To fight deed fraud, Maryland considers the blockchain
Among the many scams growing in popularity in recent years is one called quit claim deed fraud, in which forged documents are used to steal real estate out from under from legitimate owners. Describing their experiences before Reddit threads and state legislatures, witnesses to the scam, which also bears the name home title theft, recount tales in which they return from vacation to find that their locks have been changed and that strangers are demanding they leave their own homes.
The FBI last year warned of the scam’s rise. Jodi Cohen, a special agent who heads the bureau’s Boston division, remarked in a press release on the “significant financial and emotional toll, including shock, anger, and even embarrassment” that results from such crimes as “folks across the region are having their roots literally pulled out from under them and are being left with no place to call home.” There aren’t reliable statistics on quit claim deed fraud, but the FBI reports that nearly 60,000 victims of the broader family of real estate crimes lost $1.3 billion between 2019 and 2023. The reported cost to victims of deed fraud alone might only total in the tens of millions of dollars, though the FBI has suggested that the actual total is “likely much higher” because many victims are embarrassed and do not report the crime.
Incidents of deed fraud are reported from across the country, but it’s most common in the northeast, where rapidly gentrifying communities and areas with many vacant properties attract scammers who seem to sense there’s enough institutional disorganization to provide them cover. Wes Moore, Maryland’s governor, last week signed a piece of legislation that directs the state’s taxation bureau to evaluate whether using blockchain, a distributed digital ledger most commonly used to publicly record cryptocurrency transactions, could help record and verify real estate ownership, with the aim of aiding law enforcement and the courts when such scams arise.
And Baltimore is among the places where deed scams are appearing. Two real estate investors from New York — Benjamin Eidlisz with Eluzer Gold — were recently accused of designing a scheme in which 11 homes were sold using phony documents. The Baltimore Banner last year reported that an alleged fraud ring led by Eidlisz and Gold included hundreds of homes and more than $100 million in loans spread across two dozen lenders.
Ron Watson, a Democratic state senator who introduced the legislation in Maryland, in January told his fellow lawmakers that the current deed verification system does not offer law enforcement or the courts a quick or accessible means of checking on claims of ownership. But, he continued in a lengthy pitch on the idea, “blockchain and other innovative technologies offer real opportunities to create streamlined processes, greater government efficiencies, cost savings for taxpayers and stronger protections for data property rights and public records.” He referenced a technology platform called “Quantum AI Shield,” which he described as a national registry that uses blockchain and artificial intelligence technologies to confirm home ownership and tenant registration. That platform, Watson proclaimed, is “setting a new standard in the fight against unauthorized property with immediate verification and response.”
Citing another potential solution for his constituents, Watson pointed to the City of Baltimore, where, in December 2023, a spending board authorized a $225,000 contract with a blockchain technology company called Medici Land Governance, described by its website as a public benefit corporation headed by Ali El Husseini, a former vice president of Overstock.com, the retailer that’s since rebranded as Bed Bath & Beyond. Medici’s website, which provides no substantive information about how its blockchain platform works, claims to use “the most advanced technology.” (An email requesting additional information bounced back.)
Ebony Thompson, Baltimore’s city solicitor, in January testified before the state’s legislature that her city’s use of blockchain for deed management has so far been a success. The project began as a way to track some 13,000 vacant properties that were costing the city in tax revenue and dragging down property values, but has since been expanded to 228,000 additional properties, Thompson testified. “That experience,” she said, “taught us the simple truth that when you strengthen the reliability and accessibility of title information, you unlock faster transfers, fewer disputes and more responsible investment.”
Watson said he had been meeting with Thompson and other government officials in hopes of learning how their blockchain project might be deployed more widely — for the county government, or the entire state. “This bill is not about technology for technology’s sake,” Watson said. “It’s about modernizing government processes that are still heavily dependent on paper, manual workflows and fragmented systems and asking, How can we do better?”
Watson invited his fellow senator, Johnny Ray Salling, to testify in support of his bill. Salling, a self-proclaimed lifelong Republican who’s dined on crab cakes with his political hero, Donald Trump, at the Boulevard Diner in Dundalk, said of Baltimore’s pilot, “The results is amazing. We see that people don’t have to go and do things on their own terms or go about a way for violence. They could do it legally and do it in a way, in a timely fashion. And it’s been proven.”
J.B. Jennings, another Republican state senator in Maryland, who in 2000 won a fishing competition called the White Marlin Open after reeling in a 158-pound shark, informed the legislature that, “I understand blockchain, know it well, with regard to crypto and everything, with mining,” but inquired as to whether there was “a official organization that mines this for legal documents versus fiduciary.” When one blockchain expert who’d been invited to testify began to explain that “mining” — a term that describes using computing power to uncover unclaimed cryptocurrency — was not related to the state’s proposal, he cut her off: “I know how it works.”
Among those who understand it, and even those who don’t, there are few technologies as polarizing as blockchain. Its boldest boosters hint at utopian futures in which cryptocurrencies and other decentralized platforms rearrange society’s power structures, and bestow greater privacy, convenience, freedom and agency to the masses. Patrick Byrne, the founder of Overstock, which in 2014 became the first major online retailer to accept bitcoin as a payment option, has suggested blockchain might “recreate the financial world as we know it.”
And then there are blockchain’s many skeptics and detractors, like Nicholas Weaver, an IT security researcher and lecturer at UC Berkeley who once gave a lecture entitled “Blockchains and Cryptocurrencies: Burn It With Fire!”, in which he opined that “public blockchains are grossly inefficient and don’t actually provide distributed trust.” When asked by email about Maryland’s proposal, he deemed it “classic ‘blockchain wish fulfillment’.” “‘Blockchain’ for deeds is a large piece of male bovine excrement that we first heard about a decade ago and yet nothing has actually gotten built, because all a blockchain represents is a ‘write once’ ledger, where you can only add entries not remove them,” he continued. In a nearby camp is Hilary Allen, a law professor at American University in Washington, D.C., who said recently that “generally speaking, my take is that blockchain is never the solution to your problem.” And in fact, she added, it might well make things worse.
Fans of blockchain often tout its core features of “transparency” — there’s no need to trust a central authority to verify transactions, because everyone can see them — and “immutability” — though it is possible to hack a public, distributed record like a blockchain, it’s usually thought to be prohibitively expensive and difficult to do so. Allen’s rejoinder: Why not just use a regular database? A handful of nations, including Australia, Canada, Ireland, Saudi Arabia and Thailand, don’t use deeds at all, but a register of land holdings that records who holds the title to each piece of property. Setting it up didn’t require blockchain, or even computers. The system, called Torrens title, has been in use since 1858.
But Maryland doesn’t need to abandon deeds to stop fraud, Allen said: “You have to change culture. The challenging part is not putting together the database. It is getting buy-in and sign-off from lots of different constituencies,” like the police, the courts, the legislature and land records agencies. “You don’t need blockchain and you don’t really need any kind of fancy tech solution to do this. You just need some kind of recordkeeping.”
Allen admitted that her criticism mainly targets open blockchains, and argued that private blockchains allowing access only to certain “permissioned” users (like government officials) are not terribly different from traditional databases. Which type of blockchain Maryland might use or which company the technology might come from are decisions to be informed by a task force, composed of government officials and private-sector experts, created by another piece of legislation Maryland’s governor signed into law last week.
One member of that group is Jacqueline Cooper, chief executive of the Maryland Blockchain Association, who testified in favor of Watson’s legislation. She explained to lawmakers that using blockchain to track property titles “is not unusual and is really necessary.” She cited blockchain’s use in the federal government — including at the Department of Commerce and the Department of Defense — and use by large corporations, like FedEx, for supply chain management. (Walmart also famously uses a permissioned blockchain as part of its supply chain management.) For the state’s tracking of deeds, Cooper said in an interview, “this is no different than a supply chain.”
When asked why blockchain is necessary, she explained: “It’s the proof of concept of the ownership. It can be faster, more efficient. It can also help on the deed record side, too, because again there’s only so many staff in the deeds records office. If we can automate certain things that are verifiable, then it makes it more efficient for the system, for the owner. So that’s why blockchain is good from that perspective.”
Anton Dahbura, executive director of the Information Security Institute at Johns Hopkins University, said in an interview that he thinks Maryland’s project “is a good step forward to reduce certain types of fraud.” Using blockchain, he said, would provide an “an extra layer of certification that the document hasn’t been altered since it was entered into the blockchain.” But he also noted the technology’s shortcomings, including its computational overhead: “Is it going to change the world? No. Is it going to improve things where that need exists? Sure. It’s OK.”
But, Dahbura said, technology alone won’t resolve fraud issues in Maryland or anywhere else: “It’s only one step on what needs to be a comprehensive overhaul of the whole way that we create and record deeds and property related documents. The whole system is archaic and it relies on humans. And quite frankly, at this point, I think that I encountered better security when I tried to cancel a cable subscription.” And though blockchain might offer additional certification, he pointed out that if a scammer manages to get a fraudulent document certified by a trusted blockchain, through insider fraud, for example, then nothing has been solved. “It’s pretty typical,” he said of insider fraud. “You rely on the property owners, on lawyers, on notaries and on clerks and staff inside of the system. Everyone has to be trustworthy. And that doesn’t always happen.”
Watson’s office did not respond to emails and phone calls seeking additional information about the state’s project and his interest in blockchain. When asked for comment, the office of Thompson, Baltimore’s city solicitor, provided a link to her testimony and a link to a podcast interview, with a website called Shecrypto.org, in which she expressed a wish to expand the capabilities of the city’s platform to include “tokenization” and “fractional ownership.” Those features, she explained to an excited host, would allow members of the public to purchase partial ownership in large-scale real estate investments, so that investors “won’t have to rely as much on banks and they won’t have to put up as much money.” She also floated the idea of an “expedited permitting” system, a potential extra “stream of income for the city.” She did not say whether the city’s blockchain was public or private or provide any technical details, except to say that Medici had designed the city’s blockchain “from the ground up.” When emailed again for more information, her press secretary did not respond.
Fractional ownership schemes don’t always pan out for fractional owners. A Florida real estate company, called RealT, that owns hundreds of properties in Detroit recently stopped making its weekly payouts to investors, while tenants in its properties have reported unresponsive property managers. The city has filed a nuisance abatement lawsuit against the company and a judge has ordered that all rent paid by tenants must now go into an escrow account, only to be used for repairs, though local news reports last month concluded those funds may not be enough to rehabilitate the buildings. The city’s lawyer predicted that as many as 50 buildings will need to be demolished, dozens of multifamily buildings will be condemned and the that city will be left to provide relocation assistance to the tenants.
When asked why proposals to resolve scams often involve controversial technologies, like blockchain and cryptocurrency, which themselves sometimes turn out to be scams, Weaver, the UC Berkeley researcher, said it’s “often because those hyping the ‘blockchain solution’ are personally invested in the self-assembled ponzi scheme that is cryptocurrency, or is a management ‘consultant’ knowing that Blockchain, like ‘AI’ is a buzzword that gets people to throw money at you.” He concluded by invoking his now-famous Iron Law of Blockchain: “Anyone who says you can solve X with ‘Blockchain’ doesn’t understand X and can be safely ignored.”
