Does a 1031 exchange delay my closing, and what does the QI do at the closing table?

No delay, provided the intermediary has the file a few days before the closing date

1031 CORP's answer to whether an exchange delays closing is 'Absolutely not', adding that the exchange can help expedite the replacement purchase because the funds are already held by the intermediary and available for immediate acquisition. What takes time is document preparation, and Legal 1031 says its documents can be produced right up until the day of closing so long as they are signed at or before closing.

The delay stories you hear come from files opened the morning of closing, when the closing agent must redo the settlement statement, obtain a buyer signature on the notice and reroute the wire. Give the intermediary the signed contract and the closing agent's contact a week out and none of that happens; What the QI needs to open my exchange lists the intake.

The closing agent needs three things from the intermediary: the notice of assignment for the buyer's signature, the wire instructions for the net proceeds, and the wording for the seller line on the statement. All three arrive in the intermediary's closing instructions once the file is open.

The intermediary is 'assigned in' on paper; it never holds title or acts as escrow

The Federation of Exchange Accommodators states it plainly: the intermediary does not take title in most situations, because the regulations allow the properties to be deeded directly between the parties just as in a normal sale. Your contract rights are assigned to the intermediary, which then instructs you to deed the property directly to the buyer.

The regulation supplies the mechanism. An intermediary is treated as acquiring and transferring the relinquished property if it enters into the sale agreement, and it is treated as entering into that agreement if your rights are assigned to it and all parties are notified in writing of the assignment on or before the date of transfer (26 CFR 1.1031(k)-1(g)(4)(iv) and (v)).

1031 CORP describes this as acquiring and conveying both properties through a paper assignment, and is explicit that the intermediary is not the closing agent. Your title company, escrow holder or closing attorney keeps every job it had before.

Direct deeding: one deed from you to the buyer, and the QI's name on the statement

Asset Preservation's closing instructions to settlement agents say to prepare the deed directly from the exchanger to the buyer, noting that only one deed is prepared for each phase of the exchange unless it is a reverse or improvement exchange. IPX1031's process page describes the same step: the intermediary acquires the relinquished property from the exchanger and transfers it to the buyer by direct deed from exchanger to buyer.

The one visible change is on the seller's settlement statement. Asset Preservation asks that the seller be shown as 'Asset Preservation, Inc., as Qualified Intermediary for' the named exchanger, and the net proceeds line pays to the intermediary's account rather than to you.

Direct deeding also means no second transfer tax, no second title policy and no intermediary in your chain of title. That is why the regulation's paper assignment, rather than a real conveyance to the intermediary, became the industry standard.

What you sign, what the buyer signs, and what escrow changes

Asset Preservation forwards four documents once it has your information: the exchange agreement, an assignment agreement, a notice of assignment that the buyer also signs, and a qualified exchange account agreement. IPX1031 requires the exchange agreement and the assignment with notice to all other parties to be complete before the relinquished property transfers.

• You sign: exchange agreement, assignment of the sale contract, exchange account agreement, and the closing agent's exchange instructions
• The buyer signs or receives: the notice of assignment; the cooperation clause in your contract makes this routine
• Escrow changes: the seller line on the settlement statement, the payee on the net-proceeds wire, and a copy of the statement sent to the intermediary
• Nothing changes: the deed, the buyer's loan, the title commitment, prorations, commissions and the closing date

Where the money goes after the buyer funds, and why you cannot touch it

IPX1031's process page states that the net proceeds from the relinquished property sale are paid directly to the intermediary to be held in a separate account, and Legal 1031 says the net proceeds must be sent directly from closing to it to be held in escrow. The buyer still funds escrow normally; Can the buyer wire the sale proceeds to the title company, not the QI? explains that leg.

The exchange account agreement must limit your rights to receive, pledge, borrow or otherwise obtain the benefits of the money before the end of the exchange period (26 CFR 1.1031(k)-1(g)(6)). Money that reaches you or your agent at the table is boot, and the FEA warns that the exchange ends the moment you have actual or constructive receipt of the proceeds.

On the purchase side the intermediary reverses the flow: IPX1031 wires funds directly to the seller or closing agent for the replacement, and the FEA describes the intermediary delivering funds directly to the closing agent. Your CPA or attorney should review the settlement statements on both legs, because any cash credited to you is taxable.