THE 1031 EXCHANGE INSTITUTE

The current financial crisis has led to the voluntary closing of a number of 1031 exchange Qualified Intermediaries.  I always hate to see anyone go out of business, especially when it is something like a financial crisis that is completely out of their control.

1031 Exchange Qualified Intermediary Failures

However, there have also been 1031 exchange Qualified Intermediaries that have failed because of their business or investment practices, which ultimately left them under capitalized and/or illiquid.  The perfect example is yesterday's collapse of LandAmerica 1031 Exchange Services, LLC.  They invested their clients' 1031 exchange proceeds in Auction Rate Securities that subsequently became completely illiquid with the collapse of the Auction Rate Securities market. 

Evaluating and Selecting Your Qualified Intermediary

I thought that this would be a really good time to revisit the important due diligence process when you are evaluating prospective 1031 exchange Qualified Intermediaries for your own 1031 tax deferred exchange transaction.  You might want to briefly start by reading the press release that I issued yesterday regarding the failure of LandAmerica 1031 Exchange Services. 

Bigger Is NOT Better

I have been in the 1031 exchange industry for 24 years now and I have managed large, medium and small Qualified Intermediary firms, and I can say without a doubt that bigger is not better.  The Qualified Intermediary's business practices are what matters, as we have seen with the collapse of LandAmerica 1031 Exchange Services. 

Common Sense Matters

Consumers have to bring common sense into the decision making process here.  They have to ask themselves if what they are being told or how the transaction is structured makes sense.   I would recommend reviewing two articles that I wrote that are related in terms of stability, profitability and longevity of a Qualified Intermediary:

• Choosing Your Qualified Intermediary
• Evaluating Fees, Costs and Charges for your 1031 exchange

The Bottomline is: Do Not Be Afraid to Ask Questions.  And, do not use the firm if you are not comfortable with them.  Rely upon your gut feelings and instincts; they are often right on the money.