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Modernizing Real Estate Records With Blockchain

Despite dealing in one of the most valuable asset classes in the world, the real estate industry largely relies on outdated real estate interest recording systems requiring paper-based filings with local government offices. The administrative burdens, inaccuracies and security issues raised by such systems are well known. Increasingly, both government actors and private parties have recognized the potential for key attributes of blockchain technology to modernize real property conveyance and improve processes for recording deeds and other related instruments:

  • Greater efficiency due to digitization. The deed recording processes currently employed by many U.S. localities impose burdensome administrative costs. Typically, a physical deed must be delivered to a government employee at the local recording office, where it is subsequently scanned onto the county’s centralized database. Data points from the deed are then manually input onto a public index, which is relied upon to determine ownership of each piece of property recorded thereon. Any subsequent transfers of, or claims to, real property must be manually reconciled with this public index. Blockchains, on the other hand, are entirely electronic data structures. As such, their implementation could greatly reduce, if not eliminate, the constant need for scanning documents, printing labels and organizing physical files in local recording offices – enabling local governments to reallocate human resources to areas where they can be employed more productively.

  • Accurate record of ownership that updates in real time. The manual indexing process described above is not just costly and time-consuming. It is also prone to human error, where inputting mistakes may cause future difficulties in accurately tracing chain of title. Since blockchains have the potential to consolidate conveyance and recording of real property rights into a transaction, they can greatly increase the likelihood that the public record accurately represents each conveyance, and do so in real time.

  • Tamper-proof and disaster-resistant decentralized ledger. Finally, centralized databases, where recorded deeds are currently stored, are vulnerable to malicious attacks by third parties (or government insiders) seeking to steal, erase, forge or alter existing records. By design, blockchains may ensure that any such endeavor to corrupt the information contained “on-chain” is prohibitively costly. Further, localities typically do not have the resources available to implement a robust back-up system for their property records. Therefore, in the case of a natural disaster destroying physical files or a malicious cyberattack wiping a database, the entirety of the record could be permanently lost. A blockchain, meanwhile, may store recorded data on nodes spanning both geographies and populations, alleviating concerns of lost records, while concurrently reinforcing the integrity and security of the data with each additional node.

By facilitating the efficient allocation of government resources and accuracy and security in recordkeeping, blockchain may provide a desirable alternative or supplement to existing systems for tracking real property ownership. Widespread adoption, however, will first require addressing important legal and regulatory questions, including:

  • Who will be able to submit data to the deed recording blockchain, and how will the accuracy of information be ensured at the point of entry onto the blockchain? Will transaction verification responsibilities and/or access to the ledger be limited to government officials, akin to current deed recording systems? Or will more open, permissionless systems be employed?

  • How will coordination issues among the various parties involved in the process of real estate transactions be addressed?

  • To what extent will state real estate recording acts need to be amended to specifically contemplate recordation on a blockchain system as valid for purposes of state law?

  • In the event of disputes regarding a blockchain-based property ownership record, what unique limitations, if any, might a court face in exercising its authority? For instance, might it be necessary to provide injunctive relief in the form of a court-ordered hard fork, and if so, would such a measure even be possible to effectuate?

  • Will data on blockchains satisfy legal evidentiary burdens (e.g., statute of frauds)?

  • If localities opt to record real estate ownership both in the traditional manner and on a blockchain (or in some combination) and there are inconsistencies between the resulting records, which will govern in a court of law?

Ultimately, blockchain has the potential to improve upon problems that hamper deed recording systems in the United States today. However, until further legal clarity is achieved, wholesale adoption of blockchain-based real estate solutions may face resistance, despite their promise.

Nicholas Bette contributed to this article.

© 2019 Proskauer Rose LLP.

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About this Author

Jeffrey D Neuburger, Proskauer Rose Law Firm, Technology Attorney
Partner

Jeffrey Neuburger is co-head of Proskauer’s Technology, Media & Telecommunications Group, head of the Firm’s Blockchain Group and a member of the Firm’s Privacy & Cybersecurity Group.

Jeff’s practice focuses on technology, media and intellectual property-related transactions, counseling and dispute resolution. That expertise, combined with his professional experience at General Electric and academic experience in computer science, makes him a leader in the field.

As one of the architects of the technology law...

212-969-3075
Wai Choy, Proskauer Law Firm, New York, Media and Entertainment Attorney
Associate

As a corporate associate in the Technology, Media & Telecommunications Group, Wai Choy focuses his practice on technology, media and intellectual property-related transactions and counseling in a wide range of fields, including the technology, entertainment, social and new media, advertising, e-commerce, retail and professional services industries.

For example, Wai structures, drafts, negotiates and advises clients on legal and business aspects of:

  • Service agreements, statements of work and service level agreements for a variety of services, including software as a service (SaaS) and other hosted services, data analytics, custom development of websites, software and content, systems integration and technology implementation, email and text message marketing, payment processing and outsourcing.
  • Advertising-related agreements spanning digital, radio and billboard media, including programmatic advertising platform agreements, lead generation service agreements, advertising reseller and affiliate agreements, insertion orders and advertising terms and conditions.
  • Software license agreements and other intellectual property license and assignment agreements, including for U.S. and international copyrights, trademarks, trade secrets and patents.
  • Collaboration agreements between strategic partners for the research, development, manufacturing and commercialization of new products and services, including in the virtual reality, augmented reality and motion simulation fields.
  • Video content production, license and distribution agreements covering various business models and distribution methods, including over-the-top (OTT), TV Everywhere, subscription video on demand (SVOD), advertising video on demand (AVOD), transactional video on demand (TVOD) and traditional linear subscription models, whether through the public Internet, IPTV, cable, satellite, broadcast or other technological means.
  • Revenue sharing, joint venture, equipment purchasing and other types of general commercial agreements.
  • Privacy policies, terms of use and end user license agreements for websites, mobile apps and other software. 

Wai also counsels clients regarding:

  • Blockchain and distributed ledger technology development, structuring and implementation, establishment of US-regulated cryptocurrency and token trading platforms, cryptocurrencies and initial coin offerings (ICOs) and associated legal issues.
  • Use of open source code under various permissive and copyleft licensing schemes, including structuring combinations of open source code with proprietary code.

While in law school, Wai worked in the Business & Legal Affairs departments of Marvel Studios in Los Angeles and Marvel Entertainment in New York on a variety of licensing, film and television production, merchandising and publishing matters. Wai also served as senior editor of the University of Pennsylvania Law Review and co-president of the Entertainment & Sports Law Society.

212-969-3118
Trevor Dodge, Proskauer Law Firm, Corporate Law clerk, New York Capital Markets law clerk
Law Clerk

Trevor Dodge earned a J.D. from NYU School of Law, where he was a staff editor for the Journal of Intellectual Property & Entertainment Law and president of the Student Lawyer Athletic Program. While at NYU, he worked as a legal intern for the World Bank Group in New Delhi and assisted the New York State Department of Financial Services in implementing a regulatory framework for firms dealing in Bitcoin and similar virtual currencies.

Prior to law school, Trevor served as a Fulbright scholar in Si Satchanalai, Thailand.

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212-969-3576