Qualified Intermediary Bond
A qualified intermediary bond is a fidelity bond protecting a 1031 investor's exchange funds against loss from theft or misappropriation by the intermediary.
Definition
A qualified intermediary bond is a form of financial protection, typically a fidelity bond, that a qualified intermediary carries to safeguard the client funds it holds during a 1031 exchange. Because the QI industry is only lightly regulated at the federal level and QIs hold large sums between closings, this coverage is an important safeguard against fraud or insolvency.
A fidelity bond covers losses from dishonest acts like theft or misappropriation by the QI's employees. Reputable QIs also carry errors-and-omissions insurance for mistakes and hold client money in segregated qualified escrow or qualified trust accounts, so it is not commingled with company funds.
There have been cases where under-capitalized QIs failed and investors lost exchange funds. That is why due diligence should include asking about bonding levels, insurance limits, and how funds are held. Some states also impose their own bonding or licensing requirements on exchange facilitators.
Key points
- Fidelity bond protecting client funds held by a QI
- Guards against theft or misappropriation of exchange proceeds
- Complements E&O insurance and segregated escrow accounts
- Important because QIs are lightly regulated federally
Related terms
Jerry Baker founded Baker 1031 Investments to help exchange investors move from active property ownership into passive, institutional-quality real estate through DST, 721 exchange, mineral royalty, and Opportunity Zone strategies. He holds the FINRA Series 22 and Series 63 registrations and the Securities Industry Essentials (SIE) qualification. Read full bio →
Reviewed by the Aurora Securities, Inc. compliance team — Aurora Securities, Inc., member FINRA/SIPC. Last reviewed July 2026. Securities are offered through Aurora Securities, Inc.; Baker 1031 Investments, LLC is independent of Aurora Securities, Inc.
This glossary entry is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. Definitions are general and may not reflect your specific circumstances — consult your own CPA and attorney. Past performance does not guarantee future results.