Because there have been a number of recent failures by exchange facilitators (or “exchange accommodators” or “Qualified Intermediaries”), those sellers who are trading up by way of a delayed 1031 exchange must exercise care in choosing a facilitator to hold their funds from the sale of the down-leg property until the closing of the up-leg property.

 

Exchange facilitators in California are not regulated by any government agency. Literally, until now, anyone can hang out a shingle and claim to be an exchange facilitator.

 

Further, there have been no regulations on how the exchange funds held by an exchange facilitator are to be handled or invested. Some facilitators have inter-mingled these funds, rather than placing them into separate accounts. Some facilitators also invested these funds in high risk investment instruments.

 

1. When representing a buyer or seller engaging in a 1031 exchange, always use the proper contract addendum:

 

            A. Buyers exchanging into a property: Use the “Buyer Intent to Exchange Supplement.” 

 

            B. Sellers who will be exchanging into another property: Use the “Seller Intent to Exchange Supplement.” 

2. When representing sellers who will be engaging in a delayed 1031 exchange, have the sellers sign the attached Advisory after having gone over it with them.

 

© Copyright Broker Risk Management 2009                                                           01/09/09