- January 30, 1991
- All Underwritten Companies
- Tax Deferred Exchanges (IRS Section 1031)
Recently we have received a question concerning Tax Deferred Exchanges. Such exchanges of real property interests are governed by Section 1031 of the Internal Revenue Code. These exchanges provide tax benefits for the parties involved concerning the exchange of "like-kind" real property. The nature of this bulletin is not to describe such exchange in detail, since that would require a treatise. However, it is important to note that such "non-simultaneous" exchanges involving third parties may be found to be a voidable preference in the event of a bankruptcy of the "facilitator". The facilitator being the party who acts as the entity for the benefit of all parties concerned in order to transfer (exchange) the subject property.
In the event you are requested to insure the grantee and the grantee's lender who receives a deed in the exchange whether by a trustee, title company or other party (facilitator) you must consider the following:
- If the transfer from the facilitator occurs
simultaneously with the remainder of the transaction (including the transfer
to the facilitator), then you may issue such policy without additional
exception provided all other requirements are met;
- If the facilitator holds title for a period of time other than
momentarily for title clearance purposes, then you must add the following
" Any claim by reason of the operation of federal bankruptcy, state insolvency or similar creditors' rights laws."
Please note that you will not need to raise the "Creditors' Rights" exception if there is no third party facilitator in a tax deferred exchange or in the event the deeds are delivered simultaneously.
In the event you have any questions concerning the above or if I can be of
further assistance with regard to same, please do not hesitate to contact me
at your earliest convenience.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.