Can a Seller Finance a Buyer with TERMS and then STILL COMPLETE a Tax Deffered 1031

[Michael Morrongiello]

I am familiar with 1031 Tax Deferred Exchanges. However this issue came up;
EG. Selling a FREE & CLEAR Investment property for $500K
Now if you as the seller are doing a 1031 Exchange and SELL this property and have those funds held by a QI - Qualified Intermediary and now wish to purchase a REPLACEMENT Property $1,000,000 where you put down $500K in funds held by the QI towards the purchase the the Property and the Seller SELLING to you provides owner financing for the $500K balance due them- THEY can then elect to SELL their 1st lien Mortgage and Note if they desire to have additional cash.

What about this twist.
You are now BUYING a FREE & CLEAR Investment property for $1M and the SELLER selling to you wants to do a 1031 Exchange.
But you want to BUY their property only on terms because the property is not readily finance able. 
So you put your $500K Cash down and ask the the Property seller who wants to do a 1031 Exchange to have their QI - Qualified Intermediary
agree to carry back the financing for the $500K balance due.

You have had NO constructive receipt of any funds.
The Buyers $500K goes to the QI  and the Owner Financed 1st lien Mortgage & Note for $500K goes to the QI who will hold it and perhaps even receive some installment payments on it. 

Q1- Can the Property Seller wanting to still do a 1031 Exchange now at some point down the road DIRECT the QI to SELL OFF (at a discount) the
Owner Financed purchase money $500K 1st lien Mortgage  & Note , lets say for $400K CASH and have the funds paid for the purchase of the Mortgage & Note also go into the QI's account. (Again still no constructive receipt of any of those funds have gone directly to the Property Seller.)
The QI would now be holding $900K in Total funds.

Q2- Can the property seller now DIRECT the QI to purchase a REPLACEMENT PROPERTY with those $900K of funds held by the 
QI - Qualified Intermediary (the original $500K put down by the Property Buyer and the $400K in proceeds generated from the Sale of the 1st lien Mortgage and Note) and use those funds for THEIR Tax Deferred 1031 Exchange purchase of a REPLACEMENT property?

Is this feasible ? Will the Seller be able to use the $900K and deferred taxes?

Michael Morrongiello
Sunvest Property Solutions