Breaking the Law, Bending the Rules

Breaking the Law, Bending the Rules

This has been one of those really strange weeks. I received a call early in the week about a property I have listed. It is a large parcel of land listed for over one million dollars. The caller asked “do you plan on using a 1031 Exchange once the property is sold?” Well, based on the way the question was phrased, I was hesitant to answer. Anyone who knows their way around a 1031 Exchange knows you have to initiate the exchange prior to close-of-escrow. Of course, I was also considering that it was just a case of bad semantics but either way, I was not going to compromise the client by answering the question.

So I replied the best way I knew how, I asked “why do you ask?” Big mistake, huge. I should have gone with my gut instinct and gotten off the phone as fast as I could.

The caller then launched into his pitch on TIC’s. I tried to stop him. The first thing out of my mouth was “I do not have a securities license and therefore I do not involve myself in TIC’s”. He was not to be stopped. He then felt the need to wash me of my ignorance and show me the TIC light. By the time I got off the phone, not only was I frustrated, I knew I did not want to do business with him in the future.

I am a 1031 Exchange fanatic. If I was 10 years old again, I would replace the Andy Gibb poster hanging over my bed with a 1031 Exchange poster (pathetic, huh?). 1031 Exchanges are splendid when done correctly. As a result of my worship for the 1031, I have spent countless hours becoming educated on all aspects. Including the use a 1031 Exchange into a TIC.

The SEC views most TIC’s as securities although the IRS views all TIC’s as real estate. The National Association of Realtors estimates 10 percent of TIC’s are structured as real estate and not securities. This means 90 percent are securities, which I am not licensed to sell. Ninety percent is a huge chunk of the market. Large enough that I choose to direct my 1031 Exchange clients who are interested in TIC’s to the proper licensed individuals to assist them with their needs. Why? I value my license and I take the REALTOR Code of Ethics seriously.

This makes sense to me. My husband is an aerospace engineer. I have on occasion read some of his airplane engineer magazines (engrossing stuff). This does not qualify me to work on aircraft. My knowledge of 1031 Exchanges and TIC’s still does not qualify me to sell securities.

Back to my phone call…

The caller insisted to me that he could pay me a ‘referral’ fee for sending my TIC clients his way. My ulcer started to act up just a bit when he said this. He also was exceptionally persistent in letting me know how little I understood about 1031 Exchanges. He told me he could structure things in a way I would be comfortable. He told me not to worry he would make sure everything was legal. He told me how he could make me ‘painfully wealthy’ (his words, not mine) in the future. I hung up.

He was correct about one thing, I did have pain. Then I had some Maalox and went back to work.