By: Ian T. Staley, MSM (Chief Business Development Officer)
The RE (Real Estate) closing process in the United States has been traditionally slow to leverage modern technology. Emerging technologies, like blockchain, have seen slow adoption in the industry, but these types of technologies have recently seen an uptick in utilization during the COVID-19 pandemic. Blockchain’s implementation into existing RE closing software stacks and workflows allow parties involved in the transaction to have an increased sense of trust and added value.
Per a recent survey by J.D. Power, 70% of customers shared that they don’t have trust in mortgage servicers in the RE closing process. In a post-COVID environment where every trend that did exist is just getting accelerated, digital-first communication with clients and borrowers is more essential than ever. Transparency increases trust. Having an immutable, or unchangeable, shared ledger of data provides transparency and accountability in processes that involve complicated networks like the RE closing process.
According to Julie Lais, a Real Estate Broker at Premiere Property Group LLC, there are about 20 players involved in an average real estate transaction, including but not limited to mortgage lenders, real estate agents, title insurance companies, underwriters, assessors, escrow companies, eRecording (electronic recording) vendors, RON (Remote Online Notarization) vendors, government municipalities and so on. Increased transparency and trackability is what blockchain provides all parties involved in an RE closing; this not only increases the trust in the transaction, but enhances the value of it by mitigating risks in a traditionally trustless environment.
The key to transparency is the efficient and accurate, sharing of information. Real time data management is absolutely key in today’s world. Blockchain rids the possibility of duplication, lowers risk of discrepancies, and overall combats data within a network from being ‘out of sync.’
Blockchain provides a single centralized railway for the true real estate eClose (electronic closing) solution. Traditionally, centralization can be a prime target for hackers — it may be more accurate in its data recordkeeping and workflow, but it is less secure as it is centralized. Once a hacker breaks into the system then all the data and funds involved in the network are fair game.
Individual databases are less accurate as it has lower network consensus of what is deemed as truthful data, trust increases in this when involving multiple parties verifying data and funds. Increased security with distribution of data — hackers face an uphill battle in overriding a system and therefore provide a higher sense of security in network versus a centralized system.
DLTs (Distributed Ledger Technologies) like the blockchain provide high availability and high reliability — siloed local databases mixed with a centralized layer of network ‘consensus truths’ of verified data that are confirmed as the system grows. Each block of data must be confirmed before another one is added; which builds the value and trustworthiness of the blockchain protocol over time, exponentially. This hybrid nature of data recordkeeping and flow of funds provides the best of both worlds when it comes to centralization and decentralization.
As digital assets transfer from loan origination down to the county recorder, blockchain provides this layer of trust transferring valuable data and funds in complicated networks. This is a parallel to the supply chain application we have seen leveraged successfully by IBM and the United Nations in food supply chains, logistic supply chains, and other areas. The RE closing process can leverage blockchain in a similarly beneficial way in how its SCF (Supply Chain Finance) networks operate.
The immutable, traceable, and transparent nature of blockchain technology establishes a foundation of trust for all parties involved in SCF, alleviating a significant pain point in the financing process. Many enterprises are already using blockchain-based SCF solutions to solve financing issues. It is anticipated that many more will adopt a similar approach as the dust from the coronavirus epidemic settles.
Not only does blockchain increase trust in a SCF network, but it increases value. Per a report by Jupiter Research, blockchain deployments will enable banks to realize savings on cross-border settlement transactions of up to $27 billion by the end of 2030, reducing costs by more than 11%. Financial institutions acknowledge that DLT will save billions of dollars for banks and major financial institutions over the next decade.
The digitization of financial instruments — comprising digital assets, smart contracts and programmable money, takes the benefits of blockchain further by forging unprecedented levels of connectivity and programmability between products, services, assets and holdings. These digitized instruments redefines the processes of commercial and residential markets — creating a new paradigm where value is brought at every touch point.
Taking a deeper dive into the area of title insurance firms and escrow firms who are involved in the tail end of the RE closing process — which play an important role as third-party verifiers of information and funds for settlement. One can analyze the real world pain points and realize that blockchain is an essential technology that can be used to provide safer, faster, and more efficient closing processes with seamless interoperability throughout.
To the dismay of hard working consumers and servicers there are a litany of crimes of wire fraud and fake claims to property in the title and escrow process that can be prevented by leveraging an immutable ledger of records, smart contracts, and consensus voting mechanisms in blockchain. Take for example this situation in North Carolina where a veteran was kicked out of his house after falling victim to a fraud scheme in North Carolina, as reported by the News Observer. Or like this instance, as reported by CBS where a UC San Diego nurse and chef lost $774,631 in an escrow scam. In fact, housing theft has become endemic in Philadelphia as gentrification has spread and property values have risen in increasingly desirable neighborhoods, a series of Inquirer articles has shown over the last year. Fraudsters forge deeds and pose as fake heirs to take ownership of properties and flip them to developers for big profits.
Fortunately, there are startups like Ubitquity that are leading the way with a Blockchain-as-a-Service (BaaS) platform plus an open API (Application Programming Interface), unanimity, designed for seamless connectivity and immutable record keeping. Ubitquity also offers a valuable blockchain-based product suite that includes but is not limited to ClosingBlock, NotaryBlock, SmartEscrow — which all directly tackle the problems the RE industry faces with fraudulent activities and inaccurate record keeping.
Overall, one can see how blockchain technology can seamlessly connect complicated networks of players involved in the RE closing process via a layer of trust. Providing the ‘plumbing’ so to speak, the ‘railways’, the infrastructure, in an independent centralized manner for decentralized parties. Value-adds are made throughout the entire process in leveraging autonomous escrow closings via smart contract execution, verification of trustworthy immutable land title records, automated audit trails, verification of identity, providing a secured ‘safeplace’ for verification of data, and more. So to all the players in the RE closing process, let us meditate on Paulo Coelho’s words of wisdom, “When we strive to become better than we are, everything around us becomes better too.” Blockchain technology is a tool and resource which allows its users to create better networks — so to all the players in the RE closing network, let’s leverage this technology for the betterment of industry and its consumers.