Tuesday , 26 January 2021

Blockchain and Smart Contracts: The Newest Challengers to Traditional Real Estate Transactions

One of the most exciting transformations being unleashed by the blockchain and smart contracts revolution is in real estate. Smart contracts, for those who don’t know, are self-executing if-then statements written in computer code. Smart contracts on a blockchain are transparent to anyone on the network, they are permanent and they allow for more accountability.

It’s no secret that the real estate industry has traditionally been slow to innovate. Real estate title varies county by county, with many localities still utilizing traditional paper records and filing cabinets rather than digital alternatives. Typically, real contracts are physically printed, read, amended and signed by all parties before anything can be finalized.

Consider the purchase of a residential property. One must account for state and county documents, mortgage agreements, title and deed papers, insurance policies, homeowners association forms, and more. This bundle of paperwork often totals some 100 pages for a single transaction. These documents are prepared for the buyer, the seller, and their respective real estate agents. Physical notaries are mandatory in all but one state. Once signed, they are filed away and rarely viewed again (unless a dispute arises).

Aside from the environmental impact of printing hundreds of pages, the sheer amount of documents required in real estate transactions can easily lead to fraud or mistakes. Any mistake from one set of documents can lead to a cascade of problems in associated documents. There are often ownership disputes in the real estate industry from improper recordkeeping and if the building in which important documents are stored burns down or is broken into, valuable information could be forever lost.

Blockchain and smart contracts can revolutionize the real estate industry by creating a unique digital address for documents and events related to every property, including repairs, permits and ownership history. Smart contracts are designed to satisfy aspects of a traditional written contract, such as payments, terms, and liens– all while minimizing the need for middlemen and de-risking lack of performance under the contract.

Smart contract adoption may also be useful for landlords in selecting better tenants and simplifying rent disputes. Landlords may have better data with which to identify tenants with good rental histories. Renters who default under a smart contract might face expedited eviction– although it remains unclear how this would comport with unlawful detainer laws. Automation must still comply with regulation. While processes would be self-executing, landlords would not be able to simply lock tenants out of their homes. The judicial system will need to have a role in resolving landlord-tenant disputes.

Blockchain technology is relatively new but is here to stay. Everyday news breaks in a different industry adopting the technology and real estate may be the next space positioned for a digital makeover. Real estate is one of the few industries where almost every transaction involves large sums of money and many different intermediaries. Blockchain can be an ideal solution for streamlining its archaic processes, making things more secure, accessible and cost-efficient.

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About Amy Wan

Amy Wan
Amy Wan is chief executive officer and co-founder of Sagewise. She has authored various legal publications in capital markets, including the legal practice guide on initial coin offerings (ICO) for Bloomberg Law and chapters of the LexisNexis practice advisor on private equity. Previously, she was a partner at a boutique law firm and general counsel at a fintech company. She is a frequent speaker and founder/co-organizer of Legal Hackers LA, which centers around the intersection of law and technology. Amy was named one of the ten women to watch in legal technology by the American Bar Association (ABA) Journal in 2014; was recognized as a female leader in legaltech in 2018 by the ABA Law Technology Resource Center; was named one of 18 millennials changing the face of Legaltech by Law.com and was nominated as a finalist for the Corporate Counsel of the Year Award 2015 by Los Angeles Business Journal. Amy has also worked in international regulatory and trade policy at the U.S. Department of Commerce, and was a presidential management fellow at the U.S. Department of State and U.S. Department of Transportation. She holds an LL.M. in public international law from the London School of Economics and Political Science, a J.D. from the University of Southern California Gould School of Law and a B.A. in biological sciences from the University of Southern California.

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