Jeff Peterson, Author at Commercial Partners Title

July 9, 2020 by Jeff Peterson

What Does a Qualified Intermediary do After Receiving the 1031 Sales & Purchase Agreements?

What does the qualified intermediary do after they receive the sales and purchase agreements and title commitment from the closing agent? That’s the topic we’ll explore in this article.

Tailor-Made Documents

The qualified intermediary tailor-makes 1031 documents specific to your transaction.

In order to do that the qualified intermediary needs to ascertain exactly how you hold title to the old relinquished property, the legal description of the property, and who the other parties to the sales contract are that need to be given certain notices in writing about your transaction and your assignment to the qualified intermediary.

Other Parties

So when a qualified intermediary gets started at the very beginning of the transaction they have to get their arms around all of these various details in order to tailor the documents for your 1031 transaction. They also need to be able to interface with the other parties to the transaction, including:

Title closers
Attorneys
Escrow agents

We need to interact with these and various other people in order to make sure that your closing goes smoothly and is not a dramatic and disruptive event.

Qualified Intermediaries you can Trust

It’s important to find a skilled intermediary to work with on your 1031 exchange transaction. Contact Commercial Partners Exchange Company today for assistance with your like-kind exchange. With two decades of experience, we are well-equipped to handle all the aspects of your 1031 exchange.

July 7, 2020 by Jeff Peterson

1031 Exchange Tips for Conservation Easements

If you’re a farmer or land owner and you’re approached by a government entity to grant a permanent conservation easement in exchange for a huge windfall of cash you may be scratching your head thinking “what am I going to do with this big windfall of cash? I’m going to have to pay a lot of it out in taxes.”

1031 Permanent Conservation Easement

The interesting thing is that a permanent conservation easement is eligible as a 1031 relinquished property. Now the trick is that at the very beginning of these negotiations you want to tell the government entity that you’re doing a 1031 exchange and you want to make sure that the proceeds – the check that’s going to be issued – is not given to you, but instead is given to the qualified intermediary.

Whenever you’re working with a bureaucratic governmental entity it helps to start early and to say it often that you’re doing an exchange and that there’s going to be a little bit different payment method here. Often, if you try to raise this at the eleventh hour and change the plans it can be difficult to get the governmental entity to come into alignment with what you want to do for the exchange.

Start Early & Notify

So start early, notify them early, and let them know where you want your proceeds to be sent. The whole idea in a 1031 exchange is to insulate the seller from receiving the proceeds and to have those monies instead go to the qualified intermediary so they can be earmarked to purchase new replacement property that will qualify for your 1031 tax deferral.

July 6, 2020 by Jeff Peterson

Common Questions Closers Have About 1031 Exchanges

Sometimes title closers have questions about the 1031 documents and what their responsibilities are to get the closing done correctly so they don’t mess up the 1031 exchange.

One of the most important things that the treasury regulations require is that the exchange or the party doing the exchange must sign their rights in the purchase agreement to their qualified intermediary.

Well that’s great, but under the old English common law, an assignment was not considered effective until all of the other parties to the purchase agreement had been given written notice and the IRS adopted the same requirement in the treasury regulations.

So at the time of closing that notice of assignment that the exchangor has assigned their rights in the purchase agreement to the intermediary – that notice must be given to the other parties. So for the relinquished property the notice would go to the buyer as well as any assignees of the buyer.

Further, if there are co-sellers (other parties conveying the relinquished property that are parties to that purchase agreement), they too should be given written notice. Now how do we prove that we gave all these people written notice? We ask them to sign an acknowledgement stating we have received this notice in writing.

So that’s part of the closing documents qualified intermediary send to the seller to make sure that all of the proper parties are given the requisite notice.

July 2, 2020 by Jeff Peterson

Things to Know About Bank Financing in a 1031 Exchange

Many taxpayers conducting a 1031 exchange have questions about bank financing in a 1031 exchange transaction. Here are a few tips and things to know when it comes to bank loans and 1031 exchanges.

Bank Loan Agreement

The banks’s loan agreement may require the exchangor (through the intermediary) to exhaust the 1031 funds for the purchase of the replacement property and for the first construction draws before the banks loan funds will be disbursed. The bank cannot take a security interest in the 1031 funds held by the intermediary.

The taxpayer conducting the exchange may co-sign or provide a personal guarantee of the bank’s loan.

The ‘due on sale clause’ in the loan may need to be modified to allow for the transfer of the replacement property to the exchangor during the 180 day exchange period.

Depending on the number of exchangors, the 1031 exchange may be completed by:

deeding the replacement property from the LLC to the exchangors (with a corresponding mortgage assignment/assumption); or
by the intermediary assigning 100% of the membership interest in the LLC to the exchangor (which may negate the need for a formal mortgage assignment/assumption).

Items to Request

In a 1031 exchange with bank financing, you should request the following items:

Prior Exchange Documents.Copy of the signed relinquished property 1031 documents from the sale with confirmation of the amount of funds held by the intermediary (we need to confirm who and how the old relinquished property was vested in title). The 1031 identification of replacement property should include a description of the new land plus the to-be-built improvements.
Fresh LLC to hold title to the Replacement Property.Copy of the LLC articles, certificate of organization, operating agreement and authorizing resolution appointing the officers (this LLC will likely be 100% owned by the intermediary);
Title Commitment for the new Replacement Property.

The loan documents may need to be modified to limit the liability of the intermediary.