Raise your hand if you remember the housing crash in 2008. Raise your other hand if you remember the following years of fallout, learning about the failures on all levels (regulatory, banks, title companies, and so forth).
As an industry, we look backwards and while vision isn’t quite 20/20 (given the complex nature of the crash and slow recovery), solutions to prevent a similar crash are bubbling up.
One solution is blockchain technologies.
We’ve been writing for years about how blockchain tech will inevitably be used in every part of the real estate transaction process and even in marketing efforts, but today we assert why it must be used in the industry – to prevent another housing market crash.
Take for example MERS (Mortgage Electronic Registration Systems). In 2011, the company was disbanded after endless cases made it clear that the company had destroyed the chain of title.
The entire chain.
We’re talking about the robosignature debacle where people lost their homes without any human review, in many cases through no fault of their own (no late payments, or the system had the wrong address).
This alone reveals a critical need for blockchains in the transaction process – just ask the thousands of people whose homes were illegally and unnecessarily taken from them.
If you’ve ignored the word before, here’s a primer, but it is essentially a public ledger that automatically records and verifies digital transactions. It’s what powers cryptocurrencies like Bitcoin.
Data is stored differently through blockchains, and transparency is improved as all actions are tracked, so it stands to not only speed up all transactions, but add accountability to the chain of title in a way that would have made the entire MERS nightmare impossible.
Real estate transactions are ripe for fraud given the volume of paperwork, and are particularly vulnerable to public record errors (both of which were part of the housing crash’s DNA).
Speeding up transactions is a great benefit (contract efficiency is pretty neat), but the reason blockchain tech is critical for the real estate industry, but minimizing vulnerabilities not only protects transactions, but that risk mitigation reduces transaction costs in the long run.
Because blockchain not only records and tracks titles, deeds, and liens, it makes certain that all documents are verifiable and accurate.
Just some of the burgeoning startups aiming to insert blockchains into real estate include:
- Ubiquity (SaaS platform for banks, title, and mortgage companies, already in use in Brazil)
- Factom (blockchain as a service for mortgage companies)
- backed by famous venture capitalist Tim Draper and others)
- ShelterZoom (offer management, tapping into Ethereum)
- Atlant (the ATL coin productizes portions of a housing transaction)
- REAL (the Real Estate Asset Ledger which uncovers real estate investment opportunities)
- Propy (investment vehicle, but more importantly, they could become the home of all title records)
If we want to curtail future illegal foreclosures and a broken chain of title, this technology is urgently critical for the real estate industry. It’s not as sexy as marketing tools or negotiation methods, but blockchain technologies will be the focus of innovation for the next decade.
This story was first published here in August of 2018.