As of this writing in 2022, national banks were the only US institutions explicitly permitted to offer a crypto escrow service, and even then they must demonstrate that they have adequate controls in place before they can engage in certain cryptocurrency, distributed ledger, and stablecoin activities.....
So what are your exposures and protections, where is the money for the transaction safely kept, and how will you complete the transaction?
Why? Because in this ill-defined environment if something goes wrong, or a public institution determines that some aspect of the transaction was done improperly or against law or policy and they want detail, or worse they accuse you of an unlawful or taxable act, you need to show you took precautions, have the evidence, and have someone professional "on the hook" to defend your actions and position.
If you aren't already working with an attorney who has been involved in, and familiar with what can go wrong, the assets you have, (crypto, Greenback, or hard assets), may be exposed in a dispute.
Crypto real estate transactions occur within uncomprehensive rules and limits, evolving restrictions, uncustomary procedures, unexpected costs, and unintended risks, as ill-equipped state and federal laws cope with transformational changes that are ever more frequent.They will help you appreciate what to prepare, what to pay attention to, what to evaluate, what to agree to, what to refuse, what to expect, what to send when and how much, and how to make the best decisions.
Closing costs, registrations, tax authorities, associations, commissions, they all need USD even when the seller and buyer are using crypto.That means some "fiat" (US dollars) must be available or converted.
As of this writing escrow of crypto currency itself is permitted to be handled by national banks, but real estate documents cannot. The main problem escrow is supposed to solve is "not sending your money to strangers".
As of today, I am unaware of a crypto escrow service with a reputation (good or bad) that's either reliable or affiliated or backed by an entity in which we can have high confidence.
None that exist have been around long enough to be considered reliable, and there is no way to know if they are even legitimate. Most are off shore. So why would you send your money to them, especially when a CRYPTO TRANSFER IS IRREVERSIBLE!?
According to Florida attorneys, Florida law does not explicitly permit escrow agents to have a crypto wallet into which they take the buyers cash to close (balance of the purchase price plus closing cost).
Until things change the existing escrow language inside the standard offer contracts must be crossed out and replaced with new clauses or an addendum, (hence the need for an attorney). As a consequence, the parties involved may not have the same protections, the same requirements, or be able to utilize the same mechanisms, (another reason you need an attorney).
In place of escrow attorneys are used to follow and observe the steps of the transaction until all parts are consummated. proceeds go directly between buyer and seller crypto accounts, if you can believe that!
That kind of crypto currency is categorized as "Stablecoin", and it was created so that there could be a crypto currency alternative that did not fluctuate, or have gains or losses against the value of the US dollar. USDc and USDt are the 2 most known and used stablecoins.
Conversion into stablecoin is being used as a mechanism to "freeze" the value of the crypto currency brand you are holding, much like a decision to convert ANY currency into US dollars.
The difference is that it takes milli-seconds to convert, transport, and thus freeze and deliver the value of one crypto currency into another crypto currency in preparation for transactions or converting into dollars. Otherwise, at a bank it could take days to wire and convert into USD, which could either expose you to abrupt gains or losses should the volatile crypto market change the value of your coins overnight.
Unlike other crypto currency types that are pegged to mining, a stablecoin's value is pegged to the us dollar, 1:1, and that value is derived from some actual underlying external asset (the dollar, gold, or other hard currency or asset.)
It is important to realize that USDc and USDt were invented by and are controlled by private companies, and you should be comfortable with their solvency, performance, and structure (guess where they were founded). For example, as of this writing USDc's assets are public but USDt's are not, yet USDt has been around longer, and has much broader circulation in existing transactions.
You will typically be faced with exchanging SOME crypto for dollars anyway, and most parties will be looking to use a reputable exchange to accomplish that like Coinbase, Kraken, etc.
Participating parties may also be looking to transact using a more reputable crypto currency like Etherium and being held in crypto wallets that are more mainstream than "Golden Dragon Wallet" or "Pink Unicorn Wallet". Behind the scenes the exchange handles the conversion and fluctuation by promising an exchange rate.
The aforementioned agreement defining the form and substance of payment and exchange must make its way into an addendum or additional terms.
Not surprisingly, states like NY for example, require those engaged in “virtual currency business activities” to be specifically regulated and to maintain a "BitLicense" or a virtual currency limited purpose trust company charter from the New York State Department of Financial Services.
FinCen (a division of the U.S. Treasury in charge of preventing financial crimes) also regulates money transmitters via the Bank Secrecy Act (P.L. 91-508), requiring registration of “money services businesses,” including money transmitters, and imposing reporting obligations.
So the "form and substance of payment and escrow" must be defined and agreed upon either up front, or by a specified future deadline, so that the mortgage payoff from the seller for example is paid in USD (traditional banks and their investors also take greenbacks today not crypto! So when the buyer transfers crypto funds some portion will have to be exchanged, and that may also be a taxable event.
The west may be wild, but the sheriff is funded, organized, and on the prowl. Make sure you have what you need to report any gains (or losses). This is where the accountant recommended to you in the beginning comes into play.
We have the experience and safety measures in place. There is a bit more to understand regarding transfers, confirmations, and when you are ready get in touch with us to assure your success and lower your risk and exposure
The material in this article was graciously and professionally contributed to by:
Rich Barbara Esq. - Coral Gables Title + Escrow LLC
224 Palermo Ave, Coral Gables, FL 33134
+1 305 400 8802
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