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Haven Exchange, a Huntington Beach, California based 1031 Exchange services company, claims to have come up with the answer to potential fraud and security issues now plaguing the 1031 industry. Haven describes their new service as “breaking new ground by creating transparency for 1031 Exchange funds.” More to the point, Haven’s transparency program is centered around allowing the consumer to watch their funds during the entire exchange transaction. Is this the type of service that will prevent the Ed Okun 1031 Tax Group or Donald McGhan Southwest type disasters in the future?
Here is how it works according to Havenexchange.com/news: “The clients of Haven Exchange will now receive monthly statements directly from Union Bank, providing them with complete assurance that their funds are fully segregated in separately held, FDIC insured, totally liquid money market accounts. The statements reflect any and all activity, including interest earned, leaving no room for doubt about how the funds are invested and growth proceeds therefrom.”
My question is with the above statement: “The statements reflect any and all activity, including interest earned, leaving no room for doubt about how the funds are invested and growth proceeds therefrom.” Does that mean that your monthly statement and transaction are controlled by a joint signature account? An account where the exchanger must receive permission to withdraw any funds, for any transaction, from the consumer via their signature? Without a dual signature account set up, transparency becomes less effective. Total control in my opinion means two signatures: that of the consumer approving an investment and that of the QI making the investment.
Haven Exchange’s president Dorothy Zink stated “Even though we have worked closely in the planning stages with our banking partner, Union Bank of California, to provide this security for 1031 Exchanges, I am totally blown away by the results.” That is a noteworthy statement coming from a company president and one reason consumers may wish to investigate Haven Exchange before beginning their 1031 transaction.
Equally giddy was Union Bank V.P. John McShane “These accounts are managed by our Real Estate Escrow and Title Management Group, and provide state of the art ease of use for the Qualified Intermediary and the desired Transparency /Security for the consumer. We are very proud of it.”
In addition, Haven Exchange is a member of the Federation of Exchange Accommodators the Exchange industry’s lone professional association. The FEA regulates it’s membership through background checks and testing processes. Haven is a member of the FEA.
In a bold statement to fellow members of the FEA, Haven has challenged the industry leaders to match Haven and Union Bank’s transparency program. As Zink exclaimed, “It remains to be seen whether other FEA Members will put the taxpayer and the Industry ahead of its profit margin, as shortsighted as it may be to do otherwise. . . ”
As always if you are a consumer investigating Qualified Intermediaries or Exchange services remember to perform your due diligence, compare multiple services, and check the FEA website member section for membership. Also follow up and check the insurance bond for each QI.
As William Exeter of Exeter advises, do not assume that the insurance rider for your QI is in effect. Ask your QI for their insurance information. Follow up with a direct phone call to the insurance company to make sure the insurance is in effect and what it actually covers in case of loss due to fraud.