Qualified Escrow Agreements for Intermediaries

A number of states have instituted regulation for the Qualified Intermediary industry. Nevada, Idaho, California, Colorado, Washington, Maine and Oregon have all passed legislation. A number of other states are looking at adding some law(s) to protect taxpayers in the face of 1031 exchange facilitator fraud and losses.

Existing state law in California, Colorado and Washington as well as upcoming 1031 laws in Maine (went into effect Sept 12, 2009) and Oregon (effective January 1, 2010) require Qualified Intermediaries to:

a) Maintain fidelity bond (typically not less than $1 M), or;

b) Post deposits of cash or letters of credit equal to the amount of the fidelity bond required, or;

c) Hold all client funds in Qualified Escrow or Qualified Trust accounts which require the signatures of both the QI & taxpayer to authorize any disbursements.

As a result of the aforementioned industry losses - and the subsequent insurance claims - many Qualified Intermediaries have recently been unable to obtain option a) - a fidelity bond. If you are looking at doing an exchange, you should ask your exchange provider to provide a copy of the Fidelity Bond Evidence of Insurance to ensure your Intemediary is complying with the fidelity bond requirement. Make sure, if you are acting as a Qualified Intermediary, you are in compliance with these laws!

If your 1031 exchange provider does not have bonding, they must either post cash or a letter of credit with the state or use a Qualified Escrow account. Qualified Escrow accounts are held at a third party escrow agency and provide the greatest level of protection against fraud or missing funds. The escrow agent will only invest the proceeds according to the Agreement. They will also require signatures of both the Qualified Intermediary and the taxpayer client before any movement of those funds takes place.

If you are considering completing a 1031 exchange (or are a Qualified Intermediary without bonding) and in need of establishing a Qualified Escrow, FirstBank Escrow Services and their escrow officers can provide a Qualified Escrow Agreement that is specific to the 1031 exchange. Along with protecting the integrity of your exchange, FirstBank’s team of escrow specialists can work with you to establish an escrow contract that simplifies your risk mitigation requirements and meets your transaction needs. Client escrow accounts are individually segregated and held securely in FDIC-insured deposit accounts. FirstBank Escrow Services provides rapid review and turnaround of the agreement to ensure your transaction closes quickly.

If you or your Qualified Intermediary have need for a Qualified Escrow, please contact one of FirstBank's escrow officers for additional information at 800-964-3444.