Why Do a Reverse Exchange?
The reverse scenario may arise as a result of an Exchangor’s decision to acquire new property prior to selling the old property. Many practical realities and competitive reasons are often at play, requiring the Exchangor to take advantage of a purchase of new property prior to sale of the old. For instance, the Exchangor may wish to prevent loss of earnest money or a favorable financing commitment. Still others do not wish to deal with the pressure of the 45-day identification period in the deferred exchange. The reverse exchange allows the Exchangor to avoid the 45-day deadline by closing on Replacement Property first and then enjoying 180 days within which to sell the Relinquished Property. Other Exchangors may be forced into a reverse exchange because the Relinquished Property may fail to close in advance of the purchase of the Replacement Property, such as when the buyer has trouble qualifying for financing or even gets ‘cold feet’ prior to closing. If the Replacement Property closing is pending, and non-refundable earnest money might be at risk, the transaction must be converted to a reverse exchange.
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