Protecting Your 1031 Exchange From Wire Fraud, QI Mistakes and Title Errors

Wire fraud: a phone call to a number you already had is the control that works

The FBI's Internet Crime Complaint Center logged 24,768 business email compromise complaints in 2025 with $3.05 billion in reported losses, and 12,368 real estate fraud complaints with $275.1 million lost. The version that hits exchanges is simple: a criminal who has been reading a title agent's or broker's email sends 'updated' wire instructions in a look-alike message shortly before closing.

The Consumer Financial Protection Bureau's closing-scam guidance is the right protocol for exchange funds: identify two trusted contacts at the start, write down their phone numbers, and confirm every account name and number by calling those numbers rather than one taken from the email. Email is not a secure channel for financial information, and any change to instructions after they were verified is a stop signal, which is exactly how 1031 CORP. describes catching two recent attempts.

If a wire goes wrong, minutes matter: call your bank and ask for a recall and any indemnification paperwork, then file at ic3.gov with the full transaction details. The IC3 Recovery Asset Team froze $679 million of $1.16 billion in attempted theft during 2025, a 58% success rate that falls quickly once money hops to a second account.

Vetting the intermediary: segregated accounts, bonds, audits and the two-year lookback

Most states do not regulate qualified intermediaries at all. Exeter's review lists California, Colorado, Idaho, Maine, Virginia and Washington as having some statute (Nevada repealed its registration requirement) and describes the required bonds as small relative to the funds held, which leaves the vetting to you and the exchange agreement.

Ask for the intermediary's fidelity bond, errors and omissions policy, cyber and wire fraud coverage and its latest independent audit, and insist that your proceeds sit in a separate account for your exchange rather than a pooled operating account. Reg. §1.1031(k)-1(g)(3) describes a qualified escrow account or qualified trust whose holder is neither you nor a disqualified person and whose agreement limits your rights to the money, and a dual-signature release requirement on that account puts a second person on every outgoing wire.

Check the disqualified-person rule before you engage anyone: under paragraph (k), a person who acted as your employee, attorney, accountant, investment banker, broker or real estate agent within the two years before the sale is treated as your agent and cannot serve, nor can an entity related to them at a 10% ownership level. The Federation of Exchange Accommodators' Certified Exchange Specialist designation and code of ethics are useful screens, and how to choose a safe qualified intermediary lists the questions to ask.

Deadline and paperwork errors the intermediary cannot undo

The 45-day identification and 180-day acquisition limits are statutory under §1031(a)(3), and no intermediary, title company or lender can extend them; the only relief is disaster-related, covered in the critical deadlines guide. An intermediary that calendars the wrong day or accepts an unsigned identification has cost you the exchange, not itself.

Keep your own calendar with both dates, deliver the identification in writing to the intermediary before midnight of day 45 with a delivery receipt, and confirm in writing which identified properties remain valid before closing. The release rules in paragraph (g)(6) also protect you from your own agents: once you have identified property, the funds cannot come back to you before day 181 unless every identified property is acquired or a written, material contingency outside your control occurs.

Proceeds that reach you or your agent, even through a title company's error, are constructive receipt and end the exchange, so the settlement statement must direct the buyer's funds to the intermediary; see whether the buyer can wire to the title company.

Title and vesting: the taxpayer that sold must be the taxpayer that buys

IPX1031 ranks this among its top misconceptions for 2026: the legal entity or individual that sells the relinquished property must be the same taxpayer that acquires the replacement. A lender that requires a new single-purpose LLC, a spouse added to the deed, or a trust that is not disregarded can each break that identity, and the error usually surfaces when the replacement deed is drafted, after the identification period has closed.

Run a vesting check twice: before the sale contract, to decide whether a partnership needs a drop-and-swap or an LLC must stay disregarded, and before the purchase contract, so the buyer named on it is the exchanging taxpayer or its disregarded entity. The same-taxpayer rules and drop-and-swap strategies walk through the entity cases.

If a vesting problem surfaces after day 45, the cure is usually on the purchase side, because the identification itself cannot be amended once the period closes.

If the intermediary fails: Rev. Proc. 2010-14 lets you report gain as money comes back

The revenue procedure was written for taxpayers whose intermediary entered bankruptcy or receivership mid-exchange, a situation the IRS says arose in 'many' cases. It applies if you transferred the property to a qualified intermediary, identified replacement property on time (unless the default came first), failed solely because of the intermediary's default, and never had actual or constructive receipt of the proceeds.

Inside the safe harbor you recognize gain only as payments arrive from the intermediary, its estate, its insurer or its bonding company, using a gross profit ratio of gain over contract price, with depreciation recapture included only to the extent of gain recognized that year. If less than your basis ever comes back, §165 allows a loss for the shortfall, and gain already reported in an earlier year can be recovered as a loss.

The procedure does not restore the exchange, so what happens when the intermediary goes bankrupt and the vetting steps above remain the real protection. Exeter names The 1031 Tax Group (2007) and LandAmerica 1031 Exchange Services (2008) as the failures that prompted the relief.

A redundancy checklist that adds a day, not a month

None of these steps delays a closing, and each removes a failure the tax code cannot repair afterward. Confirm the rules with your CPA or attorney, and fit the steps into the sequence in coordinating your CPA, QI and broker.

• Verify wire instructions by call-back to a known number for every wire, including the earnest money and the intermediary's outgoing wire to the closing agent.
• Sign the exchange agreement, the qualified escrow or trust agreement and the assignment notices before the sale closes, and get the buyer's written acknowledgement of the assignment.
• Put both deadline dates in three calendars (yours, your CPA's and your broker's) and require a delivery receipt for the identification notice.
• Confirm that the vesting on the purchase contract matches the selling taxpayer, and ask the lender early whether it will lend to that taxpayer.
• Require the intermediary to confirm the account balance in writing at identification and again before the replacement closing.
• Have your attorney review the exchange agreement's release provisions and the intermediary's insurance certificates.