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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, Amy 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 all exchange funds over $250.000, it is important to require that the escrow agent or trustee buy a Treasury Bill (T-Bill)or place the exchange funds in a Treasury Only Money Market Fund.

A T-Bill is backed by the full faith and Credit of the United States Government. The disadvantage of a T-bill is that it has a specific maturity date. It is important that the maturity date selected match the date when funds are needed. If a T-Bill is required to be cashed out prior to its maturity, there may be a principal loss.

Another alternative, that does not have the maturity date issue, is to place the exchange funds in excess of $250,000 in a Treasury Only Money Market Fund. While your shares in the fund are not directly backed by the Full Faith and Credit of the United States Government, these funds only invest in U.S. Treasury obligations which are backed by the Full Faith and Credit of the United States Government.

The advantage of the Treasury Only Money Market Fund is that funds are available on a on demand basis.

Every exchange at Exchange Facilitator is set up as a qualified escrow with the first $250,000 invested in a fully FDIC insured account with the balance placed in either a T-Bill for accounts over $2,500,000 or in a Treasury Only Money Market Fund for accounts under $2,500,000.

“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.