Unfortunately,
I don't see real estate records as a good application of blockchain.
The usefulness of blockchain is that it allows a group of people who all have interest in keeping a set of records to keep them collectively, without any one person being in charge of the records, and without anyone having to trust anyone else. That's pretty remarkable. Imagine you're playing Monopoly with your siblings, who you would happily cheat and lie to. And your parents have left you alone, there's no one but the players in the game. And instead of having physical money and deeds and houses and hotels, you've decided to write it all down in a ledger. Well, whoever keeps that ledger is going to be able to cheat and win. Blockchain allows everyone to keep a copy of the ledger that everyone else agrees to. There are real-world applications of blockchain. International banking is pretty much like Monopoly with siblings, there are no referees, only other players. And criminal activity doesn't have referees either.
But real estate records aren't like that. There is a central authority, the town or county that collects property taxes, and it has a very strong incentive to keep the records accurate. In a blockchain system if you lose access to your tokens that's your problem and your problem alone -- something like 10% of all bitcoin ever mined have been irretrievably lost. In a real estate title system that would be a real problem. In real estate there are transfers all the time that are not initiated by the owner. A very common transfer is when the owner dies and the property passes to the heirs, but you also have to deal with foreclosures, divorces and tax sales.
The biggest problem in real estate titles is impersonation, there isn't any way in our society to conclusively prove identity. Saying that possessing a blockchain token is proof of ownership doesn't really solve the problem, it just kicks it down a layer, now you have to worry about people fraudulently obtaining those tokens. As a practical matter blockchain doesn't do anything that couldn't be done just by having the land registry issue every landowner a passcode. A passcode system would have the benefit that lost passcodes could be replaced and passcodes could be revoked if necessary.
You're right. The idea behind placing titles on the blockchain is we would have a clear record from where the title was transferred. Nowadays it is so easy to falsify an ID and title scams work against the entire real estate industry's "ease of access" (for lack of a better way to describe things). As a regular client without any mortgages, imagine that you live out-of-state from RE that you want to sell. You call a random broker hoping to list your RE. The RE firm confirms (what is really public knowledge if you know where and how to look) your RE and the RE broker makes it easy to sign online forms to list your RE. Everything seems very formal and official. Clearly you are talking to professionals who know their trade and clearly they are interested in representing your best interests throughout the process (as they should).
Yay, your listing broker receives an offer from another brokerage representing the BUYERS and you accept the offer via remote signing over the internet that is well-encrypted. Now in Minnesota, closing is its own trade, so the entire deal now moves over to a title company while the brokers manage inspections and any resulting concerns that rise up from the title company finding clouds on the title and deficiencies from inspections that need to be resolve or renegotiated as well as any lending concerns. Buyer inspections are performed via professionals, defects are curing going into closing, the bank's mortgage officer pulls the assessment to make certain the RE is worth what the BUYERS have offered and are asking for a loan on. Maybe a Radon test is pulled, and if the RE fails the test, that genie is out of the bottle forever! So at BUYERS expense to be settled at closing, a radon remediation system is installed. Everything looks as though we're settling in for a smooth closing.
Meanwhile, the title company may be the same title company for both the BUYERS and the SELLERS, or there may be one title company for for SELLERS and a different title company for the BUYERS. It doesn't matter. Each title company needs SS#s, driver's licenses numbers and whatnot to confirm the BUYERS and the SELLERS identity. Because you're remote, you can do this all over the internet via curiously well-secured encryption. Cool, how convenient. On the day of closing the eager BUYERS, already having done a walk-through the RE with their agent, they show up in person to their title company while you have already closed remotely via certified mail, and signing online when possible. You've already authorized the wire fee to electronically transfer the funds from the from selling your RE to you remote account less title fees, deed tax, county recording fee, commissions, punch list expenses, inspection fees and what not that have all been settled at closing by the title company(s).
Neat, happy BUYERS, happy SELLERS!
Except, you're not who you say you are, and ID hacked the remote owners who were blissfully in another part of the country or world, and now the county thinks they know there is a new owner, and while that is a mess, everybody who did work on the RE is now filing mechanical liens because as soon as the bank found out fraud was involved, the bank started trying to recover its lost funds while law enforcement is trying to recover the capital loss that was
wired off to never, never land.
For me, I'm just looking at the security and unwinding scams aspects, but to be sure, there are other reasons to tokenize RE. The biggest reason for blockchains in the future of real estate is that blockchains will make real estate investments more accessible by tokenizing them, allowing for fractional ownership and eliminating entry hurdles.
I farmed the slide above to AI since I've already typed enough.
