Crypto in Real Estate Finance

Abstract

Blockchain and cryptocurrencies have ushered in a digital gold rush. But all that glitters is not gold. The latest fad is the use of non-fungible tokens (NFTs) to purchase and finance real estate. Typically, crypto real estate transactions begin with the transfer of title for a residential property into a dedicated business entity, such as a limited liability company. Thereafter, an NFT is ‘minted’ and used to represent the ownership interest in that entity. The real property is then marketed online specifying that, to acquire it, one simply purchases the relevant NFT via a blockchain transfer. Crucially, buyers are expected to use the NFT as collateral to fund their purchase, rather than obtaining a traditional mortgage. Proponents of this novel structure insist that it yields cheap, fast, and secure real estate transfers, disrupting a sector infamous for its high costs, delays, and labyrinthine bureaucracy.

This Article offers the first exhaustive examination of crypto real estate transactions. We reveal that the NFT financing model is not a mere technological upgrade, but rather transports parties out of the domain of traditional mortgages and into secured transactions law, with significant legal and policy implications. Most worryingly, it exposes borrowers to swift and irreversible home liquidations in case of default, robbing them of the protections historically afforded to homeowners. As foreclosures already impact minorities disproportionately, crypto real estate transactions risk hurting society’s most vulnerable. Our proposed normative framework seeks to address these flaws. We contend that the law should look past technological mechanisms and focus on substance. These dealings are still real property purchases financed with a loan, so courts should offer those in default the same safeguards available under traditional mortgages. Robust public policies on ownership must be upheld, and fair protections for the family home cannot be sacrificed at the altar of innovation.

Keywords: crypto, home, blockchain, UCC, foreclosure, business entities, corporate law, NFTs, tokens, mortgages, property law