What Escrow Needs to Know About 1031 Exchanges

Transcription

1 What Escrow Needs to Know About 1031 Exchanges Toija Beutler Attorney Phone: Toll Free: Charlie Cookson Phone:

2 Who Knew? 1031 is more than just a bunch of paperwork 1. Tax Benefits 2. Like Kind Rules 3. Deadlines 4. Identification Rules 2

3 Who Knew Continued 5. Reinvestment Rules 6. Control of Funds 7. Use of Funds 8. Vesting Issues 3

4 Who Knew Continued 9. Lender Issues 10. Related Party Issues 11. Partnership Issues 12. Seller Financing 13. Improvement Exchange Rules 14. Reverse Exchange Rules 4

5 Why didn t they tell me?! o They didn t know? o They didn t want Buyer/Seller to know?? o They didn t know what they didn t know??? 5

6 How much is in the exchange account? o Escrow Strategy call the exchange company 6

7 Who gets the refund? o Escrow Strategy call the exchange company 7

8 Where is that indemnity? o 1031 is not a DIY technique o Escrow Strategy call your manager 8

9 The Exchange Docs show HWY 99 LLC. Now they are taking title as HWY 101 LLC? How does that work?! Let s talk tax law disregarded entities. o Escrow Strategy call the exchange company 9

10 The Partners want separate exchanges... Now what?! Let s talk tax law partnership issues o Escrow Strategy call the exchange company o Exchange Company Strategy call the exchanger o Exchanger Strategy call the accountant, attorney, and broker 10

11 Aren t flips investments? Let s talk tax law inventory vs. investment o Escrow Strategy call the exchange company 11

12 What!!? They are buying before they have sold? What is a Reverse 1031? How does the process differ? What is this LLC that is being created to hold Title? 12

13 Reverse 1031 Challenges & Questions How will the Escrow Instructions differ on Reverse 1031 s? Who is the Buyer? The Exchange Accommodation Title Holder? The Exchangor? How are the funds being introduced into your transaction? Buyer bringing in funds as Buyer? Buyer obtains a loan for EAT LLC? 13

14 Reverse 1031 Challenges & Questions Buyer hands you herewith collected funds and Balance of Funds in the form of a Wire Transfer When the Exchange Company was inserted as Purchaser into your transaction, are changes in the Instructions required? 14

15 Reverse 1031 Challenges & Questions Does a 1031 addendum to your Escrow Instructions cover all of the conflicts? Have you checked? 15

16 Reverse 1031 Challenges & Questions Are your Escrow Instructions in conflict with how the policy of title insurance will be issued? Who will be the insured vs. who will be vested owner? What are the instructions from the 1031 Company in this matter? 16

17 Reverse 1031 Challenges & Questions 17

18 Reverse 1031 Challenges & Questions Holding the Policy will be in conflict with your other instructions from both the 1031 company and the Buyer. If the instructions from both parties require assurances before you can close and use funds, that means a policy will be issued at closing. 18

19 Reverse 1031 Challenges & Questions Even if insurance isn t specifically requested, phrasing in the instructions may require insurance in order to meet customer requirements You may close/disburse funds/record the deed when you can assure/ensure/insure that title is vested in. 19

20 Reverse 1031 Challenges & Questions Any Policy issued after the date of Closing would be a new policy and require new Title Premiums. So - what are the available options. 20

21 Reverse 1031 Challenges & Questions Owner s Policy at closing insuring EAT LLC With some exchanges, the 1031 Company transfers the Membership interest of the EAT LLC to the Exchangor. The original Policy remains and gives protection to Exchangor. When deed from EAT LLC to Exchangor happens, the, exchangor is still covered under the definition of insured on a 2006 Policy Does the Buyer/Exchangor understand this? 21

22 Reverse 1031 Challenges & Questions If the 1031 Exchange Company is structuring the purchase funds as a loan secured by a note and Trust Deed, a Lender s Policy could be issued in favor of the Exchangor. Does this meet the needs of the Exchangor? Does the Customer understand the effect of the title policy? 22

23 Reverse 1031 Challenges & Questions Owner s Policy at time of closing insuring EAT LLC Duplicate Owner s Policy at time of closing insuring Exchangor. The policy vests EAT LLC, but insures Exchangor Both policies show an exception for an unrecorded Exchange Agreement between EAT LLC and the Exchangor 23

24 Questions? 24

25 Contact Us 5665 Meadows Road, Suite 140 Lake Oswego, OR Western Title & Escrow Company 360 SW Bond Street, Suite 100 Bend, OR Toll-free Slide 25