Posted by Dave T on December 07, 2001 at 21:52:52:
At title company settlements, everyone makes their check to the title company. The title company then disburses the funds, and in effect acts as the intermediary.
to 1031 or not to1031 - Posted by Mike Lively(AZ)
Posted by Mike Lively(AZ) on December 06, 2001 at 07:51:23:
I have two investment properties in escrow now and should
close by the.
My question is if I already have a property to purchase can I do a Back to Back close and not have the expense of the 1031 ? Why should a 1031 cost me $750.00 anyway ?
Thankyou,
Mike
Re: to 1031 or not to1031 - Posted by dewCO
Posted by dewCO on December 06, 2001 at 22:09:04:
If the intermediary knows what they are doing then I think $750 is CHEAP! However, if you know what you are doing I guess you don’t have to have one. It doesn’t only have to do with the closing, but also whatever other paperwork is necessary, and the fact that you can never even for an instant have possession or control of the proceeds, etc.
Its a Simultaneous 3 Way exchange - Posted by Frank Chin
Posted by Frank Chin on December 06, 2001 at 08:13:00:
Hi Mike:
We had a discussion of it in the legal board recently under:
http://www.creonline.com/legal/wwwboard7/messages/5246.html
You don’t need a “qualified intermediary” to do this as you don’t need any one to hold the cash.
However, closing attornies I run into are clueless when it comes to 1031’s and less so in simultaneous exchanges. So I see some intermediaries advertising their services for “simultaneous exchanges” to reduce “legal liability”, meaning “attorney scr**up”. They basically hold your attorney’s hands.
“Simultaneous” and “intermediary” is an oxymoron if you think about it as the intermediary is superfluous if you have a competant 1031 attorney.
So if you get a cheapie attorney plus pay the intermediary’s fee, it still be cheap. If you check around, the cheapest one I spoke to does it for $350.00, though he will not do “reverse exchanges”.
The basics is you get the title company to do a simultaneous closing, and the attorney having your buyer issue a payment to the seller of the target property directly.
Now, you may still need a “intermediary”, if there’s residual funds and you want to do another exchange afterwards. Then you do a “deferred exchange” after the simultaneous one.
Frank Chin
Re: to 1031 or not to1031 - Posted by Dave T
Posted by Dave T on December 07, 2001 at 09:07:49:
If Mike can never have possession of the funds, then someone has to hold the funds and disburse the funds on his behalf.
That person is the intermediary – an unrelated third party who is not an agent of the taxpayer. If Mike does not have one, then seems to me that at some point he would be in constructive receipt of the funds and his transaction is a taxable event.
Re: Its a Simultaneous 3 Way exchange - Posted by Dave T
Posted by Dave T on December 07, 2001 at 09:14:05:
Sounds to me that in your example, the title company IS the qualified intermediary, whether or not a separate fee is charged.
No one holds the Funds - Posted by Frank Chin
Posted by Frank Chin on December 07, 2001 at 18:06:15:
Hi Dave:
There’s three parties in the 3 way simultaneous exchange:
They are the “Buyer” of your property, “you”, and the “Seller” of the target property. The exchange is arranged so that:
1- The buyer makes a check payable to the seller (of the target) directly bypassing you.
2- You deed the property to the buyer.
3- The seller deeds the property to you.
If the “buyer” pays the “seller” directly, why do you need someone to hold the funds ??
Frank Chin
You’re Right - Posted by Frank Chin
Posted by Frank Chin on December 07, 2001 at 18:13:30:
Hi Dave:
Many title companies will serve as intermediaries. And many commercial “qualified intermediary” firms are subsidiaries of title companies.
In simultaneous closings and exchanges, they play a central role in acting as a “document trustee” insuring everything is in order before the properties are exchanged.
Frank Chin