Tag Archives: state regulation

Tokenized Residential Real Estate

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I am excited that Who Controls the Block? How States Can Regulate Tokenized Residential Real Estate (co-authored with Bizub & Peralta) is forthcoming in the Texas A&M Law Review. The abstract reads,

In July 2025, the City of Detroit filed a major nuisance abatement action against RealT, a fintech that had sold blockchain-based fractional interests in more than four hundred Detroit rental properties to some 22,000 investors around the world. Within a year, a court had ordered the company’s rents into escrow, the company had conceded to its investors that its “model no longer works,” and it had announced the liquidation of its portfolio  —  leaving tenants without basic services and token holders facing steep losses.

This article uses the rise and collapse of RealT, together with case studies of the other leading real estate tokenization business models, to evaluate the claims made for tokenized real estate as a new asset class for individual investors. Measured against the publicly-traded REIT, tokenization offers only one advantage to investors —  a bespoke level of diversification  —  and it does so while shedding the investor protections that registration and exchange listing provide. More fundamentally, the leading business models rest on skirting the state and local legal infrastructure of real property: recording regimes, transfer and property taxation, and homeowner and tenant protections. Like the mortgage industry’s Mortgage Electronic Registration Systems, Inc. (“MERS”) a generation ago, tokenization externalizes the costs of that end-run onto the parties least able to bear them.

Real estate tokenization is still in its infancy, and state and local governments have a window of opportunity to shape how these fintechs operate within their borders. Some have begun to use it: Maine’s first-in-the-nation statute regulating shared appreciation agreements supplies one template, and Detroit’s enforcement campaign another. This article maps the gaps that remain  —  most notably in transfer taxation and tenant protection  —  and offers an agenda for closing them before tokenization scales.

Who Controls the Block? How States Can Regulate Tokenized Residential Real Estate

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I have posted Who Controls the Block? How States Can Regulate Tokenized Residential Real Estate to SSRN (with Bizub & Peralta). The abstract reads,

In July 2025, the City of Detroit filed a major nuisance abatement action against RealT, a fintech that had sold blockchain-based fractional interests in more than four hundred Detroit rental properties to some 22,000 investors around the world. Within a year, a court had ordered the company’s rents into escrow, the company had conceded to its investors that its “model no longer works,” and it had announced the liquidation of its portfolio  —  leaving tenants without basic services and token holders facing steep losses.

This article uses the rise and collapse of RealT, together with case studies of the other leading real estate tokenization business models, to evaluate the claims made for tokenized real estate as a new asset class for individual investors. Measured against the publicly-traded REIT, tokenization offers only one advantage to investors —  a bespoke level of diversification  —  and it does so while shedding the investor protections that registration and exchange listing provide. More fundamentally, the leading business models rest on skirting the state and local legal infrastructure of real property: recording regimes, transfer and property taxation, and homeowner and tenant protections. Like the mortgage industry’s Mortgage Electronic Registration Systems, Inc. (“MERS”) a generation ago, tokenization externalizes the costs of that end-run onto the parties least able to bear them.

Real estate tokenization is still in its infancy, and state and local governments have a window of opportunity to shape how these fintechs operate within their borders. Some have begun to use it: Maine’s first-in-the-nation statute regulating shared appreciation agreements supplies one template, and Detroit’s enforcement campaign another. This article maps the gaps that remain  —  most notably in transfer taxation and tenant protection  —  and offers an agenda for closing them before tokenization scales.

 

P2P, Mortgage Market Messiah?

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As this is my last post of 2015, let me make a prediction about the 2016 mortgage market. Money’s Edge quoted me in Can P2P Lending Revive the Home Mortgage Market? It opens,

You just got turned down for a home mortgage – join the club. At one point the Mortgage Bankers Association estimated that about half of all applications were given the thumbs down. That was in the darkest housing days of 2008 but many still whisper that rejections remain plentiful as tougher qualifying rules – requiring more proof of income – stymie a lot of would be buyers.

And then there are the many millions who may not apply at all, out of fear of rejection.

Here’s the money question: is new-style P2P lending the solution for these would-be homeowners?

The question is easy, the answers are harder.

CPA Ravi Ramnarain pinpoints what’s going on: “Although it is well documented that banks and traditional mortgage lenders are extremely risk-averse in offering the average consumer an opportunity for a home loan, one must also consider that the recent Great Recession is still very fresh in the minds of a lot of people. Thus the fact that banks and traditional lenders are requiring regular customers to provide impeccable credit scores, low debt-to-income (DTI) ratios, and, in many cases, 20 percent down payments is not surprising. Person-to-person lending does indeed provide these potential customers with an alternate avenue to realize the ultimate dream of owning a home.”

Read that again: the CPA is saying that for some on whom traditional mortgage doors slammed shut there may be hope in the P2P, non-traditional route.

Meantime, David Reiss, a professor at Brooklyn Law, sounded a downer note: “I am pretty skeptical of the ability of P2P lending to bring lots of new capital to residential real estate market in the short term. As opposed to sharing economy leaders Uber and Airbnb which ignore and fight local and state regulation of their businesses, residential lending is heavily regulated by the federal government. It is hard to imagine that an innovative and large stream of capital can just flow into this market without complying with the many, many federal regulations that govern residential mortgage lending. These regulations will increase costs and slow the rate of growth of such a new stream of capital. That being said, as the P2P industry matures, it may figure out a cost-effective way down the line to compete with traditional lenders.”

From the Consumer Financial Protection Bureau (CFPB) to Fannie and Freddie, even the U.S. Treasury and the FDIC, a lot of federal fingers wrap around traditional mortgages. Much of it is well intended – the aims are heightened consumer protections while also controlling losses from defaults and foreclosures – but an upshot is a marketplace that is slow to embrace change.