Real Estate Investment Goes Bust - Real Estate News - Mountain Home, ID

Real Estate Agent with CENTURY 21 Southern Idaho Realty

I'm not quite sure how to handle this (true) story. I'll try to do so with sensitivity and dignity but.....

Several Boise investors were among those victimized in a $95 million dollar scam where a "1031 Exchange Accommodator" (more about this later) took the investors' money to purchase businesses for itself - specifically breast implant manufacturers in Great Britain and France.

The company, Arrow 1031 Exchange (a subsidiary of Southwestern 1031 Exchange) allegedly lifted and separated the money from the victims over a period of several years but were able to repay accounts until the breast implant indShark with toothpickustry went flat.

In hopes of moving this post from the salacious to the educational, I'll provide a very basic overview of 1031 exchanges. They are financial mechanisms where payment of income taxes on capital gains can be deferred by reinvesting into replacement property. An essential requirement of the exchange is that the investor cannot control the proceeds of a sale. In practice, sales proceeds usually go directly to an exchange accommodator such as Arrow 1031 to be held in escrow until replacement property is purchased.

A disturbing aspect of this case is that it's uncertain whether criminal charges can be filed as neither the Federal government nor the State of Idaho regulate or audit exchange accommodators.

Not enough bad news for the victims you say? In addition to losing their entire investments they must now pay income tax on their capital gains since they failed to acquire replacement property within the time limits required.

The moral of the story - don't be misled by a false front! Contact a real estate professional who is knowledgeable about 1031 exchanges and the reputation of local exchange accommodators.

Comments (1)

Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Well said.  Here is an article that I wrote on choosing a SAFE Qualified Intermediary:

You have to do your own due diligence when evaluating and choosing your Qualified Intermediary.  Your local realtors can be a huge help in weeding out the potential problem 1031 Exchange Companies.

Nov 12, 2007 09:03 AM