Reverse Exchange - Exchange first

Reverse Exchange - (Exchange first)

In the exchange-first reverse exchange the intermediary (QI) borrows the replacement property purchase price from the banks. The exchangor guarantees the loan. The QI simultaneously purchases the replacement property and exchanges for the relinquished property. The QI holds the relinquished property until it is sold. The proceeds of the sale are paid to reduce the bank note. Any excess funds are paid to the exchangor as boot.

Step 1:

QI borrows purchase price from bank - non recourse

Exchangor guarantees loan

Note secured by relinquished property.

Step 2:

Seller/QI transfers replacement property to exchangor
Exchangor transfers relinquished property to QI

Step 3:

QI transfers relinquished property to buyer
Sales proceeds paid to bank
Proceeds in excess of loan paid to exchangor
Excess of loan over proceeds assumed by exchangor

QI stands for qualified intermediary, or the Lone Star Exchange Company