It’s a brave new world out there, folks. The days of buying real estate with mortgages and cash offers may be eclipsed by the use of digital currency and nonfungible tokens (NFTs). Although the novelty of this process may seem appealing, there are a few things to know before joining this new trend.
#1: Laws have not caught up to the tech
One of the draws of using NFTs or digital tokens that use the blockchain to confer ownership, is the potential for an easy transfer. Those in favor of this type of transaction cite the possibility to transfer property “at the touch of a button.”
The problem? Laws at municipality and state levels do not yet allow for the transfer of ownership through the blockchain. Someone still has to record the deed at the county clerk’s office.
#2: Use of NFTs requires more due diligence at this point
Because the laws have not caught up with the tech that comes with using NFTs to transfer property, it is unlikely ownership will transfer unless you take the time to make sure the title transfers.
This basically means those who want to purchase property using NFTs will need to have a twofold approach: first the details that come with an NFT transaction while also making sure all the traditional steps like a title search are complete. Without this diligence it is possible someone could think they purchase the property and find themselves dealing with other claims. One concerning example is the possibility that you could need to deal with a bank if the property had financing.
#3: The deal could come with a surprise tax bill
If the first two points were not enough to give you pause, this could be the one that breaks the camel’s back. As discussed by Benjamin Goldburd, a partner at New York City-based Goldburd McCone LLP in a recent article that delves into these issues, use of an NFT to purchase property would likely require a legal entity like a limited liability corporation (LLC). This structure would help to ensure proper tracking of ownership of the property but can come with a host of tax issues.
At this time, the sale of property using NFTs or crypto is likely best utilized as a marketing strategy. The actual use of these forms of currency require more careful consideration.