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expensive than the homes in Thousand Palms. Petitioners had not
previously owned any property in Palm Springs.
Petitioner Mr. Taylor investigated the Palm Springs
residential sales market to determine the value of the Palm
Springs House. Subsequently, petitioners and the Norrises agreed
that they would treat the exchange of the two properties as two
separate sales, with a reduced selling price for each property of
$460,000. The California residential real estate market declined
sometime in the early 1990's. It is not clear whether
petitioners were aware of this decline at the time of this
transaction.
Petitioners closed the sale of their Thousand Palms Property
in February 1991. In consideration, petitioners received cash in
the amount of $150,000, unsecured notes in the amount of
$288,000, mortgage relief in the amount of $6,740, and a $15,260
payment to petitioners' real estate broker. Petitioners paid for
their purchase of the Palm Springs House by obtaining a $300,000
mortgage and using the funds obtained therefrom to pay off the
Norrises' existing mortgage. Petitioners did not pay out-of-
pocket cash or incur any other debt to pay for this purchase.
Petitioners satisfied the remaining $160,000 due by transferring
equity from the Thousand Palms Property to the Norrises.
Within a few weeks after the sale/exchange of the Thousand
Palms Property, petitioners closed their purchase of the Missouri
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