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1031 Exchanges - Is An Assignable Contract Necessary?
YES! 

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.
4.  The QI will provide a Security of Funds Instrument. See my blog entry on API's Security. 
 

 STATE LAW AND ASSIGNABILITY
Every state has their own body of contract law. For example, in California, ... more

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