Cryptocurrency-backed mortgages still raise red flags: British Columbia regulator

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BC’s mortgage regulator continues to issue warnings against anyone considering buying a home with cryptocurrency.

The BC Financial Services Authority says nothing prevents buyers from using such unregulated digital currencies, but there are limited protections and lingering unknown risks in doing so.

The concept gained media attention in December when Toronto-based lender Ledn announced a $ 70 million investment to create a Bitcoin-backed mortgage product.

“This mortgage will allow Ledn’s clients to use their Bitcoin holdings to purchase property while continuing to benefit from the potential price appreciation of both assets,” the company wrote.

A customer wishing to take out a Bitcoin mortgage must own as much Bitcoin as the value of the property or the purchase price. The company will issue a loan equal to 50% of the combined value of the two assets.

The authority warns that real estate brokers and lawyers cannot receive cryptocurrency deposits and hold them in trust for a real estate transaction.

“The buyer and seller should negotiate to have a third party hold the deposit, which increases the level of risk. In a trust account, the funds are protected in the event of a transaction failure. If the deal were to fail using a digital currency, your client may have to find the other party and sue them to get the deposit back, ”notes the authority, which oversees the financial services industry, including pension plans, mortgage brokers, real estate services. , real estate development marketing and financial institutions (credit unions, insurance and trust companies).

Other potential risks include how currency can be used to disguise the source of money from criminal activity and thus be a vehicle for money laundering.

The authority also notes that there are large fluctuations in currencies, which makes closing costs riskier.

On its website, the authority lists two examples of risks:

“There are reports that bitcoin has been used in some jurisdictions in real estate scams involving identity theft and title fraud. In some cases, a fraudster steals an owner’s identity and puts their property up for sale online for bitcoin. The buyer registers the title and immediately takes out loans against the property, running off with the funds and leaving the beneficial owner in debt.

“In other cases, identity thieves have targeted properties already listed in MLS and created fraudulent secondary ads to sell the same house for bitcoin.”

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