Update Regarding Recent Problems in the 1031 Exchange Industry

First, I want to reiterate my prior comments in my last post because I think it is extremely important for investors to keep the recent 1031 exchange Qualified Intermediary losses in perspective in terms of the entire industry.

The losses are horrific and terrible, but it is important to note that the two current problems in the 1031 exchange industry are directly related to two "outsiders" that specifically bought their way into the 1031 exchange industry by acquiring a number of 1031 exchange Qualified Intermediaries specifically to "borrow" or "use" the 1031 exchange fiduciary funds for their own financial gain.

Discussion seems to be centering around whether these losses and risks with in the 1031 exchange industry in general are related to the size of the Qualified Intermediary.

This is not a big vs. small Qualified Intermediary issue. It is about the prudent management and investment of client fiduciary funds. Internal controls are critical and should be mandatory. The administration of client 1031 exchange accounts (1031 exchange administration) should be completely separate from fiduciary accounting and funds management (1031 exchange operations) with different managers responsible for both in order to create sufficient checks and balances.

And, finally, investors need to ask the right questions. Quiz prospective Qualified Intermediaries regarding their insurance and bonding coverage, ask for proof AND CALL to verify the coverage - never assume. Ask detailed questions about the Qualified Intermediary’s internal controls, funds management, and separate of responsibilities.