Prior to issuing title insurance a search of public records is conducted. This search will reveal the rights that a buyer has to future development of the property. These rights will include easements, rights of way, etc. as well as restrictions that might have been placed on the use of the property by any previous owners.

The cost of a single, one-time premium protects the property owner against any loss resulting from any title defects to the property covered in the policy. This policy protection is for as long as the property is owned.

Two principle forms of title insurance are:

1. The owner's policy. This policy insures the property owner against loss resulting from defects in the title.

2. The mortgage policy. The mortgage policy insures that the holder of the mortgage has a valid lien on the property and indemnifies the holder of the mortgage against loss resulting from title defects that are insured against in the policy.

Property/casualty insurance is insurance that protects the property owner against any future events that might have adverse effects on the value of the property. Such events as floods, fire, etc. Property /casualty insurance is written for a fixed term for which the company will receive a stated premium. At the end of this term period, premiums may increase or decrease in line with the company's loss experience.

In the event that a buyer pays cash for a property, only owner's title insurance is needed.

GENERAL OVER VIEW

Exchange of like kind property, held for business or investment, can be closed in stages, to move equity from one property to another property to better serve the purpose or use of the taxpayer, with a reasonable certainty of not creating a taxable event.

A deferred exchange allows the taxpayer (through the use of a Qualified Intermediary) to sell one property (placing the proceeds in a Qualified Trust or other approved safe harbor) and take up to forty-five (45) days to locate the desired replacement property, and up to 180 days in which to close the transaction.

DEFINITION OF TERMS

Exachangor- The taxpayer who initiates the transaction to move equity from one property to another without creating a taxable event.

Relinquished Property- Property presently owned by Exchangor and offered for sale.

Replacement Property- Property to be acquired with proceeds from sale of Relinquished property. Can be more than one, however, special rules apply.

Qualified Intermediary- Independent third party through which title and funds transfer to prevent a taxable event. Note that certain "persons" are disqualified and direct deeding may be accomplished if specific requirements are met.

Qualified Trust- One of several "safe harbor" in which the proceeds from the sale of Relinquished Property may be placed to preserve the deferred tax status of the transaction.

Exchange Agreement- Formal agreement between Exchangor and Qualified Intermediary setting forth the relationship of the parties the purpose of which is to preserve the deferred tax status of the transaction.

Identification Period- Forty-five (45) days from the date of closing of the sale of the relinquished properly. Within this period the "Replacement Property" must be identified and designated to the Qualified Intermediary.

Exchange Period- One hundred eighty (180) days from the date of closing of the sale of the relinquished property. Within this period the closing must be accomplished on the replacement property or the sale is a taxable event.

BENEFIT TO TAXPAYER

A deferred exchange allows the taxpayers' tax dollar to remain invested in property rather than being paid out to the Government, and makes sense when there is a potential gain on the sale of taxpayers' property, either through significant market appreciation or substantial tax depreciation. A deferred exchange can also be useful for older persons to take maximum advantage of the potential for a stepped up basis upon the taxpayers demise.

The essence of a tax deferred exchange is the ability to close the transaction in stages, conveniently and independently of one another allowing the taxpayer ample time to locate desirable replacement property through the use of a third party such as Deferred Exchange Corporation. The obligations of Deferred Exchange Corporation, as set out in the comprehensive exchange agreement, are secured through the use of a Qualified Exchange Trust Agreement utilizing the Trust Department of a National Bank as the Trustee to hold and invest the funds.

By allowing Deferred Exchange Corporation to submit a pre-prepared agreement the taxpayer can normally save money due to the fact that it is more cost effective for a pre-prepared document to be "reviewed" and approved by taxpayers' Counsel rather than being originally drawn by such Counsel.

Language will be recommended for taxpayers counsels' approval for inclusion in both the Offer and Acceptance for the sale of Relinquished Property and purchase of Replacement Properties.

HOW DOES IT WORK

At the Relinquished Property closing, Taxpayer simply requests the Qualified Intermediary such as Deferred Exchange Corporations to stop into taxpayers' shoes as "SELLER" and complete the transaction. There must be a formal assignment of rights under the Offer and Acceptance with Notices to all parties of the assignment.

All proceeds from this "initial leg" of the exchange are held by the Qualified Trustee at interest.

Within 45 days of this "initial leg" closing, taxpayer is required to identify to the Qualified Intermediary in writing the description of the acquisition property.

The taxpayer then negotiates all the terms and conditions for the acquisition of the replacement property which must be acquired (closed) within 180 days of the first closing or the filing of the taxpayers' tax return, whichever comes first.

When the time comes for the closing of the replacement property transaction, Deferred Exchange Corporation, as the Qualified Intermediary, can once again step into the taxpayers' shoes and becomes the "BUYER," utilizing the funds derived from the first transaction's closing. Again, proper assignment and notice of Deferred Exchange Corporation's substitution must be observed.

There are in fact three transactions; first, the sale of the relinquished property; second, the purchase of replacement property; and third, the exchange transaction, which closes in two stages concurrently with the first and second.

A qualified intermediary such as Deferred Exchange Corporations should provide a cost effective service to assist the taxpayer and his tax professional in the proper preparation and follow through of the exchange file, so that all requirements of the Sections 1031 exchange are met. It is important to note that under the final regulations a person who has acted as a taxpayer's employee, attorney, accountant, investment banker, broker, or real estate agent within the two year period ending on the date of the transfer of the first relinquished property is treated as an agent of the taxpayer and may be defined as a "disqualified person," calling into question any exchange in which they attempt to act as a Qualified Intermediary.

To summarize, a taxpayer should consider his holdings and their suitability to his current station in life and consult his tax professional. If a deferred exchange makes tax sense consider the use of a Qualified Intermediary such as Deferred Exchange Corporation to accomplish a delayed tax deferred exchange.