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This diagram is
for illustrative purposes, some essential steps are not shown.
 The
Exchange Agreement with Edmund & Wheeler, Inc. which governs the
overall transaction. This document
MUST
be in force before the closing.
 The
Purchase and Sale Agreement to sell the Relinquished Property. This
step may take place before Step 1 (the only out-of-sequence exception).
The closing of the Relinquished Property;
if several are involved, the first in chronological order. In this
step, the deed to the property is given to the Buyer. This step starts
the 45-day Identification Period and the 180-day Exchange Period.
Rather than going to the Exchangor, the
Buyer's funds are used to pay all of Exchangor's expenses
(including mortgages, if any), with the
NET
going directly to a money center bank into a separate,
interest-bearing Qualified Escrow Account established in the Exchangor's
name and Social Security number.
The Exchangor has identified property C (property
needing improvements) as the Replacement Property; at this Step, Edmund
& Wheeler, Inc. causes the necessary purchase price for this property to
be advanced to the Single Purpose Entity (which IRS has renamed an
Exchange Accommodation Titleholder (EAT)) which has been formed to own
and improve the identified Replacement Property.
This is the closing for Property C; this Step is the
funding; and
This Step is the legal acquisition. At (or
hopefully well before) this time, Exchangor engages Contractors and
Materialmen to effectuate the desired improvements
These vendors begin work, and soon enough, bills
begin to arrive, addressed to the EAT, the legal owner of the property.
All invoices are presented to the Exchangor for approval
for payment from the Account.
Upon such approval, further advances are made by the QI to
the EAT to cover each payment.
The vendors are timely paid,
until funds are exhausted.
This is the Exchangor's receipt of the direct deed from
the EAT as owner of the Replacement Property; provided the deed is
delivered to the Exchangor on or before the 180th day (as adjusted), the
Exchangor achieves a Section 1031 Exchange between Steps 3 and 12, where
at Step 3 a deed is given and at Step 12 a deed is received, and in
between the Exchangor had no control (or Constructive Receipt) of funds.
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