Spring 2022 Update
Cryptocurrency adoption has been on a steady upward trend. So has its blockchain-based technology. The blockchain is a database that preserves indelible records. Each block in the chain contains proof of individual claims and transactions that have happened or that will happen in the future.
In the United States alone, about 27 million people are invested in some form of blockchain tech. No wonder mainstream companies are looking for ways to embrace blockchain-based assets.
Today, we can use bitcoin for a booking through Expedia, or a game from Microsoft. AT&T lets people pay their phone bills in bitcoin. Sports events are beginning to accept it, as are political campaigners and pizza shops. Major payment apps including PayPal and Square (renamed Block for its blockchain focus) are firmly on board. Fidelity offers cryptocurrency funds for regular IRAs.
What about real estate? The connection is happening. We recently highlighted Propy, a company that tokenizes homes using blockchain technology, enabling complete real estate transactions through smart contracts. These digital contracts allow people to exchange assets in a transparent way that eliminates bureaucracy.
In due course, home loans based on crypto will be available too.
The Emergence of Crypto-Backed Mortgages
The online mortgage company Home Lending Pal stores it clients’ data on the blockchain ledger. Home Lending Pal encourages lenders to adopt blockchain technology for two key reasons. It’s transparent. And it’s secure.
Windermere Chief Economist Matthew Gardner recently noted that a company named Milo offers its real estate clients crypto-backed, 30-year mortgages. Borrowers don’t have to sell their bitcoin (and incur taxes) to get them. They can simply pledge their Bitcoin as loan collateral. Instead of the FICO credit score, Milo uses a ratio based on the desired home value versus the income and cryptoassets owned by the applicant.
Borrowers may pay off the loan in traditional money or with bitcoin. The company hedges its bets: the interest rate is variable (based on the value of bitcoins), annually adjusted, and can be as high as 8%. And the buyer must keep the home at least three years, or face pre-payment penalties.
It’s possible, Gardner warns, that borrowers “may be caught out” by a significant bitcoin dip that raises a loan’s interest rate.
Gardner’s verdict on Milo’s innovative mortgage? “All in all, it is an interesting model, but it is still in its infancy.”
Smoothing Out the Rough Edges of the Title Search
There’s plenty of room to improve the current process of deed and lien recording. How is today’s typical title search much more complicated than it ought to be?
- Records of transactions made in different times and places for the same real estate are not always batched together.
- Legions of people are in the middle of an ordinary home buyer’s title transaction.
- Different counties have different procedures — even within the same state.
- Title defects are common, despite the diligence of the title industry.
Citing the American Land Title Association, Matthew Gardner notes that more than a fourth of all title reports find defects. (This is the key reason why we all have to buy title insurance!)
Blockchain proponents promise the first dependable record system. Blockchain’s tamper-resistant, self-executing contracts, they point out, record transactions instantly and indelibly. With this system, there is one unified registry.
“I personally see title insurance as a segment that could benefit significantly,” says Gardner. New York City’s Department of Finance seems to think so too. It’s been experimenting with blockchain as a path to improving the recording and filing process.
Steadily Gaining Ground
Blockchain and cryptocurrencies are still new in real estate. Yet their benefits are steadily gaining adherents in the industry. Blockchain offers the potential for a major upgrade from the traditional county ledger that title and escrow services use today. And with the addition of blockchain-based smart contract technology, the time, preparation, and paperwork surrounding a closing could be drastically reduced.
Right now, you can use E-recording to record your deed. New technologies are widely accepted since Covid shifted the way offices work, including digital signing, remote online notarization, and even eClosing, by which home deals can be carried out electronically from end to end. In 2019, most people would have said this couldn’t be done.
Will blockchain be in the next phase of transformation for the world of real estate? We now have to say yes.
Supporting References
Matthew Gardner for Windermere.com: Blockchain Technology and Cryptocurrencies in Real Estate (Mar. 28, 2022).
Home Lending Pal: Data Security.
Jason Hall, Toby Bordelon, and Rachel Warren for The Motley Fool: Could You Buy Your Next House With Crypto? (Dec. 13, 2021).
Nicholas Mooney for Spilman Thomas & Battle, PLLC via JDSupra.com: Paying and Playing in the Digital Realm: Cryptocurrencies, Contactless Payments, and Virtual Worlds (Dec. 20, 2021).
Photo credit: Morthy Jameson, via Pexels.