Does an Assignment of a Sheriff’s Certificate Qualify for 1031?

Home Foreclosure Sheriff's Certificate

Is an assignment of a sheriff’s certificate after a foreclosure an interest in real property that you can 1031 exchange into? That’s our topic for this article.

Foreclosures in Minnesota

When there is a foreclosure in Minnesota, the mortgagor often retains possession of the property and has an important right to redeem the mortgage and to basically pay off the lender. That redemption period can run for various different times. It may also be extended by other circumstances like the mortgagor filing bankruptcy.

So the question is if you buy the lender’s rights (i.e. the sheriff’s certificate of sale) have you bought an interest in real estate or is it more of a nebulous potential interest in real estate?

What Does Not Qualify

Under section 1031 what does not qualify is an interest in a note or other evidence of indebtedness. So a sheriff’s certificate that has not ripened is perhaps more akin to an interest in a note or evidence of indebtedness than it is an actual interest in real estate. This is because you don't have the right to possession, you can't depreciate the property, and it's not really your property until the mortgagor’s redemption rights have expired.

So an important thing to remember when you're trying to buy a deal, trying to get a good price on a foreclosed property is to look at what interest it is that you're purchasing and whether you have received an interest that qualifies for 1031. A mere sheriff’s certificate may not be sufficient unless the redemption period ripens and you actually are requiring a possessory interest in the property.

  • 1031 Hotline: If you have questions about sheriff’s certificates in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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