1031 exchange - do you need an attorney?

Question

Do people usually hire an attorney to help with a 1031 exchange or is working with a QI enough?  What are your guys' experiences in this?

Dave Foster · Answer

@Natalie Hahn, The role of QI is very strictly limited to an unrelated 3rd party representation . and performance of the 1031 exchange only.  You will use all of your regular professionals.  The QI role is an added piece.  Attorney's can do 1031s but most do not or if they do they only do them occasionally so you do not get the benefit of scaling volume price wise or experience.  And if the attorney is representing you in any other manner either in the transaction or in any other way they are disqualified from acting as QI.

So most folks use their regular realtors, title company, accountant, and attorney and add an experienced national QI to fill the 1031 role.  That gives you plenty of people to sue as @Peter Sanchez suggested :)

My advice is to not use the most expensive or the cheapest.  Look for demonstrated experience and longevity.  The range of prices isn't that great that saving (or spending) an extra hundred bucks is worth the pain of having to work with a QI who is not adequately experienced with both the statute and current case law.  Here's a blog we wrote for BP on general costs - https://www.biggerpockets.com/blog/how-much-does-a-1031-exchange-cost.   Attorney's will tend to be quite a bit more expensive simply due to their business model and lack of scaling scope.  Real cheap order taking QIs can save you a few bucks because they are dealing with such volume but experience and customer service can be suspect.

Goldilocks found the "just right" one.  You will too!

Bob B. · Answer

@Dave Foster

@Dave Foster is the 1031 guy and will be along shortly.  He did several for me last year and everything went well.

Jessica Zolotorofe · Answer

Absolutely should use an attorney unless the QI has one in house. It's a complicated process and so many things can go wrong. One hour late on a submission and you void your 1031. One document not submitted properly and you pay the taxes. It's not worth it to go at it alone and save a few thousand dollars now just to have the 1031 blow up and you pay the taxes you were trying to avoid to begin with. In my opinion, that's way more costly. Plus, if you have any questions, likelihood is your QI will tell you they can't give you legal advice and you have to consult with an attorney. At that rate, the clock will be ticking and you may be too late to find a good attorney to work with you. Remember, no funds can touch your hands, so if you close the first half of the deal and get any money because you didn't have an attorney to help you through the process, the 1031 is also voided. My best advice is to definitely use a lawyer, and not just any one, but someone well versed in the process. If it's residential property, it may be a LITTLE less complex, but even a non-1031 commercial property transaction, you should really use an attorney. There are just so many things that can go wrong with so much money and time on the line.

Joe Splitrock · Answer

We have a closing company in town that has an attorney specializing in 1031 and they also act as the QI. We close on both properties through the closing company and they handle everything.

I would seek out this type of provider in your market. Just make sure when you sell and buy that you specify that closing company.

Christopher Smith · Answer

I did mine totally alone, worked just fine, but maybe not recommended unless your facts are permitting.

Peter Sanchez · Answer

Most "QIs" are not required to be licensed and there is an pretty epic thread on biggerpockets about a QI that took people's money and...well...see for yourself.

https://www.biggerpockets.com/forums/104/topics/474581-qualified-intermediary-scam

Its not that uncommon a story:

https://www.summitdaily.com/news/daniels-alleged-fraud-common-in-unregulated-industry/

So although a lawyer isn't required, the more people you can have looking after your interests (and have insurance so you can sue them if they screw up) the better.

1031 exchange - do you need an attorney?

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