Real Estate Exchange

Terence F. Cuff (“Why Should Investors Seek Counsel for Real Estate Exchanges,” Speaking Out, Sept. 15), covers the aspects of a delayed exchange very thoroughly. He did fail to mention one aspect that saved me thousands of dollars in a recent exchange. That is: a good policy of title insurance written by a large, reputable company.

I recently completed an exchange of one property into two apartment houses, utilizing a highly respected accommodator in San Diego. I am a real estate broker and sought out the advice of quite a few others who have had extensive exchange dealings.

The company I selected had extensive experience and was headed by a lawyer, who was also a CPA. The exchange agreement was reviewed by my own counsel and the escrow officer, who also spoke highly of their competency. On top of all this, the company indicated that I was to receive money market rate interest on the money held for the exchange, which by law had to be under the control of the accommodator, to qualify under the rules of the IRS Code, Section 1031.

I did successfully complete the exchange, only to find that the company had been siphoning off funds to support another business and was forced into bankruptcy. I was thankful that I got out just in time, however was dismayed to find out that since the money was held by the accommodator during the 90 days prior to the bankruptcy, it was subject to recall by the trustee.

Here is where the title policy comes in. Since there was a cloud on the title as a result of the lis pendens placed on the property by the trustee, the title company has undertaken my legal defense against the recall action by the trustee and has indemnified me against loss. Several smaller title companies have refused to defend their policy holders, who have had to settle with the trustee or spend thousands of dollars for legal fees.

My advice is to avoid a delayed exchange, if possible. If unavoidable, check out the accommodator very carefully and make certain that you have a good policy of title insurance with a large, reputable title company.

BYRON SLATER, San Diego