Reimagining Ownership

Do you own your own home? Do you really? How do you know? In today’s primordial soup of financial entanglements, ownership has become much less straightforward than you might think.

Take the case of owning your own home. When you ‘bought’ your home, you probably got a mortgage (maybe more than one mortgage). Something called ‘title’ was granted to you. And you, in turn, granted a ‘lien’ against that title to the mortgage company. If you don’t pay your mortgage, the lender can take your home. You almost certainly also owe property taxes to the county or city (or both) where you live. If you fail to pay those taxes the county can sell your home to someone else to get the taxes paid. If you can’t keep your home unless you make regular payments to someone else, do you really own it? Or are you really renting it?

Of course, if you own your home, you can sell it to someone else. And if the value of the home has increased you get to pocket (some of) the difference (again, after taxes). That’s a great benefit and it does seem to lean toward you actually owning the home. But if you can only know you own your home by selling it (in which case you no longer own it), it seems self-defeating to do this to show ownership.

And I’m only scratching the surface about who owns your home. Long gone are the days where most home lenders keep the loans on their portfolios. The company you pay your mortgage payment to is only a servicer. The mortgage is likely sliced and diced into pieces, combined with pieces of other people’s mortgages, and sold to investors who are also complex entities who group funds from many, many people. Really, there may be tens of thousands of people who have some claim to ownership of your home through that mortgage that you thought was so simple. Welcome to modern finance.

And let’s go back to that title that says you own the home. Title is maintained by those same counties that tax you for the privilege of ownership. And that title can be taken from you by those authorities based on their own policies and laws. Some counties have used the concept of ‘Eminent Domain’ to take properties from owners and give them to others (they had to pay for them but guess who got to set the price). And in most counties, anyone who claims to have done work on your house or your home owners’ association can place a lien on your home which entitles them to a fraction of the proceeds of any sale. And these follow the rules of the counties which in some cases are heavily weighted against homeowners. When everyone plays by the rules, this system works the vast majority of the time. But in times when ‘government corruption’ is redundant, the protections of the rules disappear.

Even with all this muddying of the waters, home ownership is an aspiration for most people and is even a basic part of the American Dream. But if we are reimagining community, is there anything we can do to clarify and/or simplify ownership?

The answer may lie with the same technology that underlies cryptocurrencies like Bitcoin and Ethereum. Blockchain is a way of recording transactions that, in its best cases, is distributed and not subject to the control of any local authority. Blockchain and crypto assets (I’m distinguishing these from cryptocurrencies) can impact ownership of property in a community by 1) recording title on the blockchain, 2) enabling fractional ownership of property, and 3) better defining exactly what the property is through digital twins.

Some countries and some counties are already experimenting with recording title on a blockchain. But their efforts create a private blockchain totally controlled by the government. This is a better system than how title is currently maintained, but title can still be taken away by the authorities since they have control of not only recording blocks in the blockchain but of maintaining the historical blocks.

In contrast, recording title on a public blockchain with highly decentralized block maintenance done by independent entities provides extremely secure title recordation that would force local governments to follow highly transparent and consistent rules for placing liens or contesting title. Of course, local authorities are unlikely to cede the absolute power to take title, impose taxes, and enforce foreclosures. It would require international fairness standards to be created to expose corrupt local authorities. That is probably far in the future, but could be created now and gradually gain acceptance. If our reimagined community adopted these standards locally and recorded title on the blockchain, that would be a great initial step. As more communities adopt the idea, we could end up with a worldwide blockchain that becomes the gold standard for property ownership. Note that this could be done for other substantial assets like cars, fine art, or luxury goods, too.

If title is stored on a blockchain, it is also easier to subdivide that ownership into multiple fractions. Today, fractional ownership in real estate is accomplished as tenants-in-common or right-of-survivorship title. But it is also done via public companies or private placement offerings. In the latter cases, the ownership is usually considered a security and must follow securities regulations. But managing fractional ownership is an easy function using blockchain technology. It is even easy to divide profits for commercial properties or rental properties and, ultimately to divide sales proceeds – either from selling fractional ownership or selling the entire property. In today’s environment where home ownership has become out of reach for most Americans (and most citizens of other countries), fractional ownership may be an approach to create affordable housing with an ownership component rather than forcing people to rent instead of own (more on this in a future article).

And now a quick quiz for those of you who think you own your home. Do you own mineral rights beneath your ground? Do you own air rights over your home? Do you own your land or just your home? If you own one side of a duplex, do you own the common wall? What are the exact boundaries of your property? Most of you probably don’t know the answers to all these questions. And, I would wager, most of you don’t know how to find out the answers to these questions. It’s possible with blockchain in combination with other technologies to create a digital representation of your home or other property that shows all this information. This so-called ‘digital twin’ of your home can track permitted renovations, materials in your home, blueprints, rental or operational performance, lots of different information. And that information is incredibly valuable to future owners. As just one example, the famous cathedral of Notre Dame in Paris had a digital twin. The entire structure had been mapped in detail because of its historical significance and great beauty. It has now been reconstructed – because they knew exactly what they had to rebuild. And in our reimagined community, shouldn’t we be building all our homes and structures for beauty so they are worth reconstructing when the worst happens?

How these new methods of ownership integrate with existing methods of ownership will be a work in progress and may have to be different in different jurisdictions. But the opportunities for new ownership structures as well as new ways of proving ownership should be considered as we reimagine our communities.