Page 7 - Old Republic Title Exchange

OLD REPUBLIC EXCHANGE GIVES YOU
REVERSE EXCHANGE TIMELINE
0 DAYS
TITLE ACQUIRED
4 WAYS TO EXCHANGE
2. The Reverse Exchange
A reverse exchange results when the replacement property is acquired
prior to the sale of the relinquished property. The IRS formally
acknowledged reverse exchanges effective September 15, 2000 (see Rev.
Proc. 2000-37). With the help of a QI, the exchanger utilizes an Exchange
Accommodation Titleholder (EAT) to purchase either the relinquished
property or the replacement property. As with forward exchanges, the
reverse exchange must be completed within 180 days.
TWO DIFFERENT PARKING METHODS FOR REVERSE EXCHANGES:
(A) Exchange Last, aka “Park Title” to the Replacement Property: In this
parking arrangement, the EAT acquires title to the replacement property
with funds loaned by the exchanger. The EAT then holds that property until
the exchanger finds a buyer for the relinquished property. After a buyer
is found, the QI sells the relinquished property to the buyer and uses the
exchange proceeds to purchase the replacement property from the EAT.
The EAT uses the sale proceeds to repay the loan from the exchanger. Thus,
the exchange occurs at the end of the transaction.
(B) Exchange First, aka “Park Title” to the Relinquished Property: In this
parking arrangement, the QI sells the relinquished property to the EAT.
The EAT then purchases the relinquished property with the funds loaned
from the exchanger. Concurrent therewith, the QI uses the proceeds to
purchase the replacement property and causes the seller to convey title
directly to the exchanger. Thus, the exchange occurs at the beginning of the
transaction. Thereafter, the EAT continues to hold title to the relinquished
property until the exchanger finds a buyer. After a buyer is found, the EAT
sells the relinquished property to the buyer and uses the proceeds to repay
its loan from the exchanger.
In either scenario, the EAT will enter into agreement with the exchanger,
in order to allow the exchanger management responsibilities over the
property for the duration of the parking period. Additionally, the EAT will
require hazard and liability insurance during the holding period. And, in a
transaction involving financing, the EAT may become the borrower under a
non-recourse loan. Upon the expiration of the exchange period or the sale
of the replacement property to the exchanger, the exchanger assumes
the loan.
Timeline: No later than five business days after the EAT acquires its
ownership interest in the parked property, the EAT and the exchanger
must enter into a written Qualified Exchange Accommodation Agreement
(QEAA). If it is the replacement property that is parked, the exchanger
then has 45 days to identify one or more relinquished properties. Written
identification of the relinquished properties must be delivered to the
QI or to another party involved in the exchange. The exchange must be
completed within 180 days (i.e., relinquished property must be conveyed
to third-party buyer and replacement property must be conveyed to the
exchanger), after the EAT’s acquisition of title.
45 DAYS 180 DAYS
END OF IDENTIFICATION PERIOD CLOSE OF RELINQUISHED PROPERTY TO BUYER
6