Throughout the past decade, blockchain technology has evolved from an upstart concept to early adoption in banking and a host of other industries. Many people are eager to learn about blockchain and how it can change the way we do business.<\/p>\n\n\n\n
What, we\nmight wonder, can the blockchain do to remedy the hurdles and risks that\npervade the real estate industry?<\/p>\n\n\n\n
The question is now ripe. Today, we can review early examples of blockchain technology in action, modernizing property conveyance. Specifically, blockchain applied to real estate has obvious potential for improving the deed recording process.<\/p>\n\n\n\n
How will\nblockchain make things better?<\/p>\n\n\n\n\n\n\n\n
The\nblockchain is entirely electronic. Thus, implementing it could reduce or end\nthe need for scanned papers, printed mailings, and files full of hard copies in\ncounty recording offices. The results could offer substantial savings.<\/p>\n\n\n\n
Even more\nimportant is security. Once an accurate title enters the blockchain, the chain\nof title updates in real time in each transaction and is continuously\nprotected. Thus, a process once vulnerable to mistakes and scammers now becomes\nerror-free and fraud-proof.<\/p>\n\n\n\n
Another\nsecurity feature is the blockchain\u2019s storage of data on nodes. (Nodes are the\ncomputer points that store and preserve the information on the\nblockchain.) This enables industries to put the era of lost, stolen, or damaged\ndocuments in the past.<\/p>\n\n\n\n
Today, a\ntypical property sale entails two steps: the conveyance from seller to buyer,\nand the recording of the deed.<\/p>\n\n\n\n
Some\ncounties now allow electronic submissions of deeds for recordation. But many\ncounty recording offices require a paper deed to scan into the county\u2019s central\nrecording system.<\/p>\n\n\n\n
To track the\nsequence of ownership, each conveyance of a piece of property gets manually\nreconciled with a public index. A purchaser can then check the public record to\nmake sure the seller is actually the last recorded owner, that the history of\nthe property shows no gaps, and that no one has laid claim to the property since\nits last known sale.<\/p>\n\n\n\n
That history\nof all the property\u2019s conveyances from owner to owner is known as the chain of\ntitle. Entering it onto a public record makes it possible for all to know that\na property belongs to its buyer, free and clear.<\/p>\n\n\n\n
Or so we\nhope. But the only way today\u2019s buyer really knows the title is clean is to\nfrequently check the chain of title. It\u2019s \u201cbuyer beware\u201d when it comes to\nscammers filing fraudulent claims on top of deeds after closing.<\/p>\n\n\n\n
Scary? Yes.<\/p>\n\n\n\n
But the intersection of real estate and fraudsters is nothing new. Mortgage fraud and deed scams<\/a> make up a big portion of white-collar crime.<\/p>\n\n\n\n For one\nthing, county real estate deed recorders are not actually verifying the legally\nsignificant claims made in the documents they record. A county recorder\u2019s duty\nunder the law is to record submissions that simply conform to the legal\nprocedures.<\/p>\n\n\n\n As Cook County Recorder of Deeds Karen Yarbrough has explained, referring to scams in Illinois, \u201cMost fraudulent recordings happen as an abuse of our open recording system.\u201d<\/p>\n\n\n\n A parallel problem is enabling a spate of deed forgery in Philadelphia<\/a>.<\/p>\n\n\n\n In an effort to stop the abuse in Illinois, Rep. Michael J. Zalewski has introduced House Bill 5594<\/a>. The bill would require the recording of all claims against a real estate deed.<\/p>\n\n\n\n To protect buyers, sellers, and everyone else involved in a transaction, states must impose this kind of recording requirement at the time of a transaction. Required recording is a commitment to modernization and security. It’s also a prerequisite to moving from legacy to blockchain-backed systems. <\/p>\n\n\n\n With blockchain in place, states will finally have a document recording system that prevents fake claims to properties \u2014 even by government officials themselves. In 2016, a Cook County employee pleaded guilty<\/a> to taking a $200 bribe to insert an additional person’s name into a deed to a Chicago suburban home whose other owners had passed away.<\/p>\n\n\n\n Blockchain removes the need for a third party to clear a real estate transaction between buyer and seller. That\u2019s because the structure of blockchain is cryptographically protected. As Cook County deed recorder Edward M. Moody observes, this structure \u201cmakes changing records or inserting false records almost impossible.\u201d<\/p>\n\n\n\n Each\ntransaction carries its own digital fingerprint. This encrypted fingerprint\ncarries over from one block to the next block in the chain.<\/p>\n\n\n\n Because the\nconveyance is verified across the blockchain network, it would not be possible\nfor a scammer to slip into the chain and sell the property to someone else.<\/p>\n\n\n\n Blockchain\ncould also store a unified file in which everyone who\u2019s involved in the transaction\nto give consent to the blockchain\u2019s recording of their information. Their\nconsent creates an agreement that the information is valid and correct.\nBlockchain algorithms can make sure the right people can check the block, and\ncan tell who added information. And title checks would take minutes rather than\ndays.<\/p>\n\n\n\n Voil\u00e0!\nA secure way to declutter the whole process of selling and buying. We\ncan organize the messy events of moving information around from the credit\ncompanies to lenders, mortgage specialists to underwriters, title services to\nbuyers, and so forth.<\/p>\n\n\n\n Borrowers will\nhave valid and comprehensive information stored for refinancing, or future\ndeals. Their credit scores and tax forms can also exist right in the block. So\ncould inspections and appraisals. All the home\u2019s permits, related loans, and\neven the construction projects that improved the property could be\netched into the block.<\/p>\n\n\n\n Blockchain\nis built to keep key facts about a transaction together. The value of this\nfeature can hardly be overstated. In some states, the owner of a parcel faces\nno requirement to report key facts such as legitimate liens against it.\nHere again, it\u2019s buyer beware. A whole industry segment is built on this risk:\ntitle insurance.<\/p>\n\n\n\n Cook County\u2019s deputy recorder John Mirkovic spoke with the Chicago Tribune<\/a><\/em> on how blockchain can streamline real property transactions. It promises a workaround that avoids those players who add no value within a flawed system. Title insurance arose, after all, because the system failed to ensure its own integrity.<\/p>\n\n\n\n A real\nestate deal is essentially a direct transaction between two parties.\nGetting to blockchain should not be complex \u2014 at least in theory. When a\nseller and a buyer agree to handle their transaction on a blockchain\nplatform, they take the first step to handling real property as a liquid asset.\nBy taking this step, they also restrict the need to disclose personal\nfinancial information to other parties, thereby reducing their exposure to\nfraud. <\/p>\n\n\n\n Granted, law\nreform is essential for the real estate industry, for reasons stated above. But\nreal estate law is ripe for reform, and that reform should take blockchain into\naccount.<\/p>\n\n\n\nWhy\nAre Deeds So Vulnerable to Fraud?<\/h2>\n\n\n\n
How\nDoes Blockchain Stop Fraud and Remove Risk?<\/h2>\n\n\n\n
Getting\nto Blockchain: How the Law Would Accommodate Mainstream Adoption<\/h2>\n\n\n\n