Escrow plays an important role in a 1031 Exchange. Escrow takes custody of the funds and property title/s when a property or properties are sold in order to ensure ownership and compensations a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled.
Escrow serves the purpose of logging and holding the submission of documents, funds, titles, or other asset classes related to a sale. In the case of a real estate property sale, escrow holds the purchase funds and property title so that the purchase can be closed synchronously and all assets, including purchase funds and the property title, can exchange hands concurrently.
The Role of Escrow in an Exchange
Escrow plays an important role in a 1031 Exchange – namely, they coordinate with the qualified intermediary to fulfill the IRS Section 1031, which states that exchange funds from the sale of a relinquished property must not be directly deposited into the account of the seller. Rather, escrow coordinates with the qualified intermediary to apply the funds from the relinquished property sale (or the title, in the case of a reverse exchange) to the acquisition of the identified property/ies. Any funds that bypass the qualified intermediary and are dispensed by escrow to the seller directly are deemed immediately taxable.
Plenti Financial automates the documentation and escrow process (as well as every other detail and process) through the Plenti Exchange Portal so that the investor enacting the 1031 Exchange does not have to manage the timing and correspondence with escrow over every single document.
How to Identify the Right Escrow Agent
Schedule a consultation with our qualified loan expert in order to find an escrow agent that best serves your needs. Independently, the best way to find an escrow agent is through your real estate agent or another real estate professional who is familiar with the options in the municipality of your relinquished and acquired properties.
It’s important to ensure that your Escrow agent is included in the necessary steps of your 1031 Exchange. When you use the Plenti Exchange Portal to file a 1031 Exchange, your Escrow agent is automatically sent the appropriate documents at the right time during the exchange timeline so that you don’t have to worry about it. To find out more about how to include Escrow in the exchange process, schedule a consultation with us.