1031 Exchanges by Equity Advantage Incorporated

Call (800) 735-1031 or click here to begin the process immediately!

Exchange ABC's

Creating An Exchange

Frequently Asked Questions

Choosing a Facilitator

Tax deferred exchanges involving the sale of the Exchanger's property are possible because of the use of a "middleman". Middlemen take the place of the exchanger in dealing with a buyer of his property and the seller of the property he wishes to trade for. All middlemen pass ownership to property and hold sale proceeds for eventual use in completing an exchange. Some middlemen also provide documentation to perform the exchange. However, not all middlemen serve the same functions. "Intermediaries" are independent third parties who are asked to enter the transaction by the Exchanger and who earn a fee for this service. When middlemen act as agents of the Exchanger, they are more properly called "agents" or "strawmen". Strawmen may or may not earn a fee. A party to the original transaction, such as a seller or buyer, who agree to act as accommodating grantors are referred to as "accommodators". Accommodators do not earn a fee. Incorrectly calling an intermediary a "strawman" may create the appearance of agency when none is intended. There are legal descriptions of each of these functions that may be used to defend or defeat an exchange in tax court.

Just as the various terms describe the legal position of a middleman, they may also describe the level of expertise and service the middleman provides. When the intermediary has a broad range of knowledge, skills and abilities which allow him to actually help the transaction to close properly he is described as a "Facilitator". The term "Facilitator" is used to describe an active participant to the exchange in contrast to the passive role of an intermediary or accommodator.

Facilitators actively participate in the exchange. They are principals in the transaction and, as such, are obligated to assist in any way possible to make certain that the exchange closes successfully. Facilitators assume the liability and obligations of an Exchangor, a seller and a buyer in each transaction. A Facilitator has specialized training in negotiation, contract law, taxation, investment analysis, escrow and real estate practice, as well as having experience with investment real estate. This expertise is extremely valuable when problems arise. Exchange problems frequently require a knowledge of all of these areas in order to arrive at a solution. The Facilitator should have the finest legal and tax counsel available to assist when a problem requires specialized knowledge. A Facilitator is a valuable resource to the investor, the real estate agent and to the investor's tax and legal counsel. A properly trained Facilitator will identify problems before they threaten an exchange.

In order to be considered as an independent party, the Facilitator must have a legitimate business purpose in serving as the intermediary. He must derive an economic benefit from the transaction. The Facilitator should earn a profit sufficient to justify the effort and the risk he is taking. Ideally, the Facilitator should be an investor himself. Anything which enables the Facilitator to prove that he is a bona-fide, third-party principal in the transaction will enhance the exchange. Obviously, any person not earning a fee or taking only token payment for serving as the middleman in a real estate transaction may be viewed as serving the best interests of the Exchanger rather than himself. This may be construed as agency and the tax deferment disallowed.

The Facilitator should be carefully chosen so that the exchange is defensible. As a principal in the transaction, the Facilitator will be as responsible as the Exchangor for performance of contractual obligations in the selling and buying of property. The real estate agent for the Exchangor will become the real estate agent of the Facilitator and, if the agent is unfamiliar with exchanging, it may be the Facilitator's responsibility to insure that the transaction is conducted properly.

The decision to perform a tax-deferred exchange is an investment decision. It is not a tax, legal or escrow decision. The choice of a Facilitator to perform this investment activity rather than the use of a more limited form of middleman offers the greatest degree of success in completing a profitable, defensible tax-deferred exchange.

Equity Advantage, Incorporated looks forward to working on your next exchange. In the ever growing sea of accommodators & intermediaries, we proudly stand as the investor's 1031 Facilitator.