Conducted on: March 29, 2017 via Basecamp
Bill Wendel: If you have three magic wishes, what kind of synergy would you like to create with real estate innovators?
Nathan Wosnack: Continue to ask a lot of tough critical questions, get clear clarification from the bitcoin/blockchain community as to what is actually possible with distributed ledger technology and what the setbacks or limitations are (or simply fluff). You’ll probably stump one another at times and very likely find some common ground. I’d personally love to work more with e-recording and title companies on discovering new problems the real estate innovators / blockchain companies like mine can pivot and work together on solving.
Do not listen to the sensationalized headlines coming out regarding blockchain tech (mostly from 2016), and especially as it pertains to “bitcoin” (the currency) versus “Bitcoin” (the protocol). The media, especially the mainstream media, has a tendency to conflate the two. Read a lot of material (i.e. the bitcoin whitepaper — link), and watch videos by thought leaders like Andreas Antonopoulos on topics like the block size debate, forking, etc. I’d have the real estate innovators pick up a copy of Ian DeMartino’s book: “The Bitcoin Guidebook: How to Obtain, Invest, and Spend the World’s First Decentralized Cryptocurrency” (link).
Bill Wendel: Got use cases that could benefit from thought leaders at Harvard & MiT academic communities?
Nathan Wosnack: Sure, but they’re 78 pages long and written by MIT Center for Real Estate Alumni from 2016 Avi Spielman. 🙂 Avi is on our advisory board. He used some good use cases throughout: Blockchain: Digitally Rebuilding the Real Estate Industry. I do have a recent one we never published until now, and your readers may find it useful. Excuse poor grammar and typos.
Debt attached to title of a Seller’s Property: a Blockchain Use Case
(Based on a true story)
A debt from an old credit card (now in collections) was recorded and attached to the title of a seller’s property which was discovered during the title search a week prior to closing. The seller was informed this would have to be paid in order to transfer clear title (link), and instead of just allowing the debt to be paid off through the settlement statement it to be addressed at the closing table subtracted out of the seller’s proceeds, the seller decided on her own to just pay the judgement off early. The seller then contacted the collection agency and paid the amount due in full. Unfortunately, the seller did not know that she needed to request a certificate of satisfaction and that the creditor must now record the certificate to remove the debt attached to the title.
In fact, there was another debt collection from which the seller negotiated and settled years ago. Soon after the seller pays the debt and thinks it is squared away but the creditor never bothers to record the Certificate of Satisfaction (link) and the debt remains attached to the property as if it was never paid.
Now the seller is left in an unfortunate situation of having to prove it was paid and then contact the creditor to request they record the certificate of satisfaction. In order to clear title and transfer the property at closing, the buyer’s attorney still sees the recorded lien and will not allow the closing to proceed until the judgment is removed. The only proof acceptable is the certificate of satisfaction recorded at the courthouse; it is not enough to simply have the seller show proof of payment nor is it enough to have the original creditor acknowledge the debt was paid in full. The debt in question is not gone until it is removed off title with the municipality, which causes the closing to be delayed.
The creditor now has to go through the arduous process of maneuvering multiple layers of administrative procedures to issue the certificate of satisfaction. Their company policy also does not allow them to record the certificate of satisfaction simultaneously with the sale of the property. The buyer’s title company must wait for them to send it down to the city and wait for the municipality to record it. By this time, the city is already about a week behind in their paperwork processing and then a snow storm hits the area and all courts are closed for several days, which creates an even bigger backlog at the city.
Now an additional twelve days have gone by past the anticipated closing date and the seller is forced to make another mortgage payment they were not planning to make However since the seller moved out in time for the original closing date and moved into a new apartment, they are strapped for cash from their move and unable to pay the first month’s rent and security deposit. They also do not have the additional mortgage payment so they are forced to either borrow money or incur late fees and possible credit consequences.
The buyer had scheduled movers around the original closing date and has now incurred fees for canceling that move. Those movers are also not available for the new closing date and the buyer must now scramble to find family, friends, and a moving company who can accommodate a last minute move which will also cause them to endure additional costs. On top of all of this the buyer also happens to be eight months pregnant and is going into labor early, so now a notary must be sent to the hospital so they can still close and sign the paperwork once everything is ironed out.
If the municipality offered a streamlined, electronic method of recording using blockchain technology in parallel to their existing infrastructure, the buyer in this scenario would be able to avoid the effects of a hardship.
Since the administrative nightmare can be structured in a newly organized cryptographically trustworthy manner, the use case scenario I mentioned could easily prevented simply by using newer methods of record keeping (such as which is possible using blockchain technology). A blockchain-powered platform (link) has the potential of addressing this as well as many other issues (see: use cases page); such as errors in public records, unknown liens, illegal deeds, missing heirs, delayed property ownership transfers, and more.
Bill Wendel: Who are you connecting with outside the ‘traditional’ real estate ecosystem?
Nathan Wosnack: We’re speaking with micronations (such as The Free Republic of Liberland and others) modular/tiny home companies on ways a blockchain-powered property record keeping platform can help them; particularly in terms of giving a clean record of ownership that doesn’t require the title search component. We’re also speaking with e-recording companies, and municipalities in the US and worldwide, etc.
Bill Wendel: What money-saving opportunities do you or others see that will be turbo-charged by blockchain?
Nathan Wosnack: Not my words. But: ‘Reducing costs for title and e-recording companies. Reducing fraudulent conveyance, and making future title searches faster and more efficient. Goldman Sachs Estimates³ $2–4 Billion in cost savings in the US by reducing errors and manual effort along with claim loss reduction 75% or $550M.’ * Profiles in Innovation — Blockchain — Putting Theory into Practice, May 2016 (link).
Bill Wendel: How do multiple stakeholders get there together or is disruption / disintermediation inevitable?
Nathan Wosnack: Through open, non-confrontational dialogue to start. By taking a fair, level headed and pragmatic approach to ‘blockchain technology’ and not treating it like magical fairy dust that can solve all the world’s problems or a voodoo spell that will ‘disrupt’ or worse yet ‘destroy’ industries (i.e. title insurance — which is a ludicrous assertion). This attitude isn’t how you make friends. The blockchain community needs the incumbents and RE innovators/players to give them advice on best practices, on the regulatory issues, bills, and privacy laws. The blockchain people/companies need to continue to stay away from using confusing or obscure language and terminology. Finding a way to explain complex matters in plain English will be a start, the second will be in demonstrating not only the technical acumen, but the business as well. People from both sides will be receptive.