In a reverse exchange structured under the safe harbor protection of Revenue Procedure 2000-37 the entity used to facilitate a reverse exchange is referred to as an Accommodation Exchange Titleholder (“E.A.T.”) and the property or asset held by the EAT is often referred to as the “parked property”, in this case the replacement property. The EAT will usually form a special purpose entity (“SPE”) to hold title to the parked property. Under a “Qualified Exchange Accommodation Agreement (“QEAA”), the contract document is between the Exchangor (Taxpayer); the Holding Entity (usually an LLC structure); and the EAT. To complete the exchange the holding entity acquires and transfers the replacement property and transfers the relinquished property back to the Lender in a deed in lieu of foreclosure. Under Rev. Proc. 2000-37, this must be accomplished within 180 days of the acquisition of the replacement property; but in a pre-foreclosure context, this must be accomplished in a more timely manner to accommodate the objectives of all parties.

Investors and taxpayers who are facing the prospect of a foreclosure on a commercial investment asset can utilize a tax deferral strategy which contemplates structuring a reverse-exchange with the assistance of Replacement Intermediary.


An Effective Strategy to defer tax liability
from Commercial Foreclosures

Problem: Cancellation of Debt Consequence
Solution: By utilizing an IRC 1031 Exchange with a Qualified Intermediary & coordinating the process:
                         » Lender receives Foreclosure Asset
                         » Client Borrower receives Replacement with high leverage
Result: Deferral of COD & accelerated depreciation from foreclosure as otherwise taxable events through planning coordination by


There are implications regarding whether your loan structure is recourse or non-recourse. Further, there are further implications if the debt balance of your existing loan exceeds the Fair Market Value (FMV) as the IRC would evaluate you potential tax liability. Attention to detail and adherence to the Pre-foreclosure process; effective communications with your Lender, legal counsel and your accounting professional, will contribute to crafting an acceptable solution which will comply with the IRC provisions and allow you to successfully defer your significant Capital Gains liability.

We will assemble the team of professionals to assist you in executing this strategy; plus securing the Replacement Property to streamline an otherwise painful process in the most timely and cost-effective manner.

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