Search results matching tags 'fails' and 'ceases operations'

Tax Issues with Failed Qualified Intermediary

wexeter — Mon, 08 Dec 2008 19:26:55 GMT

The Internal Revenue Service's Office of Chief Counsel issued guidance (INFO 2008-021) earlier this year regarding the income tax treatment involving a failed 1031 exchange when the Qualified Intermediary goes out of business.

Re: 1031 LandAmerica Crisses

wexeter — Sun, 07 Dec 2008 07:28:24 GMT

I would always recommend that you retain an attorney that specializes in creditor's rights so that you make sure that you are protected. There will most likely be an attorney appointed to represent the 1031 exchange group, but you need to at least know what your rights are and what the procedures are, etc., so you should at least meet with one just to get an idea of what your situation is and what you can expect.

The term segregated account means that the client specifically requested that his or her 1031 exchange funds be held in a segregated account. I doubt that your funds are held in a segregated account unless you requested the segregated account.

I would make sure that you identify to LandAmerica 1031 Exchange services during your 45 days to make sure that you have met the 45 day identification rules. I would also identify to another party so that you have proof that you have identified. In this case, I would identify to all of the parties involved so that you have proof that you did in fact identify. Send your ID to LandAm via registered mail so that you have proof from the post office that you identified in time.

I would be happy to chat with you about this if you like. Just call me. It may also be possible to transfer your 1031 exchange to another Qualified Intermediary and complete your 1031 exchange if you have additional out-of-pocket cash that you can contribute into your 1031 exchange in order to complete the acquisition of your replacement property.

I think the important thing is to make sure that you continue working on your 1031 exchange, including making your identication within our 45 day ID period.

Re: First Bankruptcy Lawsuit against LandAm1031 by Client was Filed

wexeter — Tue, 02 Dec 2008 05:03:02 GMT

Hi Mike,

The action was filed by LubeExpress, so I doubt it would apply to any other clients or provide relief to any other client. I would retain a creditor's rights attorney to ensure that your interests (and 1031 exchange funds) are protected and preserved as best as possible.

Re: LandAmerica 1031 Exchange Services Fails and Closes Doors

wexeter — Thu, 27 Nov 2008 17:08:47 GMT

Hi Woody,

You have made many good points, and provided a good summary of the events so far. There are certainly many legal issues involved here, and many more that have probably not even come out yet. And, as you pointed out, LandAmerica and LandAmerica 1031 Exchange Services both filed for bankruptcy protect since my initial post. So, hopefully this discussion board thread will help the victims of the LandAmerica 1031 Exchange bankruptcy filing communicate with each other and share ideas and thoughts on how best to respond.

The investment language in their 1031 exchange agreement will certainly be key in what they were permitted to do versus what they actually did to determine if there was any breach of contract and/or fiduciary duty. Aside from the legal or fiduciary issues is the issue of the prudent investor rule or requirement. Is the Auction Rate Security a prudent investment for an extremely short-term type transaction like a 1031 exchange? We were approached by countless securities brokers when the Auction Rate Securities first came out. We chose not to implement them because we did not want to stray from our ultra conservative approach of using only commercial bank deposit accounts with commericial banks that have agreed to allow us to review their financials at least quarterly to ensure that we can adequately protect our clients' 1031 exchange funds. But, we were also concerned that the ARS was a brand new and untested security and we are always skeptical of "Wallstreet's" new gimics. Wallstreet gets way too creative for investors' own good.

The disclosure of SunTrust Bank I think is a problem as well. Using just the name SunTrust Bank is deceptive and misleading as to what the 1031 exchange funds are really invested in. It should have been fully disclosed as to which entity the funds are really held with. It would also be interesting to know if SunTrust Bank was the brokerage firm that talked them into these securities in the first place. I would also like to know the answer to your question as to which executive actually made this horrible decision. It certainly increased their yield (and therefore the risk to the investor).

I understand that clients were provided with a guarantee by LandAmerica that the 1031 exchange funds would be available. I would like to see a copy of this guarantee. The majority of guarantees that I have reviewed are really worthless and more or less just a marketing ploy. They are written with sufficient "loop holes" so that the parent company can get out of the guarantee under many circumstances. However, if the guarantee holds up then the parent company has some liability, which I think they realize and explains why their parent company filed bankruptcy.

However, the bankruptcy court has to approve the sale of the operating title insurance companies to Fidelity before the transaction can be completed. There may be some value here, but we will have to wait and see. I hope the bankruptcy trustee will be able to apply the sale proceeds toward the client's claims in order to recover all of the 1031 exchange funds.

The other issue is whether the Auction Rate Securities market will regain its liquidity so that the ARS's full market value can be realized. I have my doubts about this. There will be too many investors that will not be willing to take that risk on for fear that the market will freeze and become illiquid again. They will most likely be sold at a steep discount at some point in the future. Time will tell.

It is too soon to know exactly what path would be best, but I would immediately retain legal counsel to review your specific circumstance and determine what can be done. You may want to see if you know others who are also involved in this failure and pool your resources. What ever action is taken will most likely and probably should be certified as a class action on behalf of all LandAmerica 1031 Exchange investors.

There may be ways to complete your 1031 exchange if you have other resources (cash) that you can contribute into a new 1031 exchange. We have already opened a few for some of the LandAmerica 1031 Exchange clients. Unfortunately, most of those harmed will not have sufficient resources in order to add cash and complete their 1031 exchange.

I would be happy to brainstorm more if you like. Feel free to call me.