Security of the exchange funds is paramount to all other aspects of an exchange. Many property owners are not aware that, with the exception of minimal regulations in the state of Nevada, “Qualified Intermediary” companies are not overseen by the federal government or any national regulatory entities! The bottom line is that you have to determine whether the company selected can provide sufficient protection and financial security, in writing, before proceeding with any 1031 exchange.
It is critical to examine the differences between “Qualified Intermediary” companies. Most investors are not aware that exchange companies can often hold millions, and sometimes hundreds of millions of dollars, at any point in time. It is important to compare the true security that can be provided in writing when comparing many “independent” companies versus a subsidiary of a large parent company.
Does a bond, even one for $10 million or more, really provide a great degree of additional security? The answer is “no.” Any loss above the bond amount is not covered by the bond and can leave investors unprotected.