Why Blockchain Technology Offers Great Benefits for Title Companies

Recently, we listed blockchain as one of the technologies increasing efficiency for mortgage lenders and servicers significantly in a variety of ways. In this post, we’ll focus on how it’s offering new solutions to title companies that will not only help them serve customers better, it could drastically change the industry as we know it.

We’ll also look at the rising fear by some in the industry that blockchain technology will abolish the need for title insurance, and, therefore, related businesses. (Hint: No, it won’t. At least, not anytime soon.)

What is Blockchain Technology?

Simply put, blockchain is defined as a digital ledger system (DLS). It duplicates, encrypts, and time-stamps transactions. Then it passes them anonymously through a myriad of computer networks on a “blockchain” connected to similar transactions through distinctive digital fingerprints called “hashes.” The purpose is to create a decentralized, secure record that isn’t managed by any single institution. It also can’t be altered by anyone once it’s been added to the blockchain.

The technology has become commonly associated with transactions involving bitcoin and other cryptocurrency. Yet it has evolved the past few years to become the foundational DLS for other industries as well.

Challenges Facing Title Companies

While the list of daily operational challenges that face title searches and insurance varies depending on who you ask, some are consistent amongst most companies. The top three are usually efficiency, accuracy, and security.

That’s why several forward-thinking companies are now looking at adapting blockchain technology as a way to meet those challenges. If not now; then in the near future. Blockchain is showing great promise as an ideal choice for any business transferring sensitive data.

Reducing Timelines and Ensuring Accuracy

According to the February 2022 REALTOR® Confidence Index Survey, issues related to title insurance companies are responsible for 12% of delays on home closings. That’s up 2% from the month before. Those delays are commonly connected to the amount of work involved and the time it takes to complete all required tasks. It doesn’t help that the industry may be facing a shortage of skilled labor soon.

Services offered by title companies, especially searches and reviews, are time-consuming and tedious. Blockchain technology offers the potential to reduce the time it takes significantly by streamlining the process. Once added to a blockchain, all titles, land ownership, liens, and other relevant data could be found quickly.

Since those records are extremely difficult to alter by unauthorized individuals, accuracy and transparency are also assured. Plus, the speed and ease of locating record means related costs could also be reduced.

Maintaining Title Data Security and Privacy

While hacking blockchains isn’t impossible, it is extremely difficult. By decentralizing and distributing the encrypted data, it makes transactions much harder to breach than more standard databases. Also, data is stored across a constantly updated shared network. So if anyone tries to meddle with it, other users will know pretty quickly.

That means that titles and related records are more secure, which reduces the possibility or fraud. All data is also anonymous and encrypted, so even though data is spread across a network and public, it still protects record privacy.

Blockchain Won’t be Replacing Title Companies Any Time Soon

Don’t worry. At the moment, there’s no danger of blockchain replacing title companies. Human oversight is and will always be essential. Keep in mind that blockchain technology is basically an advanced data storage and transfer system. While it makes property-related records easier to locate and more secure, there is still a risk of those records being wrong if the originals were filled out incorrectly or altered. Therefore, all records stored by blockchain technology will need to be reviewed for accuracy by title professionals.

Also, while blockchain does offer potential benefits for the title industry, it’s years from being perfected. For one thing, there are thousands of titles and related records that haven’t been digitized, especially in remote areas. So it will still require people to manually search for them in many cases.

The Future of Blockchain for Title Companies

Like any new technology, it will take awhile for blockchain to reach the point where it’s fully embedded in our everyday life and a substantial boon for title companies. One thing is for certain, it won’t be going away.

Even though not all property records are available yet, many are. So, in an industry where efficiency, accuracy, and security are critical, businesses looking to the future are already taking advantage of blockchain where they can.