In 1991, Dr. Daniel Kenigsberg became the owner of a nearly half-acre plot of land in Fairfield, Connecticut.
Dr. Kenigsberg eventually moved to Long Island but kept the property in Connecticut for sentimental reasons.
You see, this land was right next to his childhood home that his father purchased in 1953.
His dream was to pass this property on to the next generation of his family.
So Kenigsberg was shocked when a friend called to tell him that someone was building a house on his land.
During a visit to Fairfield, Kenigsberg visited the property and confirmed that there was indeed a 4,000-square-foot home being built there by 51 Sky Top Partners, a real estate developer.
When Kenigsberg searched, he found Fairfield County property records that showed the property had been sold to 51 Sky Top Partners for $350,000 in October 2022.
Except that he Never sold the land.
When he sued 51 Sky Top Partners to rescind the sale and remove all structures on the land, it turned out that 51 Sky Top Partners were also victims.
Someone had posed as Kenigsberg and, through negligence on several occasions, the property was allowed to be listed, marketed and sold without anyone realizing it.
Kenigsberg said: “I’m angry because so many people were so careless that this could have happened. »
Kenigsberg’s reaction is very understandable.
Real estate transactions are among the heaviest and most administrative challenges.
And yet, not only did such a thing happen, but it also went unnoticed.
So how could this have been avoided?
The crypto world might have the answer.
A system built on erroneous files
The Kenigsberg situation is an extreme case where neither the buyer nor the seller knew the truth about the property.
But what is much more common is that people buy a home only to discover days, months, or years after the sale that there are liens on the property.
How is this possible?
Part of a real estate transaction is a title search, where a title company can research who owns the property and whether there are any claims or liens on the property.
It is estimated that approximately 25% of real estate transactions have some form of title defect.
Most of these issues are addressed before purchase, but it’s not foolproof.
In fact, it is so common to miss things when searching for titles that there is an entire title insurance industry.
In 2023 alone, the U.S. title insurance industry paid $638 million in claims – compared to $596 million in 2022.
The Outdated Infrastructure Behind Real Estate Transactions
The central problem? Title searches rely on outdated record keeping systems.
There is no unified national recordkeeping system in the United States. Rather, these systems exist at the cantonal, county or municipal level.
There are more than 3,000 municipal systems in the United States today, and while they follow some common-sense conventions and standards, there is no standardization among these systems.
So, if there are claims or disputes regarding a property, there is no defined way to register or record it on these systems.
It is up to rights holders to follow municipality-specific procedures and record keepers to accurately enter information into the system.
Any problems in this process could result in these claims being missing from a title search in the future.
How blockchain can be a game changer
But what if there was an immutable ledger that could record the original existence of a property and then provide a verification system to record only legitimate claims and liens on the property?
Well, this system already exists and it is a blockchain network that can be customized to accept certain types of proof and validation before the information is added to this blockchain.
And it’s the latest innovation in real estate technology.
Imagine owning a non-fungible token (NFT) that represents ownership of a property.
Multiple parties could be allowed to add information to this NFT without owning it.
This information may include verified photos of the home, price history of the home, renovation details, liens, property tax information and much more.
Essentially, this NFT could include anything you might discover about that property on Zillow and through a title search.
Think of it like paying with a $100 bill at some establishments. The person accepting your bill draws a line on it with a special marker, and the bill itself is proof of its authenticity.
Likewise, the existence of the NFT and the information it contains is proof that it is real.
And there are participants on this blockchain network who, in some way, continue to constantly mark it with a special marker.
This is how real estate can be tokenized and traded on a blockchain.
You, the owner of the NFT, must sell it or transfer ownership – this cannot be done without your knowledge.
There is no scenario in which you find yourself in the same unfortunate situation as Dr. Kenigsberg.
Even if someone has impersonated you, and even if there is gross negligence at every step, the impersonator cannot sell the NFT that is not in their possession.
And the buyer can review the NFT himself and contact the owner listed on the NFT to verify the authenticity of the sale.
The future of tokenized real estate
This type of tokenization is part of a growing trend toward tokenization of real-world assets.
According to Statista Research, real estate is expected to become the largest type of tokenized asset in 2030, accounting for nearly a third of the nearly $11 trillion overall market.
And this is an extremely conservative prediction that assumes less than 1% of real-world assets will be tokenized by 2030.
Crypto projects have started to emerge around this trend and are expected to take off in the coming years.
The move to blockchain could finally bring transparency and security to real estate transactions.
As the world evolves, adopting this technology could be the key to avoiding issues with outdated systems and securing what is rightfully yours.
Until next time,
Ian King
Editor, Strategic fortunes
