How are my 1031 Exchange Funds Secured?

How are my 1031 Exchange Funds Secured?

When you sell your relinquished property and the proceeds have gone off into cyberspace to some qualified intermediary’s account you may feel vulnerable. You may feel a hollow feeling in your stomach because you don't know where your money is or how it's being secured.

Safeguarding your Exchange Funds

How do you safeguard those funds in the interim between the sale of the relinquished property and the purchase of your new property? The way that I like to do it is to have the intermediary set up a separate segregated bank escrow account and have the title company that's closing your relinquished property wire transfer proceeds directly into that escrow account.

In addition to that I like to have the bank enter into a separate exchange escrow agreement between you and the intermediary that says the bank depository will not withdraw or allow anyone to access the funds without the intermediary’s written instruction and your co-authorization so the money is locked-down. You know exactly where your money is and you know exactly what the requirements are to get the money out, including your co-written authorization.

Qualified Intermediary Requirements

On top of those requirements it’s important to make sure that the intermediary has a Fidelity Bond, an errors and omissions policy, and it's a good idea that you are taking steps to prevent cyber fraud with password protected PDFs, encrypted emails, and data protection so your information isn't accessible to cyber criminals.  Always work with an experienced professional qualified intermediary company that has a long track record of providing safe, secure facilitation services. 

  • 1031 Hotline: If you have questions about how 1031 exchange funds are secured, feel free to call me at 612-643-1031.

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