This Type of Exchange Is Used When...

•  Investor has sufficient funds to acquire the Replacement Property WITHOUT selling the Relinquished Property.
• The investor is NOT obtaining a new conventional loan secured against the Replacement Property or the lender can loan to ARPI with a non-recourse note secured against  the Replacement Property.  This loan needs to be assumable by the Exchangor, and it can be guaranteed by the Exchangor outside of escrow.   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.  The investor may wish to instruct escrow to obtain a binder policy of title insurance on the Replacement Property to reduce his costs when he actually acquires title.

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

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

    • 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.

• 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.

• At the close of the purchase escrow, ARPI has parked the Replacement Property and waits for the investor to find a buyer for his Relinquished Property.

• Revenue Procedure 2000-37 became effective September 15, 2000 and requires:

  • The Exchangor and the Qualified Intermediary enter into a qualified exchange accommodation agreement within 5 days after Qualified Intermediary acquires title to the Replacement Property. (Practically speaking, we would not acquire title without having first entered into this agreement).

  • The Exchangor must identify the property he intends to relinquish within 45 days after the Replacement Property is acquired by Qualified Intermediary using the standard §1031 identification rules.

  • The Qualified Intermediary must transfer the Relinquished Property to the third-party buyer (via an assignment of the purchase contract) within 180 days after Qualified Intermediary's acquisition of the Replacement Property and transfer the Replacement Property to the Exchangor within 180 days after acquisition.  (Generally the Replacement Property is transferred to the Exchangor simultaneously with or immediately following the sale of the Relinquished Property to the third-party buyer).  

• During the holding period, ARPI receives and forwards to the investor (tenant) any tax or insurance bills received. 

When a Buyer for the Relinquished Property Is Found:

•  Investor contracts to sell the Relinquished Property and opens escrow (using a standard cooperation clause).

• ARPI contacts escrow and requests a copy of:

  • Purchase Agreement and/or escrow instructions

  • Preliminary Title Report/Commitment

• ARPI prepares for signature:

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

  • Instructions to escrow holder to prepare the deed to record directly from the investor to the buyer even though ARPI is the seller on the closing statement.

• Relinquished Property escrow holder is provided the name and phone number of the escrow holder who handled the transfer of the Replacement Property to ARPI.  The Replacement Property escrow holder is now provided the final Quitclaim Deed from ARPI to the investor and is instructed to obtain title insurance on behalf of the investor.

• Both the Relinquished Property escrow holder and the Replacement Property escrow holder are instructed to record their respective deeds concurrently at the close of the sale of the Relinquished Property.  This is a critical point as this is when the actual exchange occurs.

• Sale proceeds are forwarded to ARPI as seller and ARPI then pays off the loan made by the investor to ARPI to acquire the Replacement Property.

• The lease on the Replacement Property must be canceled and the insurance reissued in the name of the investor.