Startups – a Threat to Title Insurance or a Solution Looking for a Problem?

Title insurance agents might have a new competitor entering the title and escrow arena.

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Title insurance agents might have a new competitor entering the title and escrow arena. A startup company from Seattle named Modus opened early this July. Modus allows real estate agents to use its resources as a title and escrow workshop, bypassing a traditional title firm altogether. Both agents and clients can log onto the company’s platform to track every step of the closing process. By using a shared platform, the service reduces the potential for fraud and speeds up closing by eliminating the back-and-forth of personal and financial information via email. Agents also will have the ability to outsource manual data entry, cutting down on time for closings once more.

Modus is not the only start-up offering such services. The fledgling company is joining names such as Spruce and JetClosing, startups which offer similar services for the sake of simplifying the title and escrow process. The increasing popularity of such companies raises concerns among title companies- will existing firms have to provide more to compete with these young startups?

startups2     Or does this sound like these companies are trying to offer a solution that is looking for a problem?  If someone had a problem at a closing it could have either been a bad real estate agent or an escrow agent.  Typically it is the buyers that pick the escrow, but in today’s market it seems to be this responsibility has fallen on the listing agent, whose primary job is first and foremost a marketing one.  The listing agent does not directly sell your house, but they should be the reason your house sells.  Thus being knowledgeable in escrow is not a primary responsibility for them.

Then there could also be issues with banks accepting electronic signatures when it startups3comes to payoffs on the seller’s mortgage and getting new loan documents on the buyer’s loan.  When it comes to real estate transactions, electronic signatures are enforceable, however certain documents (e.g. mortgages and deeds) will require original signatures for recordation.  Borrowers and lenders continue to require originally executed notes to maximize their comfort level that there is only one negotiable instrument.

DIGITAL TECHNOLOGY & ITS IMPACT ON REAL ESTATE TRANSACTIONS

PRESENTED BY MICHELLE GARCIA GILBERT, ESQ.

GILBERT GARCIA GROUP, P.A.  | SAPPHIRE TITLE & ESCROW COMPANY

 

 DIGITAL TECHNOLOGY

Bitcoin, virtual currency, example of blockchain (or distributed ledger) technology

  • Released at time of financial crisis, due to advances in software, communication and encryption
  • Established set of rules that ensured integrity of data exchanged among computers globally, without use of government or other trusted third party
  • Ledger recording transfer of bitcoins resides on virtual network which uses encryption and secure keys for transactions; each transfer is recorded in a block of information
  • Each block has time stamp and link to prior block which creates permanent record that is almost impossible to alter
  • Technology is being used for other distributed ledgers

APPLICATIONS

Digitally record tangible and intangible assets in a system that is more trustworthy, transparent and verifiable than any other

  • Private blockchains, not public like Bitcoin, participants  verified against pre-approved list
  • Collaboration among many participants required
  • Common technical standards and processes required Participants must share information
  • Resource intensive
  • Legal concerns regarding intellectual property, data privacy, data security, anti-money laundering, settlement finality and securities requirements

 

REAL ESTATE TRANSACTIONS NOW

Old-fashioned industry with paper contracts, manual escrow deposits, hard files, and in-person closings

  • U.S. net worth totals $89 trillion, household ownership of real estate is $27 trillion out of a total of $33 trillion of  nonfinancial  assets
  • 2016- outstanding real estate debt was $11.5 trillion residential and $2.6 trillion nonresidential
  • Industry has long history of state and local regulation, lobbying power of real estate agents, and interaction with laws, tax code and American culture of home ownership
  • Establishing property rights involves navigating lawyers, insurance agents, realtors and title agents
  • Current state of affairs: brokers and realtors facilitate transaction for a fee; parties can use an attorney in addition to an agent or in lieu of an agent, to prepare a contract;  contract uncertainties exists with contingency for inspect ions, appraisals, state of title, and financing; title search is performed to determine state of title and requirements that must be met to convey marketable title; title insurance is provided as part of the transaction; 2016- 88% of all buyers financed homes; closing – most take 1-2 months to get to the table, and the closing itself can last hours

 

REAL ESTATE TRANSACTIONS IN THE FUTURE

Blockchain technology has the potential to address uncertainties in real estate transactions by providing more direct, precise and efficient process.

  • Smart contracts: digitally signed agreement, stored on blockchain program would speed closings be­cause payment would trigger automatic transfer of title; limited use for structuring of agreements, and handling of breaches and dispute resolution; also, without common technical standards and processes, suspect to hacking
  • Land records: outdated system in which paper filings are maintained as a chain of title by local government office; manual process with high potential for error and fraud; risk mitigated by purchase of title insurance, though about 5% of premiums paid out in claims in 2016; In September, 2016, Cook County, Illinois launched a pilot program to current system with public blockchain technology; Cook county never completed a blockchain conveyance but reported alter the pilot ended, in May, 2017, “…that blockchain and distributed ledgers are natural fit for keeping land records and stream lining the dozens of intermediate steps needed just to get a deed into public record.”
  • Transaction platforms: Encrypted, secure and distributed ledgers provide a way to execute transactions with little or no intervention by people. Instead of involving many employees, third-party agents and paper processes in a transaction flow that takes days, weeks or longer, huge volumes of transactions will be com­ pleted very quickly and transparently. Financial institutions, in particular, have been struggling with business process inefficiencies, but such inefficiencies exist in other industries, including real estate.
  • States opting in: Blockchain recognized as a legitimate form of ownership.

 

WHAT IS HAPPENING NOW…

  • Countries like Georgia and Ukraine have already implemented blockchain, as the start-up Propy executed the first real estate transaction through cryptocurrency, in which a San Francisco investor bought a house in Kiev for $60,000 in Ethereum tokens (another cryptocurrency)
  • And more examples to be provided

Artificial Intelligence in Real Estate: “Maybe one day they’ll need-homes too.”

 

In 2018, it seems the most promising, and yet most horrifying frontier is artificial intelligence, or (AI). The potentials for computing ability, in short increments of time, are almost unfathomable, while the ethical implications in creating an entity with such a supreme nature are grounds for insomnia. Regardless, even if its potentiality keeps you up at night, artificial intelligence is being incorporated into almost every sector of the market, including real estate; it’s the biggest thing since sliced bread. The effects this technology could have on the traditional methods of real-estate business are still obscure. Companies like REX Real Estate Exchange are offering the consumer an artificial intelligence-driven service that essentially replaces the human agent, and charges less in commission. In this service, the computer runs through hundreds of thousands of data points to identify potential buyers. To accomplish this, the AI extracts and scrutinizes mountains of personal browsing data and flags the individual users who are satisfying the criteria of interest. Once a user is identified, the system advertises the properties, to the potential customers, on their preferred social media platforms, as well as the websites they visit which allow some form of what I would call advertisement metamorphosis.

data miningArtificial intelligence isn’t just the foundation of new startups, it’s being implemented into pre-existing real-estate tools that have been transforming the market for years. ATTOM data’s AVM is a tool which analyzes previous property purchases. The system breaks down property characteristics, compiles them and assigns values, and uses them to set a market value scale. This same process can be applied to a buyer. Artificial intelligence makes it possible to scrutinize personal data and, consequently, base property value on the desired home qualities, income, and personality traits of buyers, not just the characteristics of properties. Even services, like Zillow, will need to adapt greater AI capability. The consumer today shapes their life according to recommendations. Video streaming and food services use AI to suggest future choices to people based on prior activity. It’s a fundamental tenant of psychology that most people desire to be instructed and managed. This same concept applies to how AI is incorporated. Real estate web services, with the help of AI, will be presenting recommendations, to the consumers, based on extrapolated data trails. Has this individual posted about having children? Add a spare bedroom qualifier to their home criteria. Do they like barbeque? Advertise a property in close proximity to something finger-lickin’ good. Do they like reading? Propose a property with abundant natural light.

The future of real estate, with the help of AI, is consumer personalization. The average artificial intelligenceperson, according to a Nielsen Company audience report, spends 10 hours a day consuming media online. That amounts to 3,650 hours, and 41.6% of the average person’s year spent online. This activity produces an incomprehensible mass of data trail to be scrutinized and expressed in your next home purchase. How AI will ultimately transform the real estate business is unknown. Who knows, perhaps one-day artificial intelligence will purchase property for itself. All one can be utterly sure of is that the phrase, “I’ll be back,” will not be vocalized because AI isn’t terminating anytime soon.

 

Understanding Fence Law Disputes in Florida

With the existence of tens of thousands of farms in the state of Florida, as well as hundreds of thousands of privately-owned residential properties, land boundaries are a frequent point of contention between neighbors. The state of Florida has edicted several laws regarding the legality and construction of fences around properties.

There are two primary bodies of legislation regarding fencing: the encroachment or overlapping of the ownership of two adjoining landowners, and laws regarding the construction of fences on individual properties. An encroachment of land occurs when an individual occupies a part of land above or below the service that is not described in the land’s deed. Specifically, an encroachment occurs without the consent from the owner of the encroached land. Encroachment problems can get a bit trickier, though: two subtypes of encroachment are boundary by agreement and boundary by acquiescence.

A boundary by agreement has three important aspects: uncertainty to the true boundary line, an agreement that a certain line will be treated by the parties as the actual boundary line, and occupation by the parties for a period of time adequate to show a recognition of the line as a permanent boundary. For example, if John erects a fence that encroaches on Jane’s farmland by twenty feet, but neither party is aware of the fact that this fence encroaches on Jane’s farmland, and the fence has been maintained by both parties for at least five years, a boundary by agreement has been entered.  Thus, if Jane conducts a survey to reveal that the fence is encroaching on her land, she can no longer request to have the fence removed, because both parties have made a de facto boundary at the fence. A boundary by acquiescence requires a dispute from which it can be implied that both parties are in doubt of the true boundary line, and continued occupation in a line that is not the true boundary for more than seven years. In short, it means that any action brought to undo encroachment will likely be denied if it is after seven years of encroachment.massachusetts-77350_640

There are also several Florida regulations regarding the ownership and construction of fences on private, residential properties. Fences must be constructed to not impede the flow of water through any drainage way, and must have sound and sturdy construction. Front yard fences cannot be any taller than four feet, while backyard fences can be no taller than six feet. Hazardous materials that may harm people or animals are not allowed in fence construction.