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Reverse 1031 Exchange: What a Lender Should Know

Posted on | by Tom Gustafson | Leave a Comment on Reverse 1031 Exchange: What a Lender Should Know

The majority of 1031 tax deferred exchanges are forward meaning that the old property is closed on before the new property is purchased. However, sometimes it makes sense to initiate a reverse exchange when the new property is acquired first and the old or relinquished property is sold later. Successful completion of a reverse exchange requires the participation of an Exchange Accommodator Titleholder (EAT) that takes title to either the new or the old property because the Internal Revenue Service does not allow the taxpayer to own both properties at the same time. What happens if a mortgage is required for the new property? What should a lender know before a loan approval process? The answer to that question depends on the type of a 1031 reverse exchange that was initiated.

Reverse First

An EAT is created in the entity form of a single member limited liability company to take title to either the new or the old property. The taxpayer has a secured position in the EAT through a Pledge of Membership Interest from the EAT member to the taxpayer.

In a reverse first, the old property is parked with the EAT. Prior to the closing on the new property, a deed is created conveying title from the taxpayer to the EAT. If a mortgage exists on the old property, the taxpayer continues to make payments. The taxpayer is responsible for taxes, insurance and expenses on the old property throughout the time owned by the EAT. The old property is marketed and sold to the buyer as normal. At the closing, the property is conveyed from the EAT to the buyer. Net proceeds from the sale are wired to the taxpayer.

Reverse Last

In a reverse last, the new property is acquired by the EAT on behalf of the taxpayer. If a mortgage is required for the new property, the EAT will sign a non recourse note with the lender. It is important to know before the loan application gets to the loan committee that the transaction is part of a reverse 1031 exchange. Once the loan is approved, it can be a challenge to re-do the loan approval process given the EAT will temporarily be on title.

Once the old property is sold, the title for the new property is conveyed to the taxpayer. This can be done through a warranty deed. If the state assesses a transfer tax, the EAT can also be conveyed to the taxpayer, consequently the title does not change, just the member of the EAT.

What the Lender Should Know

Which property will be parked or titled to the EAT? If the new property is parked, then be sure to involve the EAT in the loan approval process. If the old property is parked with the EAT, the existing lender will not be aware of the temporary title change given there is no interruption of mortgage payments.

Do you have a question? Contact our office of complete a few questions for a response be clicking on the free consultation request.

What a Lender Should Know About a 1031 Exchange

Posted on | by Tom Gustafson | Leave a Comment on What a Lender Should Know About a 1031 Exchange

Recently I spoke with a mortgage office about 1031 exchange basics and the circumstances where they would typically see one. Here’s a quick read for those new and old to the mortgage industry.

1031 Exchange Basics

Who: Individuals, trusts, partnerships, corporations both domestic and foreign are eligible for the tax deferral.

What: Real and personal property held for an investment or for use in a business are eligible for 1031 consideration. Property is sold and replaced. Real property can be replaced with any kind of real property while personal property must be replaced with like-kind personal property. U.S. for U.S. based property while international is replaced with international property.

Why: A 1031 exchange enables the titleholder to defer federal and state capital gains and recaptured depreciation taxes representing upwards of 40% upon sale of the old property.

When: The tax deferred exchange must be signed prior to or at the closing of the first property. The Exchangor must complete their tax deferred within 180 calendar days post the first closing.

How: The use of a qualified intermediary is required to effect a 1031 exchange, except in a two party or “pure” exchange. Given the moderate intermediary fee, it is well worth an accommodator facilitate the exchange.

Forward and Reverse 1031 Exchange

There are two types of exchanges a forward and a reverse. Forward exchanges are when the old or relinquished property is sold first followed by the acquisition of the replacement property. In a reverse, the replacement property is purchased first, with 180 calendar days to sell the old property.

Here’s where you come into the transaction. The Exchangor needs to acquire the replacement property first. In a reverse 1031 exchange, the Exchangor is not allowed to own both the new and the old at the same time. The qualified intermediary creates an Exchange Accommodator Titleholder (EAT) in the form of a single member limited liability company to take title to either the new or the old property for the duration of the 1031 exchange.

If the EAT takes title to the new property that the Exchangor is financing with you, the EAT signs a non recourse note, guaranteed by the Exchangor. Payments continue as normal with the EAT temporarily on title. The Exchangor signs a triple net lease with the EAT to cover insurance, taxes and expenses of renting the property. Once the old property is sold, title for the new property is transferred to the Exchangor.

If the EAT takes title to the old property, the new property financing continues as normal. With the EAT on title to the old property, mortgage payments continue to be paid by the Exchangor. The property is marketed and sold with the Exchangor signing the settlement statement under “Read and Approved” while the EAT signs as the Seller. The 1099 bears the name and address of the Exchangor.

If the old property fails to sell, the property parked with the EAT is conveyed to the Exchangor by the 180th calendar day.

Many of my referrals come from mortgage brokers seeking a seasoned qualified intermediary to accommodate reverse 1031 exchanges. If you have a question, call us at 850.496.0090 or

If you would like a tri fold semi glossy brochure with Atlas 1031 business cards for your office, send me a note and thirty will be sent including the plastic brochure holder.

Experience matters.

What a Lender Should Know About a 1031 Exchange

Posted on | by Tom Gustafson | Leave a Comment on What a Lender Should Know About a 1031 Exchange

Recently I spoke with a mortgage office about 1031 exchange basics and the circumstances where they would typically see one. Here’s a quick read for those new and old to the mortgage industry.

1031 Exchange Basics

Who: Individuals, trusts, partnerships, corporations both domestic and foreign are eligible for the tax deferral.

What: Real and personal property held for an investment or for use in a business are eligible for 1031 consideration. Property is sold and replaced. Real property can be replaced with any kind of real property while personal property must be replaced with like-kind personal property. U.S. for U.S. based property while international is replaced with international property.

Why: A 1031 exchange enables the titleholder to defer federal and state capital gains and recaptured depreciation taxes representing upwards of 40% upon sale of the old property.

When: The tax deferred exchange must be signed prior to or at the closing of the first property. The Exchangor must complete their tax deferred within 180 calendar days post the first closing.

How: The use of a qualified intermediary is required to effect a 1031 exchange, except in a two party or “pure” exchange. Given the moderate intermediary fee, it is well worth an accommodator facilitate the exchange.

Forward and Reverse 1031 Exchange

There are two types of exchanges a forward and a reverse. Forward exchanges are when the old or relinquished property is sold first followed by the acquisition of the replacement property. In a reverse, the replacement property is purchased first, with 180 calendar days to sell the old property.

Here’s where you come into the transaction. The Exchangor needs to acquire the replacement property first. In a reverse 1031 exchange, the Exchangor is not allowed to own both the new and the old at the same time. The qualified intermediary creates an Exchange Accommodator Titleholder (EAT) in the form of a single member limited liability company to take title to either the new or the old property for the duration of the 1031 exchange.

If the EAT takes title to the new property that the Exchangor is financing with you, the EAT signs a non recourse note, guaranteed by the Exchangor. Payments continue as normal with the EAT temporarily on title. The Exchangor signs a triple net lease with the EAT to cover insurance, taxes and expenses of renting the property. Once the old property is sold, title for the new property is transferred to the Exchangor.

If the EAT takes title to the old property, the new property financing continues as normal. With the EAT on title to the old property, mortgage payments continue to be paid by the Exchangor. The property is marketed and sold with the Exchangor signing the settlement statement under “Read and Approved” while the EAT signs as the Seller. The 1099 bears the name and address of the Exchangor.

If the old property fails to sell, the property parked with the EAT is conveyed to the Exchangor by the 180th calendar day.

Many of my referrals come from mortgage brokers seeking a seasoned qualified intermediary to accommodate reverse 1031 exchanges. If you have a question, call us at 800-227-1031 or if you would like a tri fold semi glossy brochure with Atlas 1031 business cards for your office, send me a note and thirty will be sent including the plastic brochure holder.

Experience matters.

What a Lender Should Know About a 1031 Exchange

Posted on | by Tom Gustafson | Leave a Comment on What a Lender Should Know About a 1031 Exchange

Recently I spoke with a mortgage office about 1031 exchange basics and the circumstances where they would typically see one. Here’s a quick read for those new and old to the mortgage industry.

1031 Exchange Basics

Who: Individuals, trusts, partnerships, corporations both domestic and foreign are eligible for the tax deferral.

What: Real property held for investment or for use in a business are eligible for 1031 consideration. Property is sold and replaced. Real property can be replaced with any kind of real property. U.S. can be replaced by U.S. based property while international property is replaced with international property.

Why: A 1031 exchange enables the titleholder to defer federal and state capital gains and recaptured depreciation taxes representing upwards of 40% upon sale of the old property.

When: The tax deferred exchange must be signed prior to or at the closing of the first property. The Exchangor must complete their tax deferred within 180 calendar days post the first closing.

How: The use of a qualified intermediary is required to effect a 1031 exchange, except in a two party or “pure” exchange. Given the moderate intermediary fee, it is well worth an accommodator facilitate the exchange.

Forward and Reverse 1031 Exchange

There are two primary types of exchanges, a forward and a reverse. Forward exchanges are when the old or relinquished property is sold first followed by the acquisition of the replacement property. In a reverse, the replacement property is purchased first, with 180 calendar days to sell the old property.

Here’s where you come into the transaction. The Exchangor needs to acquire the replacement property first. In a reverse 1031 exchange, the Exchangor is not allowed to own both the new and the old at the same time. The qualified intermediary creates an Exchange Accommodator Titleholder (EAT) in the form of a single member limited liability company to take title to either the new or the old property for the duration of the 1031 exchange.

If the EAT takes title to the new property that the Exchangor is financing with you, the EAT signs a non recourse note, guaranteed by the Exchangor. Payments continue as normal with the EAT temporarily on title. The Exchangor signs a triple net lease with the EAT to cover insurance, taxes and expenses of renting the property. Once the old property is sold, title for the new property is transferred to the Exchangor.

If the EAT takes title to the old property, the new property financing continues as normal. With the EAT on title to the old property, mortgage payments continue to be paid by the Exchangor. The property is marketed and sold with the Exchangor signing the settlement statement under “Read and Approved” while the EAT signs as the Seller. The 1099 bears the name and address of the Exchangor.

If the old property fails to sell, the property parked with the EAT is conveyed to the Exchangor by the 180th calendar day.

Many of my referrals come from mortgage brokers seeking a seasoned qualified intermediary to accommodate reverse 1031 exchanges. If you have a question, feel free to reach out via the links above, or call our office at 1-800-227-1031.