How To Save Your Multiple
Property Exchange When
your Contract Falls Through!

                                                   By Mary Lou Schwab CPA

The slowing real estate market is causing many relinquished properties to not close before an investor has to purchase their replacement property! Panic sets in as the investor realizes that they will have to pay tax on their defunct exchange. There is a method that an investor could utilize to save the exchange transaction and potentially allow more time to complete the sale of the old relinquished property. The solution is a Reverse Exchange within a regular simple deferred exchange transaction.

For example, an investor is selling two relinquished properties and plans on purchasing one replacement property. The first relinquished property closes and the investor sets up a 1031 exchange with an Exchange Accomodator such as Bankers Escrow. The second relinquished property for various reasons does not close and the investor has to place the property back on the market. Meanwhile, the investor has placed a contract on the replacement property and has to close on it prior to the closing of their second relinquished property. The investor can utilize the existing exchange funds to purchase a fractional share interest of the replacement property and begin a Reverse Exchange transaction. They would have the Exchange Accomodator purchase the other portion as an undivided fractional interest with an Exchange Accommodation Titleholder LLC entity. Additionally, the investor may need to borrow funds or provide their own cash to lend to this entity. The initial exchange transaction is completed and a new 180 day period from date of closing begins with the Reverse Exchange transaction.

The investor would need to sell the second relinquished property in the new 180 day period. Once it is sold, the Exchange Accomodator Titleholder transfers their undivided interest in the replacement property to the investor along with the exchange funds from the relinquished property back to pay back the investor note or to pay down the amount borrowed.

©2004 Bankers Escrow Corp. Mary Lou Schwab CPA is Vice President of Bankers Escrow Corporation and oversees the 1031 Exchange Division. She has over 22 years experience in real estate taxation. For questions on 1031 exchanges call 303-986-4848 or 800-571-6595. Bankers Escrow Corporation provides qualified intermediary services for all types of exchanges including simple deferred, reverse, construction, leasehold interest and business property exchanges.