Buy Any House with Bitcoin
Buy Any House with Bitcoin
In the last year, real estate listings have started advertising sellers willing to accept Bitcoin. Conceptually, this would work in a perfect world – the buyer and seller sign the necessary paperwork and Bitcoin transfers from the buyer to the seller (i.e., peer-to-peer). Unfortunately, the world is not perfect; one of the pillars of the Bitcoin infrastructure is that the network is comprised of distrusting participants. Distrust is necessary as the anonymous participants of the network require no permission to remit payment. Thus, a seller’s declaration to accept Bitcoin will need to overcome the inherent nature of a distrusting peer-to-peer structure.
Example: Bob has $1M in Bitcoin and wants to buy a condo on the beach in Miami. Sammy is selling a condo on the beach in Miami for $1M and is willing to accept Bitcoin. In the previously-described perfect world, Bob would offer Sammy $1M in Bitcoin, Sammy would accept $1M in Bitcoin, the two would sign all necessary paperwork, Bob would send the Bitcoin and Sammy would provide Bob the keys to the condo. Condo sold.
Using the above example, what if Bob never sends the Bitcoin? What if Sammy does not sign the paperwork after Bob sends the Bitcoin? The peer-to-peer approach demands trust.
Substitute Bitcoin with cash in the above example and the same underlying trust issue exists, which is why title companies facilitate the overwhelming majority of real estate transactions. In addition to issuing title insurance, title companies serve a vital role to the transaction, ensuring each party to the transaction has fulfilled its respective obligations before disbursement occurs.
To combat the trust issue, the parties can engage an attorney adept at drafting contracts to create an agreement that addresses the scope of the transaction and related nuances – conversion, price volatility, risk, etc. While the contract may address transactional risk, it will not insulate sellers from accepting Bitcoin derived from illegal activity. Further, the contract will not supersede an underwriter’s requirements for issuing title insurance.
Indeed, title companies must adhere to the applicable underwriter’s requirements; as it relates to Bitcoin, underwriters may preclude agents from (i) accepting cryptocurrency in escrow and (ii) remitting payoffs, commissions and other payments in cryptocurrency. In addition, such transactions will likely require additional underwriting approval. The most significant hurdle in a peer-to-peer transaction with respect to obtaining title insurance is the verification of full payment, which is a condition to the title company insuring the passage of title.
In the above example, Bob would send Sammy the $1M in Bitcoin, but as the title company is unable to verify payment actually occurred, the underwriter will not insure the passage of title. Consequently, Bob would own the condo without the protections title insurance affords, further illustrating the challenges a peer-to-peer Bitcoin transaction presents.
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