Short Sales and the 1031 Exchange
The question was asked of me, "can I exchange into a short sale property". The easy answer is YES! Of course there are a lot of what ifs with that answer.
First is both the lender and seller must agree to the terms of the sale.
That seems easy however nothing ever is. In my clients case there were two loans made out on the same day, a 1st and a 2nd. So now both lenders must agree, that's when the first of many issues start.
Second is the exchanger only has 45 days to ID the replacement property.
This is where additional issues come up. The 45 days goes by very fast that means you should always ID more than one property hopefully 3 properties. The lenders don't seem to be in a hurry, they are always hoping a higher offer comes in. So their answer on if they agree or not to the terms of the sale could come after the 45 day ID period.
My client originally wanted to ID 2 properties both short sales. Now he is up to 3 properties.
Third the lender can withdraw from escrow all the way up until the closing day.
Now the exchange must close within 180th day after the relinquished closed. Therefore, if everything is going great and your are going to close within the 180 days all of the sudden the lender gets a better offer. Now the investor is back to square one, however instead of having 180 days to buy the replacement property he is short all the time spent on the first property.
This post is just a brief summary there are many other issues that may and do arise therefore, make sure you have a good investment team when purchasing properties, starting with your CPA, attorney, real estate agent, and of course your Exeter 1031 Exchange, as your qualified intermediary.
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