Blockchain stores and distributes information across a network of computers, making it widely accessible but also decentralized and more secure. Under the concept, instead of stealing from a person by robbing his bank, a person’s money is kept in hundreds of banks, and stealing it would require robbing each one at the same time. The escrow process not only involves the movement and safe handling of money, but of large amounts of both confidential and public information. The companies developing Blockchain technologies envision a day when all property transfer records are done via blockchain in a fully digital process where the buyer, seller, bank, appraiser, etc, and title company never meet, but still complete the sale of a property.
Ohio was one of the first States to push this issue through legislation, and lawmakers passed a bill in June to include Blockchain in the section of state law dealing with electronic signatures and electronic records. They are now in the vetting process with County officials to develop procedures and programs to allow the lawful transfer and filing of property records using this technology.
As promising as Blockchain technology in real estate is, there are still major challenges to overcome to begin to use Blockchain to verify real estate ownership. Each State would have to craft their own legislation, then there’s the logistics and costs of setting up each County’s facilities and records, and all of this would have to be done with the approval and cooperation of the federal government, the banking industry, the ALTA, and various industry lobbies who each have their members to protect (think NAR, Appraisers, Attorneys, Contractors, etc)
As for the business of Title and Escrow, there have been articles written and statements made that Blockchain would be the beginning of the end for this industry. Blockchain technology will inevitably connect the parties of a real estate transaction and eliminate some of the steps currently used in the verification, transfer and filing of real estate records, but to say that we in the Title industry are a dying breed is inaccurate. Will the role of intermediary services be redefined? Absolutely. However, consider the perpetual needs and remaining gaps:
- Title Commitment/Policy
A title blockchain will not be able to account for items that are not on the chain, such as bankruptcy, divorces, civil litigation, deaths, child support, IRS liens, Life Estates and more. These are all items that impact the marketability of title to a property. Recorded and non-recorded defects such as these are a major problem for those Blockchain proponents who want to suggest Title Insurance will not be needed. What happens when a property is purchased and there is a prior IRS lien? Mechanic’s lien? Municipal code violation or utility violation? Guess who covers these items? That’s right, the Title company.
- Record Keeping
Unfortunately, there are still over 1,200 Counties not yet digitally recording. Only a few States have passed legislation to allow for electronic notarization. And even more importantly, only a handful of Counties throughout the Country are allowing digital stamps to represent signatures for a recordable document such as a deed or mortgage. Not to mention that the speed which local municipalities move to adopt new technology can be slow. Also the cost of implementing the technology that would allow these processes will cause many States and Counties to balk.
- The Closing
Certainly, a smart contract can create rules and procedures to finalize tax prorations, rent prorations and escrow holdbacks pursuant to final inspections. However, who is going to be at this “digital closing table” to mediate between parties in regards to disputes still pending, authenticate a payoff statement from a private creditor or lienholder, obtain a payoff from subcontractors or material suppliers, pay-off all utility bills or verify a power of attorney?
An Escrow Officer, or in some States an attorney, is needed in many different scenarios to complete the transaction. Our roles will change. The industry as a whole will be creative in its adaptation of the utilization of the blockchain, amending our services based on the clientele’s future needs. It is true that the fundamental trust in record keeping may be garnered by the blockchain, but today’s Title Insurance company is not going anywhere. We will remain necessary and serve in many different capacities. Blockchain will bring great efficiencies, cost reductions and simplicities to our industry, but it will only supplement the hands-on expertise of a local staff of Title and Escrow professionals.
In contrast to the coin and paper money of the United States, cryptocurrencies (Bitcoin, Ethereum, etc) are not yet legal tender in any jurisdiction in the Country. Nevertheless, cryptocurrencies have become increasingly popular around the world in recent years due to factors such as price appreciation, novelty, anonymity and a decentralized governing structure.
Although cryptocurrency has legitimate uses, it can also be used to finance illegal activity or evade anti-money laundering laws and regulations. For now, cryptocurrency poses several challenges for Title Insurance and Escrow service providers such as: (1) the extreme price volatility relative to the U.S. dollar, (2) the difficulty of converting cryptocurrency to U.S. dollars, (3) the tax consequences associated with trading cryptocurrency, and (4) the verification of the original source of the funds that purchased the cryptocurrency. Furthermore, like many taxing authorities, private parties, and lenders, Title companies lack the infrastructure necessary to receive or disburse cryptocurrency.
Recently, several news organizations have reported cryptocurrency real estate listings and successfully completed cryptocurrency real estate transactions. However, many of these transactions utilized unusual or complicated maneuvers, such as converting the cryptocurrency to U.S. dollars prior to the closing or transferring the sale proceeds outside of escrow. Although “true” cryptocurrency real estate transactions are conceptually possible, it will be several years before all the legal, tax, and verification processes will be in place for them to become common.
Our industry will continue to update its policies and procedures as the operational, legal, and regulatory landscape surrounding cryptocurrency evolves, as we do with all emerging technologies.
The Title industry in Nevada, and across much of the Country, is quickly moving toward the standardization and verification of online e-signature notarizations. There are also several companies marketing e-notarization programs and services. Many State legislatures are in the process of debating and drafting State laws regarding e-signature notarization, and Nevada is due to join in the debate during the upcoming legislative session. When the legislation is finalized the Secretary of State will need to certify e-notarization companies and processes before we begin employing those services.
These e-notarization companies, services and programs will all have to meet Federal and State guidelines, as well as the requirements of the banking/lending industry, and of the Title industry. The Nevada Land Title Association is currently monitoring the legislation being drawn in various States so that we can be prepared when Nevada finalizes theirs. It will take some time, due to all the factors referenced for other technologies above, however e-signatures and notarization are the closest emerging technology to being legalized and implemented.
Andrew Tourin is the Vice President of First Centennial Title Company. Tourin has worked for over 35 years in the title industry in Northern Nevada and graduated from the University of Nevada, Reno. He is a Board member of the Northern Nevada chapters of NAIOP, the Commercial Real Estate Development Association, CREW (Commercial Real Estate Women) and CCIM (Certified Commercial Investment Members).