Problems With US Land Titles and Possible Blockchain Fixes

Any homeowner would attest that buying a home in the United States is a very complicated process. Professionals spend years studying law and the real estate market to make sense of all the necessary documents and information pertaining to potential property ownership. This means many people may not understand the status of their own property, and these necessary third party professionals, despite their experience, cannot always ensure property titles are “clean,” or without potential problems. Goldman Sachs estimates that about 30% of property titles have some kind of deficiency, indicating a need for new means to generate better, cleaner title claims.

One such possible solution was tested in Cook County, Illinois, where a pilot program was run to study how blockchain technology could be integrated into Illinois public land records and benefit the community. The program found that a distributed ledger could be a feasible option for the state’s records, as long as the next elected official approves the conversion. Some of the solutions they found may help address several common problems within the US land title system.

When purchasing a home, it may not be apparent that a third party also holds a claim to the property, or that there may be a liens on the property because of a previous owner’s unpaid debts. The pilot program may have developed a fix for these issues.

Cook County’s pilot program created “Digital Property Abstracts”, which consolidates property information previously spread across multiple government offices on a blockchain. They compile information like a photo of the property, tax assessment attributes, property tax payments and appeal history, and more. For the average buyer, this information takes far too long to collect by themselves. Professionals often do it instead, leaving the buyers in the dark about some of this important information. The Cook County program found that compiling all this information for the buyers enables them to make better informed decisions. Having a similar distributed ledger for the entirety of the US land records could benefit the entire US real estate market.

To take full advantage of this technology, even more information should be made available on digital property abstracts. The blockchain’s distributed ledger could ensure that the abstracts are constantly updated, which would further inform and empower potential buyers.

Potential boundary disputes with neighboring landowners and easements prevent landowners from using their land as they wish, and could be worthwhile information to add to the abstracts. Tt’s not in the best interest of a seller to mention these problems, so they may try to hide them. Carefully looking over a property’s deed and the claims of neighbors can help potential buyers avoid these problems, so putting this info on an accessible distributed ledger will reduce the number of unhappy customers.

Owning a deed that was created illegally, is a forgery, or was bought from a false impersonator of a previous owner can also jeopardize one’s legal claim over their property, even if the owner had no idea that the deed was a fraud. Storing this data and documentation on a distributed ledger could make the origins of a property more transparent. Validating the legality of a deed may become easier as more and more records become available and easily searchable through distributed ledgers.

The Cook County program also developed an asymmetric key cryptography, which essentially locks transfers on the blockchain and requires a secret password to unlock and validate a new title transfer. If this tech goes mainstream, it could protect homeowners from transfer forgeries and other fraudulent activities. This would mean that homeowners really need to remember their passwords, or there could be problems when they try to sell their house.

People generally assume that there are contingencies in place should any of these things happen to them; after all, that’s what title insurance is for, isn’t it? Title insurance is supposed to protect property against other claims, but most people don’t realize that title insurance doesn’t address claims that happened before properties were purchased, but have maybe not yet been properly recorded. It will be interesting to see if blockchain project developers can find a viable solution for these issues as well.

Blockchain will not solve all the problems in the title industry; real estate lawyers need not worry about job security just yet. People will still need third parties to mediate negotiations and work with the legal proceedings required to address the problems blockchain will help identify. Boundary disputes and falsified documents are not so easy for a computer program to address, after all. But overall, there is a definite opportunity for blockchain-based solutions to enter the market and simplify buyers’ and sellers’ experiences.