Court Rules on Funds at Bankrupt Qualified Intermediary

This is an interesting article from Asset Preservation, one of the largest Qualified Intermediaries (QI) in the Section 1031 Exchange market, about a court ruling on bankrupt QI, LandAmerica.  In summary, the bankruptcy court recently ruled that the funds designated for exchange by one of LandAmerica’s former clients were to be included in the LandAmerica’s general assets to be distributed to creditors.  This is HORRIBLE news for any exchanger that had funds with LandAmerica.  The chances of these exchangers ever seeing their funds again after creditors, attorneys and the courts receive their distributions are not very good.  We certainly understand the logic of the court’s ruling.  In fact, the IRS code and subsequent rulings on ownership of funds is quite clear that the QI owns the funds and the funds are not a “for benefit of” or “Trustee” relationship.  However, the ruling is more cold water in the face of a market that is already reeling from the worst real estate environment in a generation.  (read more about it from Asset Preservation)