THE ROLE OF THE INTERMEDIARY

The regulations of Section 1031 require the use of a qualified intermediary to act as a middleman for the Exchanger. The intermediary is an independent fourth party which acquires and conveys both properties and receives, holds, and controls the sale proceeds. The use of a qualified intermediary provides many advantages such as the right to direct deed, protection against imputation of agency, and the safe harbor regulations relating to the security of Exchanger's escrow funds.

HOW DO I CHOOSE A QUALIFIED INTERMEDIARY?

Unfortunately, qualified does not have anything to do with the qualifications of the intermediary. Qualified simply means the intermediary is not the taxpayer or an agent of the taxpayer. Anyone the taxpayer has worked with, in any capacity, within the past two years is disqualified from acting as the intermediary. This automatically excludes the taxpayer's attorney, accountant, realtor, broker, financial planner, partner, employee or close relative. Currently, the only state requiring licensing to be an intermediary is Nevada. However, those intermediaries affiliated with a title company, such as 1031 Corp., Inc. (Affiliate of  T.A. Insurance Company), are exempt. It is recommended you choose a corporation rather than an individual, specializing in 1031 Exchanges. The intermediary should be fully knowledgeable on all current regulations and be able to guide the Exchanger through all aspects of the exchange process, prepare the necessary documentation, and provide instructions to you and all related parties to ensure a smooth transaction period. Additionally, choose an intermediary who is a member of the Federation of Exchange Accommodators (FEA), the only national association for professional exchange practitioners. The FEA, based in Sacramento, California, is organized to promote the discussion of ideas and innovations in the industry and general public, and to work toward the development of a uniformity of practice and terminology within the exchange profession. The FEA also provides timely input and updates on pending State and Federal legislation, Internal Revenue Service and Treasury Rulings, and Court Decisions. As your sale proceeds will be placed into an escrow account in the name and federal tax identification number of the Intermediary, be sure the Intermediary is bonded and insured. You may wish to request a list of references from the Intermediary.

WHEN IS THE BEST TIME TO RETAIN AN INTERMEDIARY?

Of course, the ideal situation is advanced planning. Retaining the services of an Intermediary as soon as you decide to sell your property, will ensure a smooth transaction. However, you may retain an Intermediary all the way up to just prior to settlement. However, once the settlement has been completed, you cannot attempt an Exchange.