July 15th, 2024 at 1:54 pm
A. C.A.R.’s Contingency for Sale of Buyer’s Property (COP).
B. C.A.R.’s Buyer’s Intent to Exchange Addendum (BXA).
C. Both A and B.
D. Either A or B.
Answer: From C.A.R.’s perspective as the drafter of the forms, Answer A is not the correct answer. The COP is generally used when a buyer needs to sell their existing home to buy the property for which they are writing an offer. The COP places a lot of burdens upon the buyer, and gives the seller 7 different ways to cancel if things do not go as planned (see paragraph 9 of the COP).
Also from C.A.R.’s perspective, Answer B is the correct answer. Unlike the COP, the BXA specifically requires the seller to cooperate with the buyer’s 1031 exchange. Also unlike the COP, the BXA does not place a lot of burdens upon the buyer with respect to the sale of the buyer’s existing property, nor does it give the seller a lot of ways to cancel. The terms of the COP are generally unworkable for a buyer effectuating a 1031 exchange. It’s usually very difficult due to time constraints for a buyer to buy another replacement property if this one doesn’t work out. Under the IRS rules, a buyer only has 45 days after selling to identify 3 possible replacement properties, and 180 days to acquire that replacement property.
Also unlike the COP, the BXA has a built-in extension of time to close escrow if the sale of the buyer’s other property is delayed. The buyer can check the box in paragraph 4B of the BXA to require an extension to close for however many days that the buyer inserts in the blank space provided.
Answer C is wrong. As explained above, the terms and conditions of a COP are generally too onerous for a buyer doing a 1031 exchange. Additionally, it’s a bad idea to use both the COP and BXA. because they have contradictory contractual terms.
Answer D is not a good answer. The BXA is generally preferred over the COP for buyers who are trying to effectuate a 1031 exchange.
Similarly, if a seller wants to effectuate a 1031 exchange, the seller should use a Seller Intent to Exchange Addendum (SXA), rather than a Seller’s Purchase of Replacement Property (SPRP).
-Thank You to Kathy Thomson (Tustin Office) for suggesting this week’s legal tip!
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