Buying sheriff sale properties through reverse 1031 exchange

[Kalman G Szabo]

Hi, I have a question about the reverse 1031 exchange that I haven't yet found an answer to on this otherwise amazing forum. Namely, would it be possible to acquire a property on a sheriff sale and use it as a replacement property in a reverse 1031 exchange?

As I understood sheriff sale and similar auction properties aren't viable as replacement properties through a straight 1031 exchange because of operational difficulties - e.g. the funds from the property sold should be held by the Qualified Intermediary (QI) who could not possibly release it on time to pay the sheriff sale dues - which are depending on your jurisdiction an up-front part and the rest be paid in a very short notice. There might be additional limitations but the short timeline is by itself prohibitive. 

But how about reverse 1031 exchanges? What would stop an investor from taking title to the sheriff sale property through an LLC set up ahead of time by a QI acting as Exchange Accommodating Title Holder and transferring ownership of the LLC itself after the property intended for sale closed?

Or is there a way to make this work even through a straight (as in, non-reverse) 1031 exchange?

@Dave Foster, I believe this question would be right up your alley!

Thanks in advance!