By Zev Friedus, President, ZFC Real Estate
Consider this dream: You are sleeping peacefully at home on Saturday morning. You are awakened by the ominous beeping of a moving truck backing into your driveway. You see a man looking out the window, yelling, “Hi, Bryan – I bought this house. We’re on the phone about moving today. Excuse us for being a few minutes early!”
You’re kicking yourself because 1) you’ve never heard of Bryan and, more importantly, 2) you haven’t sold your house. Imagine a similar dream: You’re sitting on the porch of the house you’ve lived in for 30 years when a stranger stops and gives you a piece of paper. You are shocked to discover that you have been served with a foreclosure notice.
You know someone you don’t know who defaulted on a $100,000 loan taken from your property. Not only are these horrific scenarios completely within the realm of possibility, but they are becoming more common as criminals become smarter.
The reason: title fraud
Title fraud is when a criminal defrauds you of your property by falsifying public records. When you buy a property, you receive “title” – meaning you become the legal owner of the property. Property titles – along with details of the sale – are recorded in public records.
The idea of selling a house fraudulently may feel far-fetched; after all, in a typical home sale, a buyer wants to tour a property first. But in the world of real estate investing, where it is common for investors to buy unseen homes that are troubled at deep discounts, or unoccupied homes (such as homes in vacation), the potential for title fraud is very real.
With so much information publicly available online, it’s easier for fraudsters to create legitimate-looking documentation to commit crimes – like cashing out on home equity lines or even selling your property from under you. Years ago, one had to make the physical journey to the county courthouse and go through the file cabinets to find the necessary information. Today, a criminal can be in his pajamas on the other side of the world and go to a property appraiser’s website to view recorded deeds, piecing together the information needed to pull off an unthinkable heist. before.
With the exponential growth of online fraud and identity theft, it is not a stretch to imagine the potential for widespread real estate disaster.
The big question: Doesn’t title insurance cover title fraud?
No. Title insurance is designed to protect the right of ownership until the date of a sale transaction. Manual search of the first piece together in the history of a property – including liens and satisfaction – to ensure a clean title. The title insurance company assumes the risk if they don’t miss something during the search – which is less likely given the relative ease of searching for property liens. Title insurance companies rarely pay out on a claim – and offer no protection against in the future fraud.
In fact, title insurance is a ridiculous money grab with a huge margin. Property owners pay thousands for a title insurance policy, and a whopping 50% of that money goes directly into the title agent’s pocket. In the unfortunate event that you fall victim to a nightmare similar to the one outlined above, it is possible that you will find yourself going through the courts – and the bank will be stuck holding the bag. But it’s also likely that such a process could take months, or years, if possible.
The blockchain solution
The current title assurance process is obsolete and should be replaced by blockchain technology – specifically, non-fungible token (NFT) technology. NFTs, which have passed the proof-of-concept stage in the world of GIFs, digitally record the transfer of ownership for rare items with an encryption level so high that it takes millions of years to can be cracked. Practically used in real estate transactions, NFTs can be a secure system, providing the authenticity and safety buyers and banks need while making real estate fraud less tempting to criminals.
The blockchain will instantly show the history of a property, eliminating the need to play detective while piecing together (potentially wrong) information. Searches can be completed in minutes instead of days, reducing title insurance costs by at least 90%.
As with any new system, enough people need to use the technology to make it practical and valuable. To get the ball rolling on making blockchain technology viable for the real estate industry, it needs to be adopted by a large entity; a reasonable place to start is within government – perhaps at the county level. Governments certainly have an interest in protecting people’s property – and the banks.
A county can set a date for when to start recording property transactions on the blockchain. Title insurance only lasts until that date. Over the years, the title insurance will gradually disappear, and the blockchain will cover all the land in that particular county.
Of course, this will require an initial investment by governments, but it will remove a lot of manual labor and save money in the long run. And we know that the adoption of blockchain technology will represent a major shift that could threaten the title insurance business as a whole. But it also puts some criminals out of business. And that’s worth every penny.
About the author:
Zev Freidus began his real estate career in Boca Raton, Florida over 20 years ago. Before the mass migration from the northeast, in the mid 90’s Zev had the vision to start investing in residential properties in Boca. In 2005, Zev founded Boca Executive Realty with the mission of combining new technology with superior agents to become Florida’s most respected and trusted residential real estate brokerage. Over the next 10 years he led the company through a period of hyper growth, culminating in 2014 with the sale of a controlling interest in the company to a private equity group and rebranding as BEX Realty. In 2021 Zev is launched ZFC as a full service boutique residential and commercial brokerage.