The collapse of title-insurance company LandAmerica Financial Group Inc. has left hundreds of real-estate investors scrambling to recover money in what was supposed to be a short-term and low-risk arrangement.
The investors, from retirees to a public company, had $400 million on deposit with the LandAmerica subsidiary to take advantage of a real-estate strategy known as a 1031 exchange. A 1031 exchange, named for a section of the U.S. tax code, lets investors delay capital-gains taxes on the proceeds from recently sold property, as long as the investor lets a third party hold the funds. They must reinvest the money in a new property within six months.
Investors had $400 million on deposit with a LandAmerica subsidiary and can't access the funds after the title-insurance company collapsed. Visitors walk past a company booth at a convention in October.
LandAmerica, a provider of title insurance for real-estate transactions, placed itself and its LandAmerica 1031 Exchange Services subsidiary into Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court in Richmond, Va., last week. It said a slowdown in the real-estate title-insurance business and a cash crunch associated with illiquid investments it made in the 1031 business made it unable to meet its obligations to hundreds of 1031 customers. LandAmerica is seeking the court's permission to sell the title-insurance business to its competitor, Fidelity National Title Insurance Co., while leaving the 1031 Exchange subsidiary to face likely liquidation.
In the filing, the company said it had put much of the money it was holding for real-estate investors into commingled accounts that invested in auction-rate securities that have become illiquid. LandAmerica had guaranteed the money. The auction-rate securities market seized earlier this year. LandAmerica informed customers in a letter last week that it had "taken every reasonable step possible to avoid" the illiquidity problem.
1 comment:
I am a 55 year old single woman. As one of the victims of this horrible mess I can only state that LandAmerica took my money on Nov 14, 2008...just about 5 business days before LandAmerica declared bankruptcy. If they had "taken every possible step" to avoid this disaster they would not have continued to take money from people till the day they closed up shop. They had no intention of even attempting to fulfill the contracts they undertook, and were fully aware that the funds that they claimed were fully liquid, were in fact, frozen.
Any common sense of morality might have proded them to stop taking in clients and their funds, and signing contracts that would be impossible for them to fulfill.
It was never represented to me in any way that I was "investing". I was told that my money was being held in a fully liquid, guaranteed, secure, trust account that would be available when called for at the time my exchange was completed. A statement that is at odds with the fact that this company knew the funds were frozen at that time, and had been for months before they took my money. Hmm! I wonder what you call that? It should only take one guess. Now they are attempting to hide behind a bankruptcy court. These people have ruined lives here, lots of lives.
The people who have been so drastically affected by this were attemting, in a very tough economy, to keep that economy going, and now they have almost no recourse and very little ability to defend themselves, or recover the money that has been taken from them. By complying with the letter of the law, as defined by the IRS, we are about to get screwed by the law that seems only to protect Corporations, with teams of law firms working diligently to stick others with their self-created losses. I never wanted to be a lawyer, but given what I am faced with now, I had better get educated quickly. Since Exchangers caught in this will be fully liable for all losses and also liable for the full amount of capitol gains as well...all I have to say is... Buddy, can you spare a dime?
I am now in a battle with a giant Corporation, but in the end, corparations are just made up of individual people, who, in this case didn't care how many others they took down with them, and actively participated in that process. I wonder if they are loosing as much sleep as I am? Merry Christmas LandAmerica.
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