quality because it's in their best interest," he says. "They want to protect their assets, so they'll put in an operator that knows what they're doing. The banks want to see their investment grow, and get the money back that they loaned."

Even so, in today's uncertain economic climate, it's a good idea to book with hotels with lenient cancellation policies (no penalties for canceling 24 hours in advance). Two or three days before you check in, call and confirm your reservation. If a hotel requires a deposit or advance payment, always use a credit card. If need be, your credit card company can help you dispute charges for goods and services you never received.

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