The process of purchasing a home involves three major components – (1) the Seller, (2) the Buyer, and (3) the Escrow Agent. A successful closing requires all three to achieve the desired result. For the Seller, the goals generally include paying off secured debts, receiving money for a new purchase, and ensuring title (and corresponding liability) for the property is properly transferred to the new owner. As for the Buyer, he wants to own the home with all related legal rights, ensure the Seller’s liens are removed, and secure an insurance policy should any title issues arise post-closing. Accordingly, the Escrow Agent is the entity responsible for achieving the desired outcome for all parties involved.
What if there was a system which could absolutely guarantee the transfer of title and the application and exchange of proceeds from the sale, all without the need for an escrow agent? Well, that very system is coming to a closing near you sometime soon. It’s called the Blockchain.
The Blockchain is an electronic ledger system which can be applied to any transaction, exchange or transfer between two or more people. If you think of each separate transaction as a “block,” and all prior and subsequent transactions as “blocks,” this ledger system joins the “blocks” together chronologically, thereby forming the “chain.” The genius of the Blockchain, however, does not become apparent until you consider that each block is independently verified and secured by computer technology, making each “block” an absolute certainty as to the result of the transfer/transaction without any further confirmation or recording of public records. In order for a new block to be added, therefore, each prior transaction will be analyzed and affirmed by the creator of the new block, lending further security to the information shown on the chain.
For example, a property located at 123 Elm Street which is sold by Sue to Joe would create a blockchain for that residence that would unequivocally establish Joe’s ownership. There would be no recording of a deed, and any related delay, when creating this property right as a matter of law. Further, Joe’s loan would be a block on the chain reflecting the money he borrowed to purchase the home from Sue. Again, no recording of a mortgage (and delay) to secure ABC Bank’s interest in the property. There is absolutely no chance for any fraud since the transfer of the property is immediate and then forever embedded on the chain. So, two years later, when Joe refinances, XYZ Bank can inspect the blockchain and add a new block for its loan, which not only releases ABC Bank’s secured interest (presuming a payoff), but immediately gives XYZ Bank priority.
Although there are going to be many applications of Blockchain technology to our world, it is easy to see how this ledger system could do wonders for the real estate market by reducing the costs and risks associated with purchasing a property.