November 24, 2008--San Diego, California--LandAmerica 1031 Exchange Services Company, Inc. discontinued its 1031 exchange operations today and permanently closed it doors. LandAmerica 1031 Exchange Services' failure was due to a severe liquidity problem stemming from its investment of clients' 1031 exchange funds in Auction Rate Securities. Auction Rate Securities became completely illiquid earlier in 2008 essentially rendering the securities worthless until the Auction Rate Securities market achieves some degree of liquidity. So, what can we as consumers learn from this failure?
Bigger is Not Better
"Unfortunate situations like this serve as a good reminder that bigger is clearly not better. The due diligence process for evaluating and selecting a 1031 exchange Qualified Intermediary has often been hastily directed or focused toward larger Qualified Intermediaries. However, choosing a SAFE Qualified Intermediary for your 1031 exchange has very little to do with the size of the institution.
We have now seen what a parent company guarantee or other
corporate backing is truly worth when the going gets tough
It has everything to do with the way they do business," said Mr. William L. Exeter, president and chief executive officer, Exeter 1031 Exchange Services, LLC.
Common Sense is Important
"Common sense must come into play here at some point in time. Why is the Qualified Intermediary charging such a low set-up fee? How is the Qualified Intermediary able to make a profit if they charge so little fees or revenue? How can they pay such a high interest rate?
Clients should always be concerned about low set-up fees
and/or high interest rates paid
The answer is they are making up for the lost revenue somewhere. They are often taking undo risks with the clients' 1031 exchange funds. So, you need to ask specifically where the Qualified Intermediary invests the clients' 1031 exchange funds, and exactly what type of instrument or account they invest in? What kind of audit controls do they have in place? How long have they been in business? How much experience and expertise do they have? These are all important questions to have answered by your prospective Qualified Intermediary," continued Mr. Exeter.
Invests in Only Commercial Bank Deposit Accounts
Mr. Exeter further stated, "Exeter 1031 Exchange Services, LLC has never invested any of its clients' 1031 Exchange funds in any type of securities, money market mutual funds, or other investment vehicles that can fluctuate in value. We have always invested our clients' 1031 exchange funds in commercial bank deposit accounts, and only if the commercial bank allows us to review their financial statements each quarter for safety and soundness. This allows us to ensure that our clients' 1031 exchange funds are safe, secure and protected.
The decision to invest 1031 exchange funds in any kind of securities merely to increase the yield paid to clients (and revenue retained by the Qualified Intermediary) is simply not prudent and completely unacceptable to us."
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We Have Answers. Go Ahead, Ask!
Exeter 1031 Exchange Services, LLC is a leading national provider of Qualified Intermediary, Exchange Accommodation Titleholding, and Advisory services for individual, corporate and institutional 1031 exchange clients as well as cost segregation analysis services for commercial real estate investors.
Exeter administers all types of 1031 exchange transactions, including forward, reverse and improvement (build-to-suit or construction) 1031 exchange structures, in all 50 states. Exeter 1031 Exchange Services, LLC currently has national office locations in San Diego, Irvine, Ontario, Bakersfield, Fresno, and San Francisco, California and Kona, Hawaii, East Northport, New York, and Springfield, New Jersey.