Over the past few months, you likely have found yourself sitting around a table discussing Bitcoin, Ethereum or some other form of cryptocurrency. We all know someone who has invested in it and won big, lost big or has a tip to share about the next big thing in cryptocurrency. But the conversation inevitably shifts to what people know about how cryptocurrency works. And “how it works,” through blockchain technology, could transform how property transactions are conducted.
From a high-level perspective, blockchain is a decentralized electronic ledger that memorializes transactions in blocks of computer code. Each block of code includes, among other things, information related to the previous transaction in the chain, code for the current transaction in the chain and a time stamp to memorialize when the transaction took place. One of the main benefits of blockchain is that once the transaction is completed and the blockchain is created, it is extremely difficult, if not impossible, to alter the blockchain retroactively. Because the blockchain is so difficult to modify, the parties to a transaction creating the blockchain have confidence that the record and terms of their transaction are safe. Further, subject to certain permissions to access the blockchain platform, the blockchain is accessible to all parties to a transaction in real time, so they never have to worry that the finality or terms of their transaction could be questioned or altered by a third party.
The nature of blockchain technology in creating an immutable record of any transaction is exactly why blockchain may become prevalent in real property transactions. There are countless opportunities to utilize blockchain technology that could benefit buyers, sellers, brokers, title agents and lenders. In real property transactions, one of the first steps a party takes when seeking to buy, or lend against, a property is to enlist a title company to run a property search. The title company ensures that the factual record (e.g., current owner, liens of record, title defects) is accurate. The process can be lengthy and expensive and is subject to human error. Further, even when one is utilizing a trusted title company, a property search may result in inaccurate or incomplete information. The use of blockchain technology for property transactions could address these issues.
If property records and property transactions were documented using blockchain there would be far fewer, if any, surprises in future transactions. The efficiency with which property records could be authenticated in a blockchain system may mean less cost and risk to those involved. Though not yet in use for the majority of jurisdictions, a few jurisdictions, including Cook County, Illinois and South Burlington, Vermont, have begun programs to utilize blockchain systems for property transactions. The way the jurisdictions participating in blockchain system programs and the way industry leaders envision property transactions being documented on a blockchain platform going forward is that each property or parcel has a specific digital identifier that is part of each transaction documented with respect to that property. Each time a transaction occurs, the digital identifier is embedded in the blockchain and a record of the transaction is made.
Currently, the way property transactions occur and records are kept is that when a property is sold, the buyer receives an original executed deed as evidence of the transaction. The buyer then records the deed with a local government office. Thus, the conveyance of the property pursuant to the deed and the recording of the deed on the public record are not simultaneous. This delay between conveyance and recording creates the opportunity for fraud in the interim (for example, a seller who “sells” his property twice to unsuspecting buyers). When transactions are executed on a blockchain, the conveyance and the public record are made simultaneously, thereby eliminating the opportunity for fraud.
Blockchain technology also transforms property transactions by eliminating the inconsistency of record keeping across states and counties. In each property transaction, parties deal with local offices that maintain the public record for real property transactions. Each of these offices has its own standards and requirements for recording documents. For example, some jurisdictions might require a certain font size, a particular header or margin, or specific recording fees related to the number of pages in the document. Even assuming those local requirements are met, documents evidencing land transactions can be misplaced or improperly recorded, which causes a defect in the chain of title. Further, though many jurisdictions have moved to electronic record keeping, some still maintain paper records, which further complicates the process of recording a conveyance and later confirming the chain of title by searching the property records. Beyond the inconsistency of the process, each of these steps is also susceptible to human error. Blockchain eliminates the inconsistency of record keeping, enforcement of recording requirements and the multistep process that introduces opportunity for human error. Once a transaction is completed using a blockchain system, the record of the transaction is made without the need for further action by the transacting parties or public officials.
Being able to verify a chain of transactions is one of the most important aspects of property law. Though many jurisdictions have attempted to “clean up” property records and make the process more consistent, the fact that property transactions are not easily verifiable means that the system is fundamentally flawed. Blockchain technology could eliminate poor record keeping, a lack of easily accessible verifiable information and fraud concerns –issues practitioners have dealt with in property law since the beginning of time.
Only time will tell if blockchain technology is the catalyst for change in property law (and beyond) that those familiar with the technology believe it to be. But the opportunities for change and innovation of property transactions through blockchain technology are on the horizon, and figuring out how blockchain technology can benefit you and your business is the first step.