Deferred Exchange with Intermediary – Exchange Agreement
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Deferred exchange with intermediary.
This agreement is entered into between _________(Exchangor) and _________(Intermediary).
(A). Exchangor owns real property referred to as “Property A,” described in Exhibit “A” attached here and incorporated here by reference;
(B). Exchangor has entered into Escrow No. _________ with _________ referred to as “Escrow”;
(C). Exchangor wants only to exchange Property A for like-kind property, referred to as “Replacement Property,” in such a way as to qualify for tax-deferred treatment under IRC §1031 and similar state statutes;
(D). Exchangor has been unable to find suitable Replacement Property for accomplishing the tax-deferred exchange;
(E). Exchangor, with a continued intent to complete a tax-deferred exchange pursuant to IRC §1031, is willing to allow the amendment of Escrow to substitute Intermediary as the seller of Property A in order to allow for the closing of Escrow pending the location of suitable Replacement Property as specified here;
(F). Intermediary is willing to accept and to hold the proceeds of Property A, as set forth in and received from the Escrow, and to utilize the same in securing, acquiring, and transferring to Exchangor suitable Replacement Property to complete the tax-deferred exchange according to the terms and conditions as set forth here;
Therefore, the parties agree as follows:
(1). Subject to and conditioned upon the close of Escrow and otherwise subject to and upon the terms and conditions set forth in this Agreement, including the optional authority for direct deeding contained in paragraph 12 below, Exchangor by this Agreement agrees to convey Property A to Intermediary, and Intermediary agrees to convey to Exchangor, in exchange for Property A, Replacement Property having an aggregate Exchange Value equal to the Exchange Value of Property A as determined under Paragraph 4 below.
(2). Exchangor shall convey all of Exchangor’s right, title, and interest in and to Property A, under the provisions of paragraph 12 authorizing direct deeding, by delivery to Escrow on or before the closing of Escrow, of a grant deed or statutory warranty deed conveying Property A to the Purchaser, Exchangor shall in this event also execute and deliver to Escrow, on or before the closing of Escrow, an Assignment of Real Estate Purchase & Sale Agreement for Property A, assigning Exchangor’s rights and obligations thereunder to Intermediary.
PROVIDED, HOWEVER, that if Exchangor requests, and Intermediary agrees, title shall be conveyed by Exchangor to Intermediary who will then convey to the Purchaser (sequential deeding), rather than by direct deeding.
(3). In order to account for and monitor the Exchange Value in respect to Property A, Intermediary agrees to establish an exchange account concerning this transaction in Intermediary’s books and records in favor of Exchangor (referred to as the “Exchange Account”). The opening entry for the Exchange Account shall be the Exchange Value with respect to Property A as determined under Paragraph 4 below. Thereafter, the balance in the Exchange Account shall be reduced from time to time by (i) Intermediary’s fees and costs, (ii) the Exchange Value with respect to each Replacement Property (i.e., all amounts expended by Intermediary in connection with the acquisition of each Replacement Property, as determined under paragraph 5 below), and (iii) any other payments made or costs or expenses incurred by Intermediary for which Exchangor is obligated or responsible under this Agreement. The balance of the Exchange Value remaining in the Exchange Account also shall be increased in accordance with paragraph 15 below. Intermediary shall provide Exchangor with an accounting, referred to as “Closing Statement,” of the Exchange Value in the Exchange Account as soon after the 180th day (or closing of the final Replacement Property if sooner) as is practical. In preparing the Closing Statement, Intermediary shall be relying upon information and settlement statements supplied by third-party escrow companies, and Exchangor by this agreement releases Intermediary from any liability whatsoever in connection with such reliance.
(4). In respect to Property A, “Exchange Value” shall mean the total consideration received by Intermediary from the closing of the Escrow. All real estate commissions, prorations of income and expenses (including rents, interest on encumbrances, real estate taxes, etc.), closing costs, title insurance premiums, escrow fees, and any other amounts otherwise chargeable to Exchangor in the Escrow as seller of Property A shall be charged to Intermediary and shall reduce the Exchange Value of Property A.
ALTERNATE PARAGRAPH 4
(4). In respect to Property A, “Exchange Value” shall mean the total consideration received by Intermediary from the closing of the Escrow. All real estate commissions, prorations of income and expenses (including rents, interest on encumbrances, real estate taxes, etc.), closing costs, title insurance premiums, escrow fees, and any other amounts otherwise chargeable to Exchangor in the Escrow as seller of Property A shall be charged to Intermediary and shall reduce the Exchange Value of Property A. Cash received by Exchangor from escrow in the amount of $_____ will be boot subject to tax in the hands of Exchangor and shall not be included in “Exchange Value.”
(5). In respect to the Replacement Property, “Exchange Value” shall mean the total costs and expenses incurred by Intermediary, in accordance with the provisions of this Agreement in connection with the acquisition and conveyance of it to Exchangor, including, without limitation, the aggregate amount of all deposits and expenditures by Intermediary in respect to the purchase price, real estate commissions, prorations of income and expenses (including rents, interest on encumbrances, real estate taxes, etc.), closing costs, title insurance premiums, escrow fees, and any other amounts otherwise chargeable to Intermediary in connection with the acquisition and conveyance of the Replacement Property to Exchangor, but excluding any existing mortgage, trust deed or other secured loans which may be assumed or taken subject to by Exchangor.
(6). At the close of Escrow, the proceeds, including cash, shall be transferred, assigned, and/or conveyed to Intermediary and be held by Intermediary pursuant to the terms of this Agreement.
(7). Intermediary is instructed to deposit all cash funds received into banks, savings and loan accounts, money market deposit accounts, repurchase agreements, in time deposits, or in such other investments as Exchangor may direct.
(8). In no event shall Intermediary be required to make a cash payment for Replacement Property, including all costs and expenses of the purchase, in excess of the amount of the Exchange Value then remaining in the Exchange Account.
(9). In the event additional cash is necessary to acquire the Replacement Property, the amount (i) shall be advanced by Exchangor to Intermediary; (ii) shall be used by Intermediary to acquire the Replacement Property; (iii) shall be considered an interest-free loan from Exchangor to Intermediary (fully satisfied upon the conveyance of Replacement Property to Exchangor); and (iv) in the event the Replacement Property is not conveyed to Exchangor, shall be repaid by Intermediary to Exchangor, upon the written demand of Exchangor; or the amount (v) shall be advanced by Exchangor to Escrow Agent of the Replacement Property.
(10). For purposes of this Agreement:
(a) The period between the “conveyance date” and midnight of the 45th day thereafter is defined as the identification period; and
(b) The period between the “conveyance date” and midnight of the earlier of the 180th day thereafter or the due date (including extensions) of the taxpayer’s tax return for the taxable year in which the transfer of the relinquished property occurs is defined as the exchange period.
(11). Within 45 days after the transfer of Property A from Exchangor to Intermediary, referred to as the “Conveyance Date,” Exchangor shall by written notice to Intermediary identify Replacement Property anywhere in the United States. Such notice from Exchangor shall unambiguously identify the Replacement Property by street address or legal description. Thereafter Intermediary shall undertake to acquire the Replacement Property upon such terms or pursuant to such agreement as Exchangor has negotiated with the seller of such Replacement Property. Provided, however, that Intermediary shall incur no liability to Exchangor under this agreement if efforts to purchase Replacement Property on the terms and conditions specified by Exchangor shall be unsuccessful. All agreements to purchase shall be executed by or assigned to Intermediary and title to the Replacement Property shall be recorded in Intermediary’s name. Intermediary shall immediately thereafter convey the Replacement Property to Exchangor subject to, and subject only to, such title defects or exceptions as Exchangor has approved, in writing, prior to the acquisition; provided, however, that Intermediary’s conveyance to Exchangor shall constitute full compliance with any express or implied warranties to which Intermediary would otherwise be subject. In the alternative, title to the Replacement Property may be conveyed by direct deed from the seller to Exchangor, in accordance with Paragraph 12.
(12). The Intermediary shall not be required to make any warranties or representations regarding Property A which are not guaranteed by Exchangor. Further, the Intermediary shall not be required to make any warranties or representations regarding the Replacement Property which would survive as to the Intermediary following conveyance of the Replacement Property.
(13). To the extent permitted by IRC §1031 and the Regulations promulgated under it, legal title to Property A and/or the Replacement Property may be transferred directly from the Exchangor to Purchaser, or from the Replacement Property Seller to Exchangor. The means for accomplishing such direct deeding may require the execution of an Assignment of Real Estate Purchase & Sale Agreement between the Exchangor and the Intermediary for Property A, and a separate such agreement between the Exchangor and the Intermediary for the Replacement Property.
(14). Exchangor acknowledges and agrees that:
(a). The Intermediary shall not be required to assume any secured loan on any Replacement Property or to execute any promissory notes or other evidence of indebtedness in connection with such acquisitions which would impose any personal liability on officers and/or directors of the Intermediary for the payment of it.
(b). In no event shall the Intermediary be required to pay a cash amount for the Replacement Property, including all costs and expenses incurred in connection with such purchase, in excess of the Exchange Value then held in the Exchange Account.
(c). The Intermediary shall act only in accordance with the written instructions of Exchangor and on the terms of this Agreement in making the acquisition, and may refuse to proceed with the acquisition in the event the instructions exceed the scope of this Agreement.
(15). Except for payments made from the Exchange Account to reimburse Exchangor for expenses paid by Exchangor for the sale of Property A or the acquisition of Replacement Property, such as appraisal or title reports, earnest money, etc., which reimbursement shall be permitted upon written request from Exchangor and which payments are authorized under Treasury Regulation §1.1031(k)-1(g)(7)(ii), the Exchangor shall not be entitled to receive any portion of the exchange account or any growth factor of it nor to receive, pledge, borrow or otherwise obtain the benefits of money or other property prior to the termination of this agreement.
(16). All interest earned on the Exchange Account shall be for the benefit of Exchangor, and shall be reported as interest income on Exchangor’s tax return, regardless of whether the interest is applied to the purchase of Replacement Property or is received by Exchangor in cash as part of the distribution of the Exchange Account to Exchangor upon termination of this agreement.
(17). This Agreement shall terminate and the Exchange Account shall be paid to Exchangor by the intermediary under the following conditions:
(a). If the Exchangor fails to identify Replacement Property within 45 days after the Conveyance Date, the exchange has failed and this Agreement shall terminate and the Intermediary shall pay the Exchange Account to Exchangor after the 45th day.
(b). If Exchangor has timely identified Replacement Property, after Exchangor has received all of the identified Replacement Property to which Exchangor is entitled, this Agreement shall terminate and the Intermediary shall pay the Exchange Account to Exchangor.
(c). If Exchangor identifies Replacement Property, following the occurrence after the end of the identification period of a material and substantial contingency that (i) relates to the deferred exchange, (ii) is provided for in writing, and (iii) is beyond the control of Exchangor and of any disqualified person as defined in Treasury Regulation §1.1031(k)-1(k), other than the person obligated to transfer the replacement property to the Exchangor, this Agreement shall terminate and the Intermediary shall pay the Exchange Account to Exchangor.
(d). Otherwise, at the end of the Exchange Period.
(18). Any dispute as to the interpretation of the content, extent, or applicability of this Agreement or Exchangor’s instructions to Intermediary shall be immediately arbitrated.
(a). Exchangor shall select any arbitrator on the then existing arbitration panel of the _________ County Superior Court, who primarily deals in real property matters.
(b). Within three working days after the arbitrator’s selection and acceptance of appointment and written notification to Intermediary, Exchangor and Intermediary shall each furnish to the other and to the selected arbitrator a written statement of their respective positions regarding the dispute and shall furnish, as reasonably requested by arbitrator, any further answering or explanatory statements that the arbitrator may require.
(c). The parties agree to be bound by the decision of the arbitrator and agree that the arbitration is in lieu of and instead of any rights to judicial proceedings and determinations that the parties may have.
(d). Except as provided in subparagraphs (e) and (f) below, the costs of arbitration are to be borne equally between Exchangor and Intermediary and each party shall be responsible for its own attorney fees.
(e). In any controversy, claim, or dispute between the parties here arising out of or relating to this Agreement or the breach of it the prevailing party shall be entitled to receive from the other party reasonable expenses, attorney fees, and costs.
(f). The prevailing party shall be entitled to enforce the decision of the arbitrator by receiving a judgment, including attorney fees in obtaining such judgment, in the _________ County Superior Court.
(19). All notices provided or required to be given under this Agreement shall be deemed to have been given, served, and delivered if mailed by United States registered or certified mail addressed to the party entitled to receive the same at the address specified in this Agreement; provided, however, that any party may change its mailing address by giving to the other parties written notice of its new mailing address, and any notice so given shall be deemed to have been given, served, and delivered on the date following the date on which the notice was mailed in the manner provided here.
(20). Time is of the essence of this Agreement.
(21). This Agreement may not be amended or modified in any respect whatsoever except by an instrument in writing signed by the parties here. This Agreement constitutes the entire agreement between the parties with respect to the subject matter here. If any provisions of this Agreement shall be held invalid, such invalidity shall not affect any other provision here.
(22). This Agreement shall be construed in accordance with the laws of the State of _________. This Agreement may be executed in duplicate counterparts, each of which so executed shall, irrespective of the date of its execution and delivery, be deemed an original, and the counterparts together shall constitute one and the same agreement.
(23). This Agreement inures to the benefit of and binds all parties here, their heirs, legatees, devisees, administrators, executors, successors and assigns.
IN WITNESS, the parties have caused this Agreement to be executed [date].
ADDRESSES FOR NOTICES
TO BE MAILED: _________
Social Security No. _________
Tax ID No. _________
Attachment: Exhibit A
- Against Legacy Charged on Premises Sold
- Building and other restrictions; easement for utilities.
- Contract for Reconveyance to Seller, Resale to Third Person
- Disposition of Insurance or of Proceeds Thereof
- Forfeiture of Improvements
- Insurable Title
- MORTGAGE SERVICING TRANSFER DISCLOSURE
- Offer to Purchase Real Estate
- Reimbursement in part by purchaser
- Toxic Waste Cleanup As Condition to Purchaser’s Obligation