Articles and Seminars

Exchange Facilitator Law Goes Into Effect
Article from the July issue of the Rental Housing Association's Update Magazine

(l-r) Senator Jean Berkey, Phil Brady, Dennis Helmick, Richard Dance, Governor Christine Gregorie, Mary Foster, Amu Gustin, Representative Troy Kelley, and Marc Gjurasic at signing ceremony.

Washington State passed a new law governing qualified intermediary (QI) businesses. The Washington State law requires exchange companies to preserve the principal and the liquidity of exchange funds.

The law requires the exchange company to make sure that every exchange dollar is intact and is available when needed for the exchange.

While the law is helpful, the exchange company customer can and should take steps to protect their exchange funds.

There are two primary risks to the exchange dollars: Risk that the facilitator company may fail (the Bankruptcy Risk) and Risk that the investment may sustain a loss (the Investment Risk)”, according to Dennis Helmick.

Exchange Facilitator Corporation recommends that exchange customers take the following precautions to protect against the bankruptcy and investment risks:

To protect against the Bankruptcy risk:
Require that your exchange funds are placed in a separate qualified escrow or qualified trust account with three signatures required to move your money: The signature of the exchange company, the signature of the escrow agent or trustee signature, and your signature.

To protect your money against Investment risk in the current environment:
Require that the escrow agent or trust place your exchange funds in a separate demand deposit account fully protected by the FDIC.
FDIC insurance is limited to $250,000 on interest-bearing accounts and is unlimited on non-interest bearing checking accounts. This coverage by the FDIC for non-interest bearing checking accounts may change on December 31, 2010. Be sure to verify the amount of FDIC coverage.
Or
Require that the escrow agent or trustee buy a Treasury Bill (T-Bill). A T-Bill is backed by the full faith and Credit of the United States Government. But, the T-Bill has varying maturity dates. The exchange time limit is, at most, 6 months. It is important to match the maturity date of the T-Bill to the date you anticipate that you will need your exchange funds. So be sure that you won’t need your exchange money before the T-Bill matures.

Every exchange at Exchange Facilitator is set up as a qualified escrow with the investment in either fully FDIC insured accounts or in a T-Bill with appropriate time duration.

“Interest on safe investments in these low-interest times is minimal. But remember, Return of Principal is now far more important, than the Return on Principal,” according to Dennis Helmick.