National title insurance underwriters are now setting policies and procedures for transactions involving Bitcoin, Ethereum, Litecoin or any other cryptocurrency (collectively, “Cryptocurrency”).
Title insurance companies prohibit their agents from accepting funds in Cryptocurrency or holding Cryptocurrency in escrow. Additionally, title insurance agents (closing attorneys) are not authorized to make payoffs, commission payments, or any other payments in Cryptocurrency in insured transactions. Title insurance companies will not accept payment for services or title premiums in Cryptocurrency.
Because title insurance companies will not allow their closing attorneys to conduct escrow services in Cryptocurrency, completing such transactions would necessitate utilizing outside escrow services or no escrow services at all (i.e. a direct transaction between the parties), and necessitate additional safeguards, including confirming receipt of payment, obtaining authorization to close/record, etc. Cryptocurrency transactions also raise concerns about IRS 1099-S reporting obligations, Financial Crimes Enforcement Network (FinCEN) reporting obligations, transfer tax calculations, and other issues.
Title insurance companies will insure real estate transactions in which Cryptocurrency is converted to U.S. dollars prior to closing so that the closing may be conducted entirely in U.S. dollars. However, cash transactions must be processed according to existing rules governing true “cash transactions.”
In contrast to the coin and paper money of the United States, Cryptocurrency does not have legal tender status in any jurisdiction in the United States. Nevertheless, Cryptocurrency has become increasingly popular in recent years due to price appreciation, novelty, anonymity and a decentralized governing structure.
Although Cryptocurrency has legitimate uses, it can also be used to finance illegal activity or evade anti-money laundering laws and regulations. As such, Cryptocurrency poses additional challenges for title insurance and escrow service providers beyond the often- cited problems of:
- extreme price volatility relative to the U.S. dollar,
- the difficulty of converting Cryptocurrency to U.S. dollars, and
- the tax consequences associated with trading Cryptocurrency.
Furthermore, like many taxing authorities, private parties, and lenders, most title insurance companies and attorneys lack the infrastructure necessary to receive or disburse Cryptocurrency. Recently, several news organizations have reported about Cryptocurrency real estate listings and successfully completed Cryptocurrency real estate transactions. However, many of these transactions utilized unusual or complicated maneuvers, such as converting the Cryptocurrency to U.S. dollars prior to the closing or transferring the sale proceeds outside of escrow. Although “true” Cryptocurrency real estate transactions are conceptually possible, they are extremely rare at this time.
Rest assured that title insurance companies and the title industry will continue to work to meet the demand as the operational, legal, and regulatory landscape surrounding Cryptocurrency evolves. But for not buying a home with BitCoin will be somewhat of a challenge.