The Building Blocks of Title

Editor's note: This story was originally featured in the March issue of MReport, out now.

In the search for records surrounding a property, anyone who has visited one of the 3,000-plus counties across the United States in search of a document has learned that the storage of legacy records can be an inefficient, inexact, and cumbersome process. However, these annoyances may be a thing of the past as “blockchain technology” becomes mainstream in the lexicon of business.

ComputerWorld recently wrote that “[B]lockchain creates an unchangeable record of ... transactions, each one time-stamped and linked to the previous one. Each digital record or transaction in the thread is called a block (hence the name), and it allows either an open or controlled set of users to participate in the electronic ledger. Each block is linked to a specific participant ...”

From this description, it’s easy to imagine how this tool could make the lives of real estate professionals easier. Though blockchain’s integration with the title insurance industry is in the conceptual stage at best, it shows real promise to take over the way records are stored.

As with most revolutionary technologies, there will be no shortage of individuals and companies across the real estate and title insurance spectrum attempting to create a way in which blockchain
can be implemented. The wheat will be separated from the chaff by how well they understand the process.

A Fragmented “Market”

Let’s remember that there are few market segments that are more disparate and fragmented than commercial and residential real estate property, with deeds stored by cities, counties, and towns across the country.

Add to the mix other stored records such as lien satisfactions, lis pendens, and mortgages and property violations—to name a few—and it becomes clear that keeping track of the information on a property-by-property basis is no simple matter. Title companies know all too well the mistakes often found during the process of clearing issues for a real estate transaction.

If in simple terms blockchain serves as a virtual ledger, imagine the size of the ledger necessary that could accomplish this feat in one county, let alone across all U.S. counties.

And if that ledger did exist, just how secure and reliable would the information be? Going forward with new transaction information is possible, but what about for the critical legacy data?

From that description, one can certainly see the complicated nature of this technology and some of the issues that may be encountered trying to revolutionize the archaic system of property records.

In the title search process— whether done through the records kept in a county, city, town, or title plant—the number of legacy documents that need to be examined in order to ensure that good, clean title is being provided to either a buyer (purchase transaction) or lender (refinance and purchase transaction) are many.

Paper Overload

One hundred percent certainty concerning the records found is of paramount importance to the job of clearing the title and issuing a title insurance policy. Inaccurate or incomplete records can result in a title claim at some point in the future. In other words, it’s not just about the deed that changes hands at a closing. And, from many years of experience, issues do arise. So, let’s take a look at some of the legacy documents and information that will typically be searched for by a title company and/or the third-party company they engage:

• The property deed;
• any mortgage(s) both open and/ or previously satisfied;
• any instances where a mortgage has been assigned;
• tax liens, foreclosure notices, or UCC filings;
• any potential judgments currently against the owners as well as against buyers and sellers;
• search for outstanding violations against the property through the building or housing departments;
• a search of real estate taxes, school taxes, utilities, etc.;
• certificate of occupancy search;
• highway department searches, bankruptcy searches, and Patriot Act searches;
• and other searches that may or may not be required in a specific jurisdiction.

Roadblocks Ahead

Municipalities, often cash-strapped, will need to calculate the potential return on investment that would drive an expensive initiative such as an overhaul of real property records. The current system, while not always perfect, has been adequate for a long time. Let’s not forget that oftentimes municipalities earn their revenue through record access and recording fees in lieu of raising property taxes.
So the question that municipalities will be asking blockchain providers to answer is: What is the financial benefit to incur the upfront expense and, for some constituencies, the political risk associated with implementing a system that may or may not work better, more efficiently, or at all?

In addition, what about the employees who may become collateral damage from a new system and, importantly, will the taxpayers willingly sign-on for the cost associated with the process?

If an attempt is made to implement blockchain for records—and ultimately as a payment mechanism—municipalities also will need to answer the question if blockchain will be accepted in both the short- and long-term by government oversight entities that regulate lenders, attorneys, and anyone else critical to the land title process.