by Gary Gorman Founding Partner, The 1031 Exchange Experts

As a practical matter, even a convicted felon can be a qualified intermediary.

While the vast majority of intermediaries are ethical individuals, how do you protect yourself from the few who aren't? The best way is to make sure your funds are held in a separate account (called a "segregated" account by the banking industry). When I say separate I mean a separate account for just your money.

Make sure when you interview a prospective intermediary that they understand that you want your money in an account all by its self. People have told us that the intermediary assured them their money would be in a separate account. Yet it wasn't -- and when confronted, the intermediary claimed that when they said" ...it would be held in a separate account," they meant that their (commingled) account was "separate" from their company' s operating checking account.

Obviously they are "spinning" their answer in an attempt to disguise their commingled account. My mom called this "lying." And don' t be misled by hollow assurances of safety because they have a degree or have passed some test. Just because they have initials after their name, like "Esq." or "CPA" does not mean that your money is magically safe in a commingled account. There are crooks in every profession--you don' t have to be ethical to pass a test. Even if the QI is ethical, what about his employees?

So why would a QI dare NOT segregate accounts? Basically, because it' s more expensive and more time-consuming.

It also requires the QI to have a very solid working relationship with their banker or escrow agent.

It's extra work, but obviously very worthwhile for the client' s safety and security. My company, for example, holds every client' s exchange funds in its own, separate account as we always have because it' s the only real way to protect the funds. Each of our accounts has the client' s name on it (i.e., "The 1031 Exchange Experts, LLC, as intermediary for Fred and Sue Jones"), and the client' s tax identification number, or social security number is the one used for the account.

In addition, to give our clients extra assurance that once the money goes into their exchange account--and that it stays there with no foul play--we developed an internet product called 1031Access^TM. We assign a "secret" portal on our web site to each client for their exchange. This portal, via a specified user-name and ID, allows them to view their money, in their account at the bank, 24/7 via the internet. Their portal is password-protected with a password that they set themselves. In this way, our clients can see what moneys have come into their account, what's gone out, how much interest the account has earned, and what their current interest rate is. Our clients can view online, real-time their interest-bearing FDIC-insured funds.

Like the judge in the Minnesota fraud case said, if your exchange money is in a commingled account, "Caveat Exchanger," or, Exchanger Beware!