I am trying to get creative in order to make something work...

I have 4 mortgages right now. I want to add a 5th, but it would be a jumbo loan. My lender informed me that adding a jumbo loan cannot be done unless I have 3 or less prior mortgages. There is a 10-mortgage max in general, but jumbos apparently have extra regulations.

Here is my proposed idea, so please help me know if this is possible even if you have questions about the why of my idea...

  1. Have my girlfriend buy one of my investment properties, reducing my total loans to 3
  2. I now have no ownership of that property
  3. I identify that property I just sold as the property I wish to purchase for my 1031 exchange
  4. In the meantime, I purchase the jumbo-loan property I was wanting
  5. I take the proceeds from my sale in #1 and buy back the property in #1 and satisfy the 1031.

Is #5 accurate. Would this satisfy the 1031 exchange rules?

1 Answer 1


I see several problems with this.

In #4 you will have to tell the lender about the mid-process 1031 exchange. They will want to know about anything in your finances that could impact the ability to pay for the mortgage your about to obtain. Even if you don't have to identify the property by the time you settle on the jumbo mortgage, you will have to have treated #1 has being a 1031 exchange at the time of sale. You could lie, and neglect to tell them; but that also can have consequences

Even if this wasn't being done, to mislead the lender, the issue is does the string attached to #1 that your girlfriend will sell the property back to you in #5 invalidate the 1031 exchange. Of course you have to trust that they will follow through. They could decide to take the house and run. They could decide that they will only sell it back to you for a $100,000 profit, or if you outbid other people.

The IRS becomes concerned when the 1031 exchange is between relatives, but in general a girl friend is not a relative. They are on the lookout for step transactions. In these cases each step appears legal but is actually part of a plan to avoid taxes. They could require you to pay taxes on #1.

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