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Have you ever wondered what are the duties a qualified intermediary performs during a 1031 exchange?

Have you ever wondered what are the duties a qualified intermediary performs during a 1031 exchange?
Qualified Intermediary known as the QI is needed because, the owner can never have actual or constructive receipt of the funds from the sale of the relinquished property in order to qualify to do a section 1031 exchange. The QI is supposed to be an independent entity which receives the Exchangers’ funds from the sale of the relinquish property from the Title Company at closing, holds the funds and then transfers them back to the Title Company to do the closing on the Exchanger’s purchase of the Replacement Property. The Exchanger never receives or has control of the funds. The QI is paid by the Exchanger for this service.
The QI will:
  1. Answer the Exchanger’s questions about the 1031 process, but not give advice.
  2. Draft an “Exchange Agreement” between the Exchanger and the QI outlining exactly what will take place and each party’s rights and responsibilities.
  3. Review the Sales Contract concerning the Relinquished Property to make sure that the Exchangers information is correct.
  4. Review the deed which originally put the relinquished property into the Exchanger’s name to make sure that it is the same as the name on the sales contract, and the property has been held for the required period of time.
  5. Provide the Exchanger with an addendum to be added to the contract regarding the sale of the relinquished property to be signed by the buyer, acknowledging that the transaction is part of a 1031 and promising to cooperate, while being assured that there will be no additional cost or liability in doing so.
  6. Draft an “assignment of benefits” from the Exchanger to the QI of the Exchanger’s contract to sell the relinquished property.
  7. Draft and send notices of the Assignment to all other parties to the contract, such as the real estate agent, the Title Company and any financing entities.
  8. Open a bank account in the name of the Exchanger and with the Exchanger’s social security number or federal tax identification number usually a Qualified Escrow Account, but preferably a Qualified Trust Account. If the Exchanger will be providing more than the 250k amount that is the max insured by the FDIC, then multiple accounts will be opened.
  9. Review the Title Insurance Commitment to ensure that the information is correct.
  10. Review and approve the Title Company’s proposed HUD-1 Settlement Statement for accuracy.
  11. Review the proposed deed for Relinquished Property for accuracy.
  12. Upon closing, receive the Net Sales Proceeds from the Title Company and deposit them into the Exchanger’s account or accounts.
  13. Provide a form on which the Exchanger will identify the potential Replacement Properties within 45 days after closing on the Relinquished Property and verify that it is correct.
  14. When a contract is signed on one of the replacement properties, repeal all the steps above.
  15. Monitor the 180-day time period for closing on the replacement property.
  16. When the closing is scheduled on the replacement property, transfer the Exchanger’s funds to the Title Company to be used for purchasing the property.
  17. Provide the Exchange an accounting of the entire transaction.
  18. Provide the Exchanger copies of all appropriate documents.

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