This Type of Exchange Is Used When...

•  Investor has sufficient funds to acquire the Replacement Property WITHOUT selling the Relinquished Property.
• The investor IS obtaining a new conventional loan secured against the Replacement Property.

• All Real Property, Inc. is satisfied the parked property is suitable for acquisition.

When the Replacement Property Is Located

• Investor:

  • Contracts to purchase the Replacement Property and opens escrow (using a standard cooperation clause).

  • Selects All Real Property, Inc. (ARPI) to act as Qualified Intermediary.

  • Provides ARPI with the name and phone number of his escrow holder and the file number.  

•   ARPI 

  • Calls the escrow holder and requests copies of:

    • Purchase Agreement and/or escrow instructions

    • Preliminary Title Report/Commitment

  •   Prepares for signature:

    • Assignment of the Purchase Contract which has all parties acknowledge ARPI has accepted the position of buyer in the transaction on behalf of the investor.  This assignment authorizes the escrow holder to deed the property from the seller directly to the investor at the close of escrow.

  •  Prepares the following additional documents when the exchange is opened:

    • Exchange Agreement which sets forth the duties of the investor and ARPI

    • Instructions to escrow holder NOT to close escrow until confirming the Relinquished Property escrow holder can record concurrently with this closing.

• All escrow documents are signed by ARPI as buyer, provided the investor has read and approved them.  Escrow is sent the bill for the exchange fee and pays it at the close of escrow thereby having it itemized along with all other closing costs.  The investor is responsible for all his and ARPI's title and escrow fees throughout the exchange.

The Following Must Occur on the Relinquished Property before the Above Escrow Closes

• Investor and ARPI open escrow for the transfer of the Relinquished Property to ARPI.

• Investor sets the sales price using a value that approximates the estimated final value.

• ARPI requests from escrow:

  • Preliminary Title Report/Commitment

  • Escrow Instructions with the following terms:

    • ARPI will take title subject-to the loan of record.  The existing lender could call the loan due-on sale.

    • The Equity will be secured by an offsetting note on the Replacement Property drawn in favor of investor.

    • There will be no prorations and investor will pay all costs including exchange fee.

    • Escrow is to close concurrently with the close of escrow for the purchase of the Replacement Property.

    • -RPI to receive Title Insurance for the stated value.  Investor may wish to obtain a binder policy of title insurance on the Relinquished Property to reduce costs when it's sold to the third party buyer.

• ARPI prepares for signature: 

  • Offsetting Straight Note for the equity in the Relinquished Property transferred to Replacement property.

  • Instructions to escrow holder to prepare the deed to record from the investor to ARPI.  This deed must record concurrently with the close of the investors acquisition of the Replacement Property.

  • Triple Net Lease Agreement wherein the investor leases the property from ARPI.  The lease allows him to sub-let the property and entrusts him to pay all the bills including property taxes and any association dues. It also requires him to obtain hazard insurance naming ARPI as the owner and himself as additionally insured.

• At the close of escrow the investor has the Replacement Property and ARPI has parked the Relinquished Property.  This is a critical point as this is when the actual exchange occurs..

• Revenue Procedure 2000-37 became effective September 15, 2000 and requires the Qualified Intermediary to transfer the Relinquished Property to a third-party buyer within 180 days after Qualified Intermediary acquires title to the Relinquished Property.

• The investor also needs to have the final sales figures (ARPI to third-party buyer) before filing a tax return.  If the sale is not complete and these figures are not available, the investor must extend his tax filing deadline until ARPI sells the Relinquished Property to a third-party buyer, the 180 day deadline has occurred or no more extensions are allowed, whichever first occurs.

When a Buyer for the Relinquished Property Is Found:

•  Investor negotiates a contract (containing a standard cooperation clause) to sell the Relinquished Property and provides it to ARPI for signature as owner.

• ARPI opens escrow with the same escrow holder that handled the sale from the investor to ARPI and prepares

  • Deed from ARPI to the third party buyer.

  • Instructions to obtain the original straight note from the investor for payoff at the close of escrow.

  • Cancellation of the lease.