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Funds Security - How Safe Are 1031 Exchange Funds?

As anyone who has conducted a 1031 Exchange knows, 1031 Exchange Accommodators serve a vital role in facilitating the 1031 Exchange process. The use of an Accommodator is required by law, and of the many important functions Accommodators serve, none is more vital to the transaction than holding 1031 Exchange proceeds on behalf of the client.

Unfortunately, not all Accommodators are created equal and follow the same procedures when dealing with client funds. Many clients incorrectly assume that larger Accommodators offer more safety, or that an Accommodator affiliated with a large national company provides ample security. This is not necessarily the case.

Regardless of size or affiliations, investors should always conduct due diligence when choosing an Accommodator. The two most important factors to consider are:

1. What is the Accommodator doing with exchange funds; and

2. What is the experience and training of the person handling the exchange.

All investors should ask the following questions of their Accommodators:

1. Where will the money be held during the exchange period? - Exchange funds should only be held in fully liquid money market accounts with top tier banks. A money market mutual fund, or any type of security, is not as safe as a money market account and should not be used. Money market mutual funds can fluctuate in price, possibly reducing principal. Money market accounts with top tier banks are the safest option.

2. What bank is the money placed with? - The banks used by the Accommodator should be top tier, with strong ratings. Asset Exchange Company's bylaws require all client funds to be held at banks rated 3 stars or higher by CAEL rating system. Some of the banks Asset Exchange Company has banking relationships with include Bank of America Union Bank of California, First Republic and Zions Bank.

3. Does the Accommodator offer the option to use a different bank? - All Accommodators have pre-established banking relationships. However, if the client requests that funds be placed with a bank of their choosing, this should be allowed. Asset Exchange Company provides this option to all clients.

4. Will the Accommodator make a written contractual obligation to place funds in a money market account with a top tier bank? - Any commitment on fund security should be made in writing. Asset Exchange Company makes a written contractual obligation with each client to only place funds in money market accounts with top tier banks rated 3 stars or higher by CAEL ratings system.

5. Are dual signature accounts available? - Dual signature accounts require written authorization from both the client and the Accommodator before any funds can be distributed. The signature authorization and fund disbursement is administered by an officer at the bank. Asset Exchange Company offers this to all clients.

6. Is the Accommodator bonded and insured? - Bonding and insurance will protect against theft and errors. All reputable Accommodators should have both a bond and errors and omissions insurance and should be more than happy to provide evidence of both.

7. What is the education and training of the person handling exchange funds? - Is the person handling exchange funds qualified to do so? At Asset Exchange Company, all exchange funds disbursements are handled by a licensed Attorney and Certified Public Accountant. All exchange funds are specifically identified to each exchange account through Asset Exchange Company’s proprietary sub accounting system and Asset Exchange Company undergoes a rigorous monthly reconciliation and audit, performed by a Certified Public Accountant.

Asset Exchange Company is confident that it provides the best fund security in the industry. We are more than happy to discuss our policies and procedures anytime. Please feel free to call us at 877-471-1031.