Given the continued popularity and buzz around Bitcoin and other forms of cryptocurrencies as well as the blockchain, many of our clients have asked Adam Yormack to help our clients understand and navigate the regulatory framework, or lack thereof, of using cryptocurrency to purchase real property. While there are obvious hurdles facing crypto-backed real estate transactions, the practice is increasingly more common.
Bitcoin.com describes it as:
…A peer-to-peer electronic cash system…a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.
All Bitcoin transactions are recorded permanently on a distributed ledger called the ‘blockchain.’ This ledger is shared between all full Bitcoin ‘miners’ and ‘nodes’
Most Bitcoin transactions involve a buyer converting Bitcoin into U.S. dollars in order to make a purchase – a liquidation of assets similar to the way a first-time homebuyer might use investment dollars to afford a down payment. However, as mentioned above, the first “Bitcoin to Bitcoin” real estate deal occurred in the sale of a Miami condo.
With an increase in social acceptance of Bitcoin and the use of blockchain technology, realtors and buyers envision a more streamlined and secure way to record and transfer property titles. Unfortunately, despite the advances and acceptance of Bitcoin, crypto-backed real estate transactions face many regulatory and practical hurdles. In most states, the process of transferring land still requires the use of traditional financial institutions, which do not recognize Bitcoin as a safe currency.
Another traditional aspect of land transfers is the use of title companies, which ensure that the property is free of any encumbrances prior to the transfer, and provide insurance of a clean property title. Because cryptocurrency is volatile and largely unregulated, title companies, in my experience, are hesitant to provide insurance to crypto-backed real estate transfers.
Another challenge is that real estate transactions in the U.S. are governed by “good funds” laws, which prevents buyers from purchasing real estate with random and untraceable funds. Specifically, Miami is subject to a Geographic Targeting Order, which requires title companies to report on the source of funding for a high-end real estate deal if the source of funding is not from a traditional banking institution.
Despite these hurdles, the crypto market is expected to continue growing and as such many brokerage firms and real estate attorneys like Adam Yormack or Frank Escalante from Escalante Yormack Law have begun to adapt to the market trend. It is Escalante Yormack’s mission to help their clients engage in crypto-backed real estate transactions by facilitating the process for a buyer to convert their cryptocurrency into dollars by using third-party services or accepting the cryptocurrency directly.
Given the expected growth of cryptocurrency and the upward trend of the real estate market, traditional institutional players, such as lenders and title companies, would be foolish to not adapt to such a significant change in the market.
Yormack Law
Adam Yormack, Esq., is the principle attorney at Yormack where he focuses on corporate and commercial litigation, franchise, and real estate law. You can reach Adam directly at adam@yormacklaw.com.
Disclaimer
The materials in this article are provided for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any potential questions or concerns, etc.