First Government Sanctioned Blockchain Recorded Real Estate Deal in the US
Building on its earlier pioneering work in Ukraine, in which an apartment changed hands across borders on blockchain and with the payment made entirely in cryptocurrency, Propy has just completed the first stage of its Vermont pilot program by completing the 1st ever government sanctioned, blockchain recorded real estate deal in the United States.
The state of Vermont was chosen by Propy because of the state government’s, and the governor Phill Scott’s commitment to pursuing and enacting high-technology and blockchain-friendly legislation. The receptive environment of both the public and the private sector of Vermont is striving to create for blockchain technology startups in the region. An example is the recently enacted by Vermont blockchain legislation which states that transactions recorded with blockchain technology “have the presumption of admissibility from an evidentiary perspective,” according to a cited at an article in WSJ Michael Pieciak, commissioner of financial regulations for Vermont, and which would allow people to “authenticate a blockchain real-estate transaction whether it’s over a title dispute or divorce proceeding.”
Vermont’s blockchain legislation (as well as those in other states as Arizona, Nevada, Delaware etc.) dovetails with Propy’s array of blockchain-enabled products:
1. The Propy Listing Platform — which allows sellers to list properties and buyers to find properties they like;
2. the Propy Transaction Platform — which facilitates the processing of paperwork, payments and conveyances and records all steps on the blockchain;
3. the Propy Blockchain Registry — a set of smart contracts designed to store land records on the blockchain (blockchain LRMS — Land Records Management System)
Propy’s Blockchain Registry software is intended to be used by governments — at the county and municipal level in the US — and Propy is pursuing pilot programs in order to demonstrate how it works and the reasons why a blockchain-enabled backend is more secure and more efficient than centralized land recording solutions.
While the aforementioned transaction in Ukraine used both the Transaction Platform and The Propy Blockchain Registry, for the transaction in the Vermont pilot only the Blockchain Registry part of the Propy ecosystem was used.
The Propy Blockchain Registry consists of a set of smart contracts connected to each other in a relational manner:
The most important are the Property and Deed smart contracts. The Property contract is responsible for storing and updating property information while the Deed contract stores the metadata of the actual ownership transfer, links to the related smart contracts and uses PRO tokens to unlock the transfer functionality of the Propy Blockchain Registry.
In the case of the Vermont transaction, the traditional instrument of conveyance, i.e. the deed, which eventually gets recorded at the county Land Records office, contains the Deed smart contract’s address printed on it. This deed has created legal history, as this is the first time ever in the US that a blockchain address is recorded on a deed, and thus also recorded in the official, statutorily mandated land records in a recording jurisdiction of a US state.
The technical process of the registration was the following:
- First, we created a Property contract for the property being conveyed. In case the property is already in the registry no new smart contract needs be created.
- Then we created the Deed contract and sent the contract’s public address to the closing team so they could print it on the instrument of conveyance (paper deed). Each transfer of rights for the property has its own unique Deed smart contract deployed so it’s easy to inspect historical data for the rights transfers.
- The conveyance data along with the hash of the recorded deed is written into the Deed smart contract as a separate transaction
- And as the last step, the Deed smart contract was registered in the Propy Registry. The Propy Registry fee for the transaction was paid in PRO tokens.
The recording in Vermont demonstrated the process of recording instruments of conveyance in the Propy Blockchain Registry. The next step in the pilot program calls for collection of feedback from the recorder’s office and provision of a user interface for the easy operation of the Propy Registry by government officials. It may be of interest at this point to read an interview at GovTech.com by Donna Kinville, South Burlington’s City Clerk and head of the Land Records Office. Donna is also the president of the Vermont Municipal Clerks’ and Treasurers’ Association.
Once the pilot is completed, the benefits of the deployment of blockchain technologies should become apparent; we hope to eventually see the adoption of the Propy Blockchain Registry by states in the US as a primary registry, i.e. a source of “constructive notice” under state statutes regardless of the status of the existing municipal title records.
How does the Vermont pilot differ from the pilot programs in Ukraine, Cook County, IL, and Norfolk, VA?
Propy’s pilot program in Vermont is not the first Blockchain Real Estate related pilot program. Many countries’ land records agencies have announced blockchain related pilot programs in the last few years: Sweden, Dubai, Georgia, India, Brasil; we are planning to keep our community up to date with regards to the progress of those pilot programs in future blog posts.
Ukrainian Ministry of Justice Pilot
Propy itself, long before Vermont, commenced and is still pursuing a pilot program jointly with the government of Ukraine. By the time Propy’s Vermont pilot produced its first results, Propy’s pilot program in Ukraine had already produced a global first cross-border conveyance, whereby not only was the conveyance information recorded on a public, permissionless blockchain, but, conversely, the conveyance blockchain information was entered in the official, government sanctioned and maintained land register in an act of cross-referencing and anchoring between the two systems. In addition, for the first time ever anywhere, Propy utilized the same blockchain to carry out the cross-border fully crypto-payment for the property purchase and to immutably record all steps of the transaction.
Propy published a full technical description of that groundbreaking Ukraine transaction in a blog post here.
Cook County pilot
In the US, preceding Propy and S. Burlington Vermont by more than a year, Velox.RE, a California blockchain startup and the government of Cook County Illinois, conducted a joint pilot program meant to investigate the suitability of the blockchain as a medium for both the act of property conveyancing and the recordation of conveyance information. The Cook County/Velox.RE participants produced reports (1, 2) in which they scrupulously and exhaustively analyzed all the issues related to the use of blockchains in the conveyancing and recordation processes, and these reports have been very useful to subsequent ventures in the same field, including Propy Inc.
Although the participants designed and planned a conveyance that would have been both the first legal blockchain conveyance and government-sanctioned recording, the Cook County/Velox.RE pilot did not produce a conveyance with the methods described in detail by both sides engaged in the pilot program. The pilot program actually did not result in a recording on a blockchain. Subsequent work by Cook County and the vendor of the county’s current Land Records Management System, building on some of the conclusions of the pilot program and implementing them in serial use for property registrations, is utilizing a “cryptosystem” and not a blockchain, in the words used in the pilot program report, let alone a public, permissionless blockchain which Propy is utilizing.
Norfolk Virginia, no pilot program
Also preceding Propy’s pioneering work in the US was the recording of a Norfolk Virginia conveyance information on the Bitcoin blockchain by Ubitquity, a Delaware company dedicated to “securely recording and tracking property” on the blockchain, in July 2016.
However, from the published descriptions of the Ubitquity experiment, it appears that the local government and its Land Records office were not involved and no blockchain information was entered in the recording statute sanctioned land registry. Ubitquity’s work, while original, was of limited significance because of its simple duplicating and unilateral nature which provided no way of distinguishing valid conveyance data from false conveyances, in the same way that simply recording a bank account number and a dollar amount provides no proof of the existence of that amount, no matter how reliable and secure the recording medium can be. Anyone can introduce purportedly valid conveyance information on the blockchain and obtain a timestamp without necessarily having a connection to a valid deed or conveyance, and such timestamping services exist for many years now and in fact, they are the kinds of services whose development led to the invention of the blockchain to begin with.
Therein lies the significance of Propy’s pioneering work
While anyone can introduce on the blockchain information which may or may not be related to a legally valid conveyance, Propy’s smart contracts are part of a comprehensive blockchain enabled system which includes the verification and immutable recordation of the identities of the principals and of every step of the conveyance process, as well as the secure transfer of funds. Propy’s pilot programs function in close collaboration with the authorities of the jurisdiction burdened by the state’s or country’s recording statute — in this case S.Burlington, Vermont — with the creation and maintenance of the legally significant public record of conveyances. In addition, Propy’s pilot programs provide not only for the recordation of the conveyance information on a public permissionless blockchain, but also the recordation of the blockchain information on the official land registries through the transcription of the blockchain information onto the text body of the conveyance documents, providing this way solid cross-verification anchoring between the two systems. This was done for the first time in the US in S.Burlington, and it forms the basis of further development which could lead to the long-evangelized benefits of secure, fast, liquid, falsification-immune conveyances that blockchain technology promises to bear.
As the Propy Registry evolves, we intend to incorporate a modular system into Propy’s smart contracts platform which will allow regional governments to provide compliance to local rules and regulations related to real estate transactions.
Every state’s real estate transaction process contains some differences, but taking this first step in Vermont allows us to build the core of our product which can easily be used in the rest of the states with minimal customizations.
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