Property Acquried Through Sheriff Sale Qualifies for 1031 Exchange

Here is a question that I received today via email.

If I buy a property which is being sold at auction by
the county for defaulting on property taxes, and assuming I meet the deadlines,
can I use this as a replacement property in a deferred 1031 exchange? If the
last owner of record was a defunct corporate entity whose charter was revoked,
who is the party with whom I am exchanging? Is it the county?

Yes, you can acquire this property and it will qualify for your 1031 exchange provided that both properties are held for rental income, investment or are used in your trade or business.

Counties normally have Sheriff Sales to dispost of properties that were taken for unpaid property tax bills. The Sheriff Sale will issue you a deed upon closing and settlement.

However, the challenge is how the 1031 exchange can be structured. The Qualified Intermediary must be assigned into the purchase and sale agreement and any escrow instructions, if any. There are often no agreements at trustee sales or county Sheriff Sales. We would need to contact the department responsible for processing the sale to determine how the transaction is actually settled in order to determine how to structure the actual 1031 exchange. But, it can be done.

Domestic Terrorism?

I have been in the real estate industry, specifically in the 1031 exchange industry as a Qualified Intermediary, for almost 24 years. This is my third major real estate market cycle that I have gone through.

You Will Success If You Keep Your Cool

The one thing that I have always noticed is that those who keep their cool make out really well during the real estate market cycle's progress and always end up surviving and coming out in a better position than they were before and those that panic usually make mistakes and come out much worse at the end of the day.

This Market Cycle Is Different! We Now Have Domestic Terrorism

I have noticed one very distinct difference during this particular real estate market cycle. We are running up again "Domestic Terrorism!" Property owners are intentionally walking away from properties because it is profitable to do so, or it is convenient to do so, or it relieves their stress to do so.

Short sales, foreclosures, deeds-in-lieu of foreclosure and the like were supposed to be for those property owners that really are in financial trouble or distress. It was to be used when all else fails. It was not designed to help the property owner get ahead financially.

Where and when and why did property owners lose sight this? I'm not addressing those that truly do deserve to take advantage of the short sale or foreclosure process. I'm addressing those that have the financial ability to do the right thing and choose not to.

Has The Moral Majority Lost Its Majority?

They have absolutely no regard for what is right versus what is wrong. They have no ethics or morals what-so-ever. It is simply a business decision for them. The fact that they think it is O.K. to "stick" it to the lender because they can and because it is profitable to do so absolutely amazes me.

Is The UnMoral Now The Majority?

We have moved so far away from the era where a person's word was their bond and a hand shake was as good as gold. What does this say about our society? What does this mean for us down the road?

What Should We Expect? Far Reaching Consequences!

There will be far reaching consequences that we will all have to pay for because of this inappropriate behavior. Lenders are certainly not stupid. Lenders will learn from this experience and will adjust their underwriting guidelines as needed.

Lenders certainly did not expect or anticipate this "change in moral attitude" that they are now confronted with. It was not part of their "risk analysis" and was not part of their business plan, but it will be in the future.

Property owners who just walk away do not fully realize what a short sighted position it is. It is certainly having a significant impact on the over all real estate market by increasing and magnifying the problems that the industry is facing. They may "reap the benefits" as they see it now, but they will pay for it in the long run. The sad part is that so will we.

Real Estate Professionals Unite!

We as real estate professionals should and must be part of the solution. We must take the high road to higher ground. We must set a good example by promoting good ethical and moral business practices and shunning unethical and unmoral business practices.

It is what will set each and everyone of us apart from the rest and will have a huge long-term impact on our businesses for years to come. It will also help promote a healthier real estate market.

Short Sale Discussion on The Exeter Group Real Estate Talk Radio

The Exeter Group Topics and Show Dates

The Exeter Group Real Estate Talk Radio Show™ is live each and every Monday from 12:00 noon to 1:00 PM Pacific Standard/Daylight Savings Time. Click here to listen live on Monday.

Monday, February 25, 2008

Vanessa Liddell, President, ShortSalePlan.com, joins us for the first time live in studio to discuss short sale processes, procedures and strategies in the present challenging real estate market. Nathan Hanks with RealSource will be calling in from Salt Lake City, Utah to discuss commercial real estate, including the acquisition criteria that his firm uses to identify, analyze and acquire commercial real estate. Click here to listen live on Monday.

Previously Recorded Programs

Monday, February 18, 2008

We have two new guests with us this Monday. George Brock from Spectrus Real Estate Investments will be calling in from Los Angeles to discuss Single Buyer Commercial Properties versus Tenant-In-Common Investment Structures through Spectrust Real Estate Group. Marci Gendel, Esq., is a real estate closing and settlement attorney who will be calling in from New Jersey to discuss short sale issues, structures and processes. Listen to the recorded version of the show.