In “Nevada’s 1031 Exchange Law: How Will It Work and Is California Going to Act to Stop Okun-McGhan Like Disasters?”, we described SB 476, our opinion on it’s practical uses, and it’s effectiveness in preventing the “looting” of consumer monies. In part 2 we will investigate the law’s provisions for “written approvals”,”separation of funds”, and our reaction to this legislation.
According to “QI Laws Passed in NV, Proposed in California” (Michelle Napoli’s great article) SB 476 may very well be significant in preventing fraud in the 1031 industry. The first reason is the provision on written approvals: “. . . money held in any account for a client may not be withdrawn from the account without the written approval of the licensee and the client.” If this provision is “policed” and “penalized” with appropriately tough legal and criminal actions, then SB 476 could be a template for the rest of the country.
SB 476 states the following regarding separation of funds: “all exchange funds must be kept separate from money belonging to the licensee and must be deposited in a financial institution that is federally insured or insured by a private insurer approved” under the law, “unless another financial institution has been designated in writing in the exchange agreement.” This provision, in hand with written approvals for withdrawing funds, is the very basis for bolstering today’s sagging consumer confidence in the 1031 Exchange industry. All of these assumptions are based on the fact that the state of Nevada will make an exchanger pay a high price in both criminal charges and civil expenses if they step out of line.
Consequently it remains unclear how well this law will actually work in prevention of the Ed Okun/McGhan type of consumer losses. At the very least it is a very positive step in the right direction.
If you have further questions please contact Dean Guadagni at firstname.lastname@example.org