[REVISION 7/4/08 (original post 7/3/08): The purpose of this post is to educate the public regarding the value a GOOD agent will bring to the transaction, why their fees are justified and how to find a GOOD agent]
Over the past few days there has been a HEATED ongoing debate regarding whether agents and in particular, listing agents are worth their commission (here's a link to the Member's Only version of this post with links to the debate). Since I don't have a horse in this race i.e., I am not a realtor nor am I someone promoting an investment business model that shuns the use of listing agents, I'm going to address the value that GOOD Buyer's and Seller's Agent's bring to the transaction and how to select them.
Agents and other Real Estate Professionals: if you have comments that are helpful to the consumer please post them here. If you have a comment that more appropriately belongs in the Member's Only forum, please use your discretion and post it here.
Definition of a GOOD Agent
A good agent will hold their clients' best interests above their own. They honor and respect the fiduciary relationship they owe to their clients. They are committed to providing professional guidance throughout the transaction. Honesty and integrity are integral character traits of the GOOD agent. They are fanatical about returning phone calls in a reasonable time frame (at least 24 hours). They have chosen real estate as a profession not a hobby or a short cut to making a quick buck.
At the same time, a GOOD agent is NOT a slave to the whims and emotions of an unreasonable client.
The Value a GOOD Listing Agent Brings to the Transaction
A GOOD listing agent will dramatically decrease the amount of time your property is on the market through realistic/effective pricing, a thorough marketing plan, established connections with reputable agents, appraisers, home inspectors, title, escrow and other service providers.
Here are some guidelines to finding the agent that will bring the most value to your transaction. Please do not pick an agent simply because they have spent money for billboard, bus bench or other advertising. Look for an agent who is respected by their peers and other professionals in the industry.
Remember that an agent uses their own resources (read money, gas and time) to market and sell your property before they are paid a dime.
1. Experience - An agent experienced in your local market will provide exceptional insight into the value of your property at a specific time in a specific locale. Be wary of the agent that instantly agrees with your assessment of the value of your property (most likely they are telling you what you want to hear and not giving you accurate pricing information about your property, which will dramatically affect how fast your property sells). A GOOD listing agent will suggest a selling price based on a variety of factors in your market and they should be able to support the price they suggest. Realistic pricing is the key to properties selling in this challenging market.
If you're selling investment property, the agent should also have experience with 1031 exchanges.
2. Marketing Savvy - Ask how they plan to market your property. They should have detailed plan that may include staging, advertising, open houses, agent-to-agent networking and Internet presence.
3. Professional Negotiation Skills - A GOOD listing agent will know how to negotiate effectively and professionally. Stay away from those who have a reputation for bullying and strong arm tactics, those who have a reputation for losing their temper and those who do not return phone calls. Those tactics are typically employed by those who have not developed effective and professional negotiation skills.
4. Word of Mouth Reputation - What is this agent's reputation among other agents (this is critical) and among their former clients. The agent should be able to provide you with references from other agents (outside of their brokerage) and former clients. A good reputation among other agents usually indicates that they are professional and facilitate the transaction rather than stalling it through ineptitude or inexperience.
5. A GOOD listing agent will coordinate and schedule showings, arrange for inspections and other professional services that your property may need prior to selling (some of these are included in their commission and some are not, have a candid conversation about what out-of-pocket expenses you will need to budget) they will receive the offers and present them to you with their recommendations regarding a counter-offer and other strategic aspects. A lot will depend on the urgency of your sale. You should candidly discuss your urgency or lack of urgency with your agent because this will impact the negotiation strategy.
The Value of a GOOD Buyer's Agent
A GOOD Buyer's agent will save you substantial time by sorting through available inventory and selecting properties that meet your criteria. They will have relationships with credible and ethical lenders that may assist the loan process. The will guide you through the negotiation of the transaction representing your best interests.
In selecting a Buyer's Agent look for:
1. Experience in the local market. A good understanding of historical property prices and the current trends will prevent you from spending more than you have budgeted. They will also be able to give you historical data regarding appreciation, school districts and neighborhood desirability relative to your needs. Remember that no one can predict the future.
The agent should spend at least an hour interviewing you to discover both the tangible and intangible factors that will affect your buying decision. At the end of the session, they should be able to reflect back to you the requirements you have and also any other intangibles that may affect you.
***If the properties the agent is showing you do not in any way reflect what you are looking for and you have been specific about why those properties aren't appropriate, consider looking for another agent. The agent should be responsive to your needs.***
2. Responsive - The agent should be responsive to your questions and phone calls. Remember, however, that you are not their only client. Try to make a list of questions you have rather than calling every time you think of something new. It will make it easier for the agent to assist you and reduce the number of phone calls. Help them, help you.
3. Professional Negotiation Skills - A GOOD listing agent will know how to negotiate effectively and professionally. Stay away from those who have a reputation for bullying and strong arm tactics, those who have a reputation for losing their temper and those who do not return phone calls. Those tactics are typically employed by those who have not developed effective and professional negotiation skills.
4. Word of Mouth Reputation - What is this agent's reputation among other agents (this is critical) and among their former clients. The agent should be able to provide you with references from other agents (outside of their brokerage) and former clients. A good reputation among other agents usually indicates that they are professional and facilitate the transaction rather than stalling it through ineptitude or inexperience.
The above list is not exhaustive but it should give you a GOOD start to finding a GOOD agent for your needs.
GOOD agents (whether Buyer's or Seller's agents) are worth their weight in gold. They are passionate about serving their clients and passionate about their industry. There are many, many agents who do not qualify as GOOD agents. The only way to reduce the number of BAD agents is to not use them for your transactions.
As a consumer, it is up to you to find the best agent for you. Do your due diligence. Check references. Don't assume they are GOOD references because they gave you references. Google their name with the word "complaint," "bad," and "unethical."
It is possible to have a bad experience with a generally GOOD agent. It's just the nature of business but there are ways to increase your chances of a good experience.
This is my personal opinion only and it is a general opinion. Please feel free to add to this conversation.
[REVISION 7/4/08: I use both Buyer's and Seller's agents despite the fact that I'm an attorney and could easily negotiate my own contract. It is indispensible to have a third party's perspective and guidance, not to mention the amount of time they save me.]
On May 22, 2008, Congress enacted the Food, Conservation and Energy Act of 2008 which is often referred to as the Farm Bill. Among other things, the Act amends IRC Section 1031(a)(2)(B) to exclude mutual ditch, reservoir or irrigation company stock from the definition of "stock." As a result, mutual ditch, reservoir or irrigation company stock should now be eligible in §1031 exchanges. In order to qualify for this treatment, the new law requires that ditch stock must be treated as an interest in real property under the law of the state in which the corporation is located.
So, what does this all mean? A little background information will help you understand it. For the most part, this very positive change will largely affect farmers and ranchers. However, it will also have an affect on areas (likeCalifornia, New Mexico, Nevada, Colorado) where water is scarce and the state that recognizes water rights as REAL PROPERTY.
Internal Revenue Code (IRC) Section 1031 provides, in part, that no gain or loss is recognized on the exchange of property for other property of a "like-kind." In other words, to qualify for income tax deferral under §1031, the property relinquished in the exchange must be sufficiently like the property received in the exchange.
Fortunately, most property rights characterized as real property under state law are considered like-kind to other interests that are also considered real property under local law. Thus an easement or mineral right in most cases will be considered like-kind to a fee simple interest in real property and vice versa. If easements and mineral rights are considered like-kind to a fee simple interest in real property, then what about water rights?
In recent years, developers have been willing to purchase water rights at a significant premium and some economists expect the premium to increase in the future. Does a sale of water rights qualify for income tax deferral under §1031?
In most states, perpetual water rights are recognized as an interest in real property that would qualify as "like-kind" to a fee interest real property. See, e.g. Revenue Ruling 55-749, 1955-2 CB 295; IRS Letter Ruling 200404044. On the other hand, water rights that are limited in amount or duration may not be considered sufficiently like a fee interest in real property. In Weichens v. United States, 228 F. Supp. 1080 (Arizona - 2002), for example, the court held that the water rights in question were so limited in priority, quantity, and duration as to not be like-kind to a fee simple interest in real property.
DOES DITCH STOCK QUALIFY FOR §1031 DEFERRAL?
Like-kind issues also arise where water rights are owned indirectly. In some states, water is allocated among land owners by means of ditches. Ditches may be individually owned or may be "mutual" incorporated ditches. Water in incorporated ditches is allocated by shares issued by the company. The ditch shares represent proportional amounts of water rights held by the ditch company.
In most cases, stock certificates are issued by ditch companies. So, can ditch stock be exchanged for real property in a §1031 exchange? Section 1031(a)(2)(B) provides that "stocks, bonds or notes" may not be exchanged in a §1031 exchange. Thus, an exchanger cannot sell stock in a corporation that owns real property even if the underlying real property would qualify as like kind property. Under this reasoning, it would seem that a sale of ditch stock should not qualify for deferral under §1031.
THIS INFORMATION IS PROVIDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY. IT IS NOT TAX OR LEGAL ADVICE. INDIVIDUALS ARE STRONGLY ADVISED TO SEEK THE GUIDANCE OF THEIR INDIVIDUAL TAX AND LEGAL ADVISORS REGARDING THEIR SPECIFIC FACTS AND CIRCUMSTANCES.
Good news for Central Valley and Sierra foothill residents related to the recent wildfire activity! The cooler weather and higher humidity levels have allowed fire crews to begin to make progress on the Oliver fire located southwest of Yosemite National Park. The Oliver fire is now 75% contained. Air pollution levels have dropped and are now registering in the Moderate range.
Although,the Central Valley has gained some relief, coastal areas like the Big Sur area are still deep in battle against raging fires. The Basin Fire complex is currently only 3% contained. The link will take you to the Monterey County Fire Website with information regarding evacuations, etc.
[I've removed a photo of the Big Sur fires taken by AP and attributed to them and the photographer out of copyright concerns] Yahoo! has a gallery of fire photos. Click here to see them.
Governor Schwarzenegger has called in the National Guard to assist fire crews in their fire suppression efforts. Read the Washington Post article (dateline Fresno) "National Guard Troops Set to Relieve Fire Crews."
Evacuations: The evacuation warning for Aurora Road (5S09), Standard Mill Road (5S03), and the 5,100 block to 6,100 block of Chowchilla Mountain Road (approximately 47 homes WILL BE LIFTED at 6:00 p.m. today.
Chowchilla Mountain Road east of Westfall Road will also be completely opened.
Cause: Lightning
Cooperating Agencies: CAL FIRE, United States Forest Service, CHP, OES, Mariposa County Fire, Mariposa County Sheriff, Mariposa County Human Services, American Red Cross, CDCR, and CCC.
Total Fire Personnel: 730 (426 CAL FIRE)
Engines: 66
Fire crews: 26
Helicopters 1
Dozers:10
Water tenders: 13
Costs to date: $10.2 million
Conditions: The fire spread has slowed, however the fire continues backing in steep inaccessible terrain. There are areas of unburned vegetation within the interior of the fire area that continue to ignite and burn. Mop-up of the large fuels is a slow and tedious process. As fire suppression activity diminishes, demobilization of some firefighters is occurring. Residents and visitors to the foothill and mountain area are reminded that fireworks are not allowed due to high fire danger. Residents are asked to take responsibility for living in the wildlands by creating and maintaining a minimum of 100 feet of Defensible Space around all structures.
CAL FIRE Incident Command Team #6 is assigned to this incident.
Three fires are located northwest of the town of Oakhurst, south of Fish Camp, just south of Ponderosa Basin, and in the Timber Loft area. Fire suppression efforts are concentrating on the Oliver Fire containment and the protection of the Ponderosa Basin structures. The Oliver Fire has been turned over to CAL FIRE. Additional fire resources have arrived and are on the fire lines.
One other fire is located in the Star Lakes area in the SNF and my effect smoke within Yosemite National Parks south entrance. FIRES:
Oliver Fire - near the Ponderosa Basin, 2000 acres, 20% contained, structures threatened. NO CHANGE FROMYESTERDAY.Evacuations of 12 structures have taken place and evacuation warnings are out for 10 blocks of Chowchilla Mtn. Road. Residents may call 209-966-1133
Evacuations:
Evacuation Orders: Aurora Road (5S09) and Standard Mill Road (5S03)
Evacuation Warning: 5100 block to 6100 block of Chowchilla Mountain Rd
Evacuation Centers: Woodland Elementary School 3394 Woodland Dr
Road Closures: Chowchilla Mountain Rd east of Westfall Road is open to residents only with proof of residency
Westfall Fire - 100% contained, no fire at present time.
Silverknob Fire - near Cedarbrook/Timberloft area (below Westfall Camp), 480 acres, 60% contained. NO CHANGE FROM YESTERDAY.
Star Fire - near Star Lakes (southeast of the south entrance to YNP, 260 acres, 0% contained.
A week or so ago, I wrote a post detailing the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) because I'd read a number of posts where the authors confused the MFDRA with their state's anti-deficiency laws. That post was lost when AR timed out on me when I went to publish the post.
The main difference between MFDRA is who is providing the protection. MFDRA is federal law and applies to your federal income taxes. Anti-deficiency laws vary state by state and protect the borrower from the lender holding them liable for the deficiency (the difference between the amount owed and the actual sale price) in a short sale or foreclosure.
What is the MFDRA 2007
As a response to the mortgage and credit crisis, Congress passed this Act in late December of 2007 It generally, permits a taxpayer to exclude the forgiveness of cancellation of certain debt from counting as ordinary income on their federal taxes if the property at issue is the taxpayer's principal residence. Cancellation or forgiveness of debt usually occurs when the lender modifies the terms of a mortgage, accepts a short sale or forecloses on a property. MFDRA will apply to forgiveness and cancellation of debt occurring in 2007, 2008 or 2009.
Prior to December 2007 Mortgage Debt Relief Was Handled Differently
Prior to the enactment of the MFDRA, when a lender offered to modify the terms of the loan by either forgiving or canceling debt, the taxpayer would have to include the debt relief amount as ordinary income.
For example, if there was $300,000 owed on the taxpayer's principal residence and the property only sold for $250,000, prior to MFDRA, the taxpayer would have to show the debt relief of $50,000 as income on his/her taxes.
With the MFDRA, the taxpayer does not have to include that $50,000 debt relief as income.
Debts to Which the MFDRA Applies
Not all forgiven or canceled debt qualify for MFDRA treatment. It only applies to forgiven or canceled debt that was used to buy, build or substantially improve the taxpayer's taxpayer's principal residence.
What Happens With REFINANCED HOMES?
Debt used to refinance a taxpayer's home will qualify up to the extent that theprincipal balance of the old mortgage, immediately prior to refinancing would have qualified.
What About Debt Forgiveness on a second home, credit cards or car loans?
This property DOES NOT QUALIFY for MFDRA treatment. Only canceled debt used to buy, build or improve the taxpayer's principal residence or refinance debt incurred for those purposes qualifies for this exclusion.
Check With Your Tax Advisor Because If Part of the Forgiven Debt Doesn't Qualify for Exclusion from Income, It May Qualify Under A Different Provision
The forgiven debt may qualify under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. There are additional exclusions that may be explored with your tax advisor.
What are Anti-Deficiency Laws
Anti-deficiency laws differ by state and usually protect the borrower from being liable for the difference in the sale price of the principal residence and the amount owed on the principal residence. If a borrower is protected by anti-deficiency laws, it protects them from the lender holding the borrower liable for the deficiency. Many restrict this protection to purchase money loans only, so if the property is refinanced then the borrower may lose the protection of the anti-deficiency laws. I will cover this in more detail in a future post.
THIS INFORMATION IS PROVIDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY. IT IS NOT TAX OR LEGAL ADVICE. INDIVIDUALS ARE STRONGLY ENCOURAGED TO SEEK THE GUIDANCE OF THEIR OWN TAX AND LEGAL ADVISORS FOR ADVICE REGARDING THEIR SPECIFIC FACTS AND CIRCUMSTANCES.
Please remember me and Asset Preservation, Inc. for all of your 1031 exchanges and questions.
I recently received an email from the Yosemite Gateway Association of Realtors indicating that the firefighters who have been fighting the Silver Complex fires could use donations for incidental supplies to make them more comfortable while they are protecting our homes and forests. If you are interested in providing these types of donations, please see below.
Century 21 Ditton Realty is taking donations for the fire crews.
They have food and water but they need travel sized toiletries such as soap, razors, cleansing clothes, visine, vasoline, Kleenex, toothbrushes and toothpaste, deodorant, chapstick, etc.
They can drop it off at any of our offices and we will get it distributed to the fire crews.
For more information you can call:
Jessica Rubottom- Century 21 Ditton Realty, Coarsegold 559-760-5782 or email
Three fires are located northwest of the town of Oakhurst, south of Fish Camp, just south of Ponderosa Basin, and in the Timber Loft area.
Fire suppression efforts are concentrating on the Oliver Fire containment and the protection of the Ponderosa Basin structures. The Oliver Fire has been turned over to CAL FIRE.
Additional fire resources have arrived and are on the fire lines. One other fire is located in the Star Lakes area in the SNF and may effect smoke within Yosemite National Parks south entrance.
FIRES:
Oliver Fire - near the Ponderosa Basin, 2,000 acres, 20% contained, structures threatened. Evacuations of 12 structures have taken place and evacuation warnings are out for 10 blocks of Chowchilla Mtn. Road. Residents may call 209-966-1133
Evacuation Orders: Aurora Road (5S09) and Standard Mill Road (5S03)
Evacuation Warning: 5100 block to 6100 block of Chowchilla Mountain Rd
Evacuation Centers: Woodland Elementary School 3394 Woodland Dr (Woodland Dr & Highway 49)
Road Closures: Chowchilla Mountain Rd east of Westfall Road is open to residents only with roof of residency
Westfall Fire - southwest of Fish Camp community, 105 acres, 100% contained. (Miami Mtn.)
Chiquito Fire: 52 acres 60% contained
Silverknob Fire - near Cedarbrook/Timberloft area (below Westfall Camp), 480 acres, 60% contained.
Star Fire - near Star Lakes (southeast of the south entrance to YNP, 180 acres, 0% contained.
Gagg, Poison and 7 other fires are contained
**** Red Cross has set up a station at Woodland School for evacuees. A total of 11,073 support people are involved (firefighters, air support, etc.) 1 injury, no structures lost as of this morning, a cost of $203,000,000. ***
Contact information:
SNF: 559-877-2218 (Madera)
CDF: 209-372-0480 (Mariposa)
Cal Fire: 209-966-4784 (Mariposa)
Residents in Mariposa may call: 209-966-1133 or 209-372-0480.
I know it sounds weird but it could help an investor in a very specific set of circumstances.
In the last post we examined the options available for taxpayers who had debt forgiven or canceled on their principal residence. But what about those who own investment property who are facing a short sale or foreclosure? Are there tax consequences when debt is forgiven or canceled on those types of properties? You bet!
Given the challenging conditions in the real estate market, some taxpayers may be faced with the prospect of foreclosure or a short sale arrangement with their lender. Taxpayers in this situation have a multitude of concerns ranging from a deteriorating credit rating to loss of their equity. Unfortunately, the taxpayer may have a significant tax liability that arises out of foreclosure or short sale.
LOSE PROPERTY IN FORECLOSURE BUT MAY OWE CAPITAL GAIN TAXES
A tax liability could occur if the indebtedness encumbering the property is greater than the taxpayer’s adjusted basis for income tax purposes. This happens because the transfer of the property to the lender or short sale buyer results in debt forgiveness. This usually happens in cases where the relinquished property is highly leveraged through cash out refinancing, has declined in value or has been significantly depreciated. The capital gain is recognized whether the property is conveyed through foreclosure, short sale or a deed in lieu of foreclosure. In these instances, taxpayers have a capital gain tax liability even though they will not receive cash with which to pay the tax liability.
WHAT CAN BE DONE TO MITIGATE THE TAX EXPOSURE?
Remarkably, all is not lost to a taxpayer who has some cash (which is really a long shot if they're in this situation already but this is a potential option) and would like to continue to invest in real estate. If the transaction is properly structured, the taxpayer could elect to complete a §1031 tax deferred exchange treating the mortgaged property as the relinquished property. In order to qualify, the transaction should be structured as either a short sale or a deed in lieu of foreclosure. If the property is foreclosed the transaction is not easily converted into an exchange because the transfer of the relinquished property occurs by operation of law. This leaves no room for an exchange agreement and the integration of a qualified intermediary into the transaction.
With a deed in lieu of foreclosure, it is critical that exchange documents be signed by the taxpayer prior to the property being deeded to the lender, as the deed to the lender commences the running of the 45 day identification period and the 180 day exchange period. During the exchange period, the taxpayer must acquire replacement property of equal or greater value to the relinquished property in order to defer 100% of their capital gain tax liability. The obvious hurdle to performing such an exchange is that the taxpayer must have enough cash available to make a down payment on the replacement property and be able to finance the remainder of the purchase price.
The above consequences highlight the need to involve legal and tax advisors in connection with all investment decisions. Failure to do so may result in a taxpayer incurring unintended tax liabilities that could have been deferred had the transaction been reviewed early on by the right professionals.
THIS INFORMATION IS PROVIDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY. IT IS NOT TAX OR LEGAL ADVICE. INDIVIDUALS ARE STRONGLY ENCOURAGED TO SEEK GUIDANCE FROM THEIR OWN TAX AND LEGAL ADVISORS REGARDING THE SPECIFIC FACTS AND CIRCUMSTANCES OF THEIR SITUATION.
A week or so ago, I wrote a post detailing the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) because I'd read a number of posts where the authors confused the MFDRA with their state's anti-deficiency laws. That post was lost when AR timed out on me when I went to publish the post.
The main difference between MFDRA is who is providing the protection. MFDRA is federal law and applies to your federal income taxes. Anti-deficiency laws vary state by state and protect the borrower from the lender holding them liable for the deficiency (the difference between the amount owed and the actual sale price) in a short sale or foreclosure.
What is the MFDRA 2007
As a response to the mortgage and credit crisis, Congress passed this Act in late December of 2007 It generally, permits a taxpayer to exclude the forgiveness of cancellation of certain debt from counting as ordinary income on their federal taxes if the property at issue is the taxpayer's principal residence. Cancellation or forgiveness of debt usually occurs when the lender modifies the terms of a mortgage, accepts a short sale or forecloses on a property. MFDRA will apply to forgiveness and cancellation of debt occurring in 2007, 2008 or 2009.
Prior to December 2007 Mortgage Debt Relief Was Handled Differently
Prior to the enactment of the MFDRA, when a lender offered to modify the terms of the loan by either forgiving or canceling debt, the taxpayer would have to include the debt relief amount as ordinary income.
For example, if there was $300,000 owed on the taxpayer's principal residence and the property only sold for $250,000, prior to MFDRA, the taxpayer would have to show the debt relief of $50,000 as income on his/her taxes.
With the MFDRA, the taxpayer does not have to include that $50,000 debt relief as income.
Debts to Which the MFDRA Applies
Not all forgiven or canceled debt qualify for MFDRA treatment. It only applies to forgiven or canceled debt that was used to buy, build or substantially improve the taxpayer's taxpayer's principal residence.
What Happens With REFINANCED HOMES?
Debt used to refinance a taxpayer's home will qualify up to the extent that theprincipal balance of the old mortgage, immediately prior to refinancing would have qualified.
What About Debt Forgiveness on a second home, credit cards or car loans?
This property DOES NOT QUALIFY for MFDRA treatment. Only canceled debt used to buy, build or improve the taxpayer's principal residence or refinance debt incurred for those purposes qualifies for this exclusion.
Check With Your Tax Advisor Because If Part of the Forgiven Debt Doesn't Qualify for Exclusion from Income, It May Qualify Under A Different Provision
The forgiven debt may qualify under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. There are additional exclusions that may be explored with your tax advisor.
What are Anti-Deficiency Laws
Anti-deficiency laws differ by state and usually protect the borrower from being liable for the difference in the sale price of the principal residence and the amount owed on the principal residence. If a borrower is protected by anti-deficiency laws, it protects them from the lender holding the borrower liable for the deficiency. Many restrict this protection to purchase money loans only, so if the property is refinanced then the borrower may lose the protection of the anti-deficiency laws. I will cover this in more detail in a future post.
THIS INFORMATION IS PROVIDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY. IT IS NOT TAX OR LEGAL ADVICE. INDIVIDUALS ARE STRONGLY ENCOURAGED TO SEEK THE GUIDANCE OF THEIR OWN TAX AND LEGAL ADVISORS FOR ADVICE REGARDING THEIR SPECIFIC FACTS AND CIRCUMSTANCES.
Please remember me and Asset Preservation, Inc. for all of your 1031 exchanges and questions.
This issue has come up twice this week. Once on an AR blog and once in the course of my business. So here you go. . .
When a client selects a Qualified Intermediary (QI, accommodator, facilitator) and decides to open an exchange account a number of contractual things need to happen before the QI is ready to accept the clients funds from the sale of the property.
1. The Seller (client/taxpayer) will sign an exchange agreement, which essentially prevents them from having the ability to pledge, borrow or otherwise receive the benefits of the sale proceeds during the exchange period except for the purchase of Replacement Property.
2. The Seller assigns the Purchase/Sale Contract to the QI, so that the QI can step into the shoes of the seller and accept the sale proceeds. This prevents the client from having actual or constructive receipt of the proceeds, which would disqualify the exchange.
3. The Seller will notify the Purchaser of the Assignment through a Notice of Assignment.
Every state has their own body of contract law. For example, in California, contracts are freely assignable unless there is a contractual provision specificly limiting or prohibiting assignability. In other states, contracts are presumed to be unassignable unless there is a specific provision permitting assignability. You must check with your state to be sure.
(Note to California Realtors: the C.A.R. Residential Contract does not limit assignability, however, the C.A.R. Commercial Contract requires an agreement of the parties for assignment.)
The following language may be used to accomplish three things (ALWAYS CHECK WITH YOUR BROKER OR COUNSEL PRIOR TO MODIFYING A CONTRACT)
1. Intent to effect a 1031 Exchange
2. Release the Buyer from any liabilties or costs resulting in the Exchange;
3. Notify the Buyer in writing of the Assignment
"Buyer is aware that Seller intends to perform an IRC Section 1031 tax deferred exchange. Seller requests Buyer's cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, costs, liabilities, or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract to Asset Preservation, Inc. by the Seller." Copyright 2008. Asset Preservation, Inc. All Rights Reserved
So, if you have a Seller, who is doing a 1031 exchange and you live in a state where contracts are not freely assignable you will have to (with assistance, at least the first time, from your Broker or Counsel) modify the contract to permit the contract to be assigned to the QI.
THIS INFORMATION IS PROVIDED FOR EDUCATION AND INFORMATIONAL PURPOSES ONLY. IT IS NOT TAX AND/OR LEGAL ADVICE. INDIVIDUALS ARE STRONGLY ENCOURAGED TO SEEK THE ADVICE OF THEIR OWN TAX AND LEGAL COUNSEL TO REVIEW THEIR INDIVIDUAL FACTS AND CIRCUMSTANCES.
Discussing 1031 Exchange Issues and Related Real Estate Issues in California. Specifically focusing on the Merced, Madera, Fresno, Selma, Reedley, Oakhurst,Visalia, Hanford, Porterville and Bakersfield areas.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
[REVISION 7/4/08 (original post 7/3/08): The purpose of this post is to educate the public regarding the value a GOOD agent will bring to the transaction, why their fees are justified and how to find a GOOD agent]
Do your due diligence. Check references. Don't assume they are GOOD references because they gave you references. Google their name with the word "complaint," "bad," and "unethical." 
on and Energy Act of 2008 which is often referred to as the Farm Bill. Among other things, the Act amends IRC Section 1031(a)(2)(B) to exclude mutual ditch, reservoir or irrigation company stock from the definition of "stock." As a result, mutual ditch, reservoir or irrigation company stock should now be eligible in §1031 exchanges. In order to qualify for this treatment, the new law requires that ditch stock must be treated as an interest in real property under the law of the state in which the corporation is located.
where water is scarce and the state that recognizes water rights as REAL PROPERTY.
he property is greater than the taxpayer’s adjusted basis for income tax purposes. This happens because the transfer of the property to the lender or short sale buyer results in debt forgiveness. This usually happens in cases where the relinquished property is highly leveraged through cash out refinancing, has declined in value or has been significantly depreciated. The capital gain is recognized whether the property is conveyed through foreclosure, short sale or a deed in lieu of foreclosure. In these instances, taxpayers have a capital gain tax liability even though they will not receive cash with which to pay the tax liability. 
property. In order to qualify, the transaction should be structured as either a short sale or a deed in lieu of foreclosure. If the property is foreclosed the transaction is not easily converted into an exchange because the transfer of the relinquished property occurs by operation of law. This leaves no room for an exchange agreement and the integration of a qualified intermediary into the transaction. 
;)
;)
