Anyone who deals with real estate should be aware of the various forms of real estate fraud that have taken place and evolved over the years. Fraud ranges from mortgage fraud to sellers who do not fully disclose information within the meaning of federal and state laws. Real estate transactions have always been a prime target of the unscrupulous because of the large amount of money and the number of sellers and individuals involved.
Today, technology has made real estate transactions as easy and convenient as never before. The whole process became less cumbersome in the digital age, but unfortunately in many ways no less prone to fraud. In fact, some would argue that digital real estate fraud is one of the industry’s biggest problems.
However, a relatively recent development can combat fraud in various ways. “Blockchain” may be a buzzword these days, but behind the hype is some truth. It may not be a panacea against real estate fraud. Certain applications of Blockchain can help protect buyers, sellers, and sellers alike.
Forms of Real Estate Fraud in the Digital Age
Most of us have been so comfortable with their digital devices and digital business that we may be abandoning our guards for online fraud. In the real estate industry, fraud can lead to more than just data loss or inconvenience. This can lead to the complete loss of a property or the loss of ten, if not hundreds of thousands of dollars.
The most common types of fraud concern:
- Property fraud in which real estate information or values are misrepresented.
- Fraud in the disclosure or presentation of income.
- Identity fraud where the buyer could misrepresent his credit rating or identity.
- Transaction fraud, which may include non-market transactions or straw buyers.
- Occupancy fraud, in which the secondary or primary occupancy of real estate can be misrepresented.
- Property debt fraud that does not disclose an earlier foreclosure or additional real estate debt.
Although these types of fraud are not necessarily new, in the digital age they have been exacerbated and supplemented by a variety of methods for cheating real estate on the Internet. These include phishing and malware attacks, escrow scams and more.
Phishing, in particular, has become problematic for real estate. Phishing is the place where a hacker acts as a legitimate provider in the real estate process. This often leads to their gaining access to confidential information, which can lead to fraud and even unauthorized transfer of funds. Before the activity was detected, the data was compromised and the money was often lost without recourse.
Many real estate professionals see Blockchain as the key solution to real estate fraud in the digital age. Blockchain technology is essentially a decentralized general ledger. The “blocks” contain the information and the “chain” is the network.
Each piece of information containing blocks contains data about a transaction, who are the participants in the transaction, and unique identification codes. Blocks can be added to the chain when a new transaction is performed and validated by other users. After verification, it is stored in the block and provided with an identification code called hash and added to the chain.
This means that in order to “cheat” the system, a hacker must access every block along the chain involving tens of thousands of computers. The goal of the blockchain is not to allow editing of blocks, but to validate the transaction within the block. This offers its safe nature.
How can blockchain reduce real estate fraud?
Since much of the information associated with real estate transactions is centralized, it can lead to fraud. Blockchain decentralizes this information. Its unique structure creates transparency and at the same time building security. The security that has made it a niche platform for currencies also makes it a fascinating real estate platform. Even some of the costly financial intermediaries can be removed along the way.
In the mortgage process, for example, the blockchain can serve as a common ledger to create the different parts of a mortgage. Since the data and documents involved in the mortgage are each encrypted in the blockchain, they are much safer. The process can also be accelerated. If those involved in a real estate transaction agree to permanently record parts of this transaction in blockchain security, that coordination will result in a higher level of security that was previously unavailable.
Blockchain is able to provide an indisputable source of real estate data, increasing the trust of stakeholders. While the blockchain is still in its infancy, it has undergone various applications and industries. In each step the product development is documented and validated. It does not take much to identify the value and security that this can mean for the real estate process. In the meantime, due diligence must be carried out at each step and each transaction must be double validated. Do not accept e-mail statements at face value, as they should be verified by a personal or at least telephone confirmation.
Only time will tell how and when blockchain-based solutions are implemented in a variety of industries. But one thing is for sure: if the reality of this technology is only a fraction of the hype, it will at least have a significant impact.