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Christine Ziomek
chris@caryl.com
(201) 796-7788
April 26, 2010

Madison Learning Center’s Latest Seminar Highlights Benefits And Best Practices For §1031 Exchanges

LAKEWOOD, NJ, April 26, 2010 – Madison Learning Center, the educational arm of Madison Commercial Real Estate Services, recently presented a seminar for real estate professionals that detailed the latest developments, benefits and best practices for §1031 exchanges. The seminar was held recently at the offices of Besen & Associates, one of New York’s top investment sales brokerages, and was led by Esther Rozsansky, a Certified Exchange Specialist who is the Director of Operations at Madison Exchange, LLC, in Lakewood, N.J.

A §1031 exchange offers significant benefits to commercial real estate investors because it permits them to defer capital gains taxes and thus preserve their investment capital. Section 1031 of the IRS Code allows investors to defer these taxes – potentially indefinitely – by exchanging one property for another like-kind property. However, safe-harbor rules prohibit property owners from possessing or accessing any of the funds generated from the sale of the relinquished property. Instead, an independent third party, or Qualified Intermediary, must hold all proceeds until the purchase of the replacement property.

“Because the rules governing property exchanges are complex,” said Rozsansky, “investors do need a §1031 expert to make sure they gain maximum benefit from their exchange. But the success of a §1031 exchange is largely determined by the integrity and expertise of the Qualified Intermediary (QI). The security measures being taken by the QI to protect all exchange funds should therefore be rigorously and comprehensively assessed.”

Rozsansky enumerated some of the best practices currently being used by leading Qualified Intermediaries to ensure optimal security for §1031 exchanges. These include:

  • Express Trust Accounts To protect client funds from QI bankruptcy, exchange funds are placed in express trust accounts. These accounts are specifically designed to clearly indicate that the QI is holding exchange funds exclusively as a fiduciary and that exchange funds remain at all times the beneficial property of the exchange client.
  • FDIC Protection To protect client funds from bank failure, some top QIs are now participating in the FDIC’s new Total Loss Guarantee Program (TLGP). This program offers dollar-for-dollar coverage for all funds placed in non-interest bearing transactions. With interest-bearing accounts currently offering historically low returns, clients are foregoing the nominal interest in favor of the FDIC guaranteed backing.

  • Multiple Signature Accounts Requiring dual and even triple signatures for disbursement, with one signatory being the client, offers an additional level of protection.

  • Fidelity Bond and Errors & Omissions Policies To protect from corporate malfeasance, reputable QIs are fully bonded, with a large per-occurrence policy that provides bonding up to the amount identified for each client in the midst of a 1031 exchange. Similarly, an Errors and Omissions policy protects clients from processing errors during the exchange.

“Real estate professionals can add significant value to their services when they present the tax benefits of an exchange to their selling clients,” concluded Rozsansky. “They also open up the possibility of assisting those clients in finding and purchasing a like-kind property. But it is essential that investors, brokers and advisors clearly understand the security measures that should be in place in order to derive the benefits of a §1031 exchange.” 

Rozsansky oversees Madison Exchange’s day-to-day operation and supervises the staff-exchange officers, sales force and in-house attorneys. One of the nation's premier §1031 specialists and Qualified Intermediaries, Madison Exchange adheres to the most rigorous and comprehensive standards of fiduciary security, with a $10 million fidelity bond, a $10 million E&O policy, and guaranteed FDIC-backed protection for client funds.

The Madison Learning Center provides an ongoing program of educational seminars and webinars to real estate professionals. Along with seminars and webinars, MLC also offers complimentary 1, 2 and 3-hour courses on a host of topics approved for CPE and CLE credit with national and state accrediting agencies. All MLC instructors are authorities in their field of expertise.

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