{"id":1419,"date":"2021-05-21T11:00:39","date_gmt":"2021-05-21T15:00:39","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1419"},"modified":"2024-04-25T23:20:01","modified_gmt":"2024-04-26T03:20:01","slug":"deeds-reimagined-is-a-new-day-dawning-for-the-chain-of-title","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/deeds-reimagined-is-a-new-day-dawning-for-the-chain-of-title\/","title":{"rendered":"Deeds, Reimagined: Is a New Day Dawning for the Chain of Title?"},"content":{"rendered":"\n
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Art met real estate in a new way this year. Krista Kim\u2019s Mars House<\/em> design appeared on the first irreplaceable, non-fungible token (NFT<\/a>) for a virtual house and garden. Kim\u2019s virtual experience was followed by an NFT listing for a home in New York<\/a> (a real one) on the Ethereum blockchain.<\/p>\n\n\n\n

Think it\u2019s all a flash in the pan? Look again. Blockchain\u2019s tamper-resistant\nledger system offers tremendous benefits for real estate deeds. It\u2019s poised to\ntransform the way we trace a chain\nof title<\/a>. And the rise of NFTs just shows how fast things are\nmoving. <\/p>\n\n\n\n\n\n\n\n

Chain of Title Problems: How We Deal With Them Today<\/h2>\n\n\n\n

A chain of title traces a home through time. When a new\nowner takes title to a home, a deed represents a new link in the chain. <\/p>\n\n\n\n

If no foul play or proofreading lapses happen, placing the deed\nin the public records enables everyone to know who owns a property, and who has\nclaims on it. The buyer has access to a public record showing that the seller has\nfull rights in the property, that the chain of title is unbroken, and that there\nare no new claims on the property preventing a full transfer of interest to the\nbuyer. <\/p>\n\n\n\n

Not everything is recorded, though. Moreover, today\u2019s open,\nmanual system of deed indexing allows transfers of inaccurate or questionable deeds.\nWhat is the open recording system? By law, a county recorder records documents\nas long as they are procedurally correct. The county recorders generally have\nno place in verifying the substantive claims in the documents they record. This\nmeans our current system is \u201cbuyer beware\u201d when it comes to scammers filing\nfraudulent claims on top of deeds after the last sale of the home.<\/p>\n\n\n\n

Chain of title issues must be noticed and repaired so they\ndon\u2019t prevent future sales or financing. The repair work could involve a lawyer\ndrafting a correction deed<\/a>, or a\nparty with a possible claim clearing up the matter by recording\na quitclaim<\/a>. If all else fails, corrective action depends on a quiet\ntitle action in court. A successful quiet title action allows an owner to get\ntitle insurance and a mortgage, and to transfer the home free and clear. <\/p>\n\n\n\n

But what if we had a recording system that prevented\nmistakes and false claims on properties in the first place? <\/p>\n\n\n\n

Can Blockchain Improve Title Recording Systems?<\/h2>\n\n\n\n

Hoping to stop the misuse of the system, bills have been introduced\u00a0into state legislatures \u2014 including the Claims Against Real Estate Recordation Act<\/a> in Illinois. Once enacted, laws like this one would force all claims against a title to be recorded in the county where real estate is located. Mandatory recording is a step forward to better title security. It would be standardized in blockchain recording.\u00a0<\/p>\n\n\n\n

Today, registering a deed often involves a title agent\nphysically going to the county office on our behalf, so a county employee can record\nthe instrument in the public registry. We can expect that to change. <\/p>\n\n\n\n

The electronic blockchain ledger does not rely on mailing,\nprinting, scanning or filing papers. It can increase cost efficiencies. And\nthat\u2019s not only for the recording process, but also in terms of the costs\nand complexities of title insurance<\/a>. Blockchain could go some way to\nsolving these issues, although it wouldn\u2019t rule out every potential cloud on a\ntitle. Home buyers will still want title insurance, but the easier title search\nand the lessened risk can be expected to reduce premiums.<\/p>\n\n\n\n

When the title search is an accurate, quick process, loan\napproval journeys can be similarly improved. In short: We can expect\nsignificant time and cost improvements for the mortgage loan approval process,\nand the integrity of the homeowner\u2019s title. <\/p>\n\n\n\n

The Smart Contract: Title Fraud Meets Its Nemesis<\/h2>\n\n\n\n

Blockchain takes the reliance on \u201ctrust\u201d out of the\nrecording process. Here\u2019s how it works. The current system has people making\nclaims, and county recorders putting those claims into the public record\nwithout verifying them. With blockchain, password-protected software validates\neach data entry. That software is the smart contract<\/em>. It\u2019s code,\nactivated by blockchain transactions. <\/p>\n\n\n\n

Blockchain title recordation updates the chain of title\nimmediately. Each activity is verified by the blockchain algorithms, and cryptographically\nprotected. Each has its own identifier that carries over, one block in the\nchain to the next. No unauthorized parties can break into the sequence. <\/p>\n\n\n\n

All authorized parties in a specific transaction can consent\nto the verification and recording of their activities. This means the right\npeople have access to the information at all times. The home\u2019s legal\ndescription and disclosures, permits, construction activity, inspections and\nappraisals, and related loan data, could all be placed on a block through the\nsmart contract. <\/p>\n\n\n\n

The best outcome? No more lost, falsified or damaged\npaperwork. No more deed scams<\/a>. No more wire\nfraud. No more buyer-beware when it comes to others\u2019 claims\non a title<\/a>. No more wondering if what you see is what you get.\nSurely most participants in the real estate world will want to explore the\npotential.<\/p>\n\n\n\n

\u261b Did\nyou know? Wire fraud is on the rise in 2021. See\nour Fraud Update: Closing Scams Now Make Up Nearly Half of Cybercrime Losses<\/a>.<\/em><\/strong><\/p>\n\n\n\n

Will Person-to-Person Home Transfers Become Possible?<\/h2>\n\n\n\n
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It\u2019s an intriguing question! The need for title insurance\nand recording offices are certainly not as entrenched as they once seemed. That\nindicates that houses will become easier to exchange. But what about the use of\nfossil fuels in connection with verifying that greater volume of data on the\nblockchain? <\/p>\n\n\n\n

Elon Musk<\/a> has put it squarely in the news this month: there\u2019s a massive electricity input for \u201cproof of work\u201d verifications used in the Bitcoin blockchain.\u00a0(Remember last month, when we noted that people could buy a Tesla with bitcoin<\/a>? This month, that\u2019s over \u2014 but let\u2019s see what next month brings.) <\/p>\n\n\n\n

Notably, California and other states are blending Bitcoin\nbasics with more flexible and less energy-intensive Ethereum smart contracts. <\/p>\n\n\n\n

Pro tip:<\/em><\/strong> Bitcoin<\/em> with a capital B <\/em>stands\nfor the innovation itself. Written with a lower-case b<\/em>, bitcoin <\/em>means\nthe related cryptocurrency. Ethereum<\/em> is an innovation based on the\nBitcoin blockchain. An ether <\/em>is the related cryptocurrency. <\/p>\n\n\n\n

When Will We See the Changes?<\/h2>\n\n\n\n

The wide adoption of blockchain deed recording software\ncould unfold over the next decade. Pilot runs have already shown the use case:<\/p>\n\n\n\n