eMortgages and Crypto Mortgages in Real Estate Finance

Description

Although most residential mortgage loans continue to be documented on physical paper the number of mortgages being closed electronically as eMortgages is increasing. Real estate counsel must be aware of the important advantages and disadvantages of paper mortgages versus electronic mortgages under the current legal framework.

An eMortgage is a mortgage loan that is evidenced by a defined type of electronic promissory note, with some or all of the loan documents being electronic documents rather than paper documents. A crypto mortgage is not a loan secured by cryptocurrency but rather a loan secured by real estate with the payment obligation evidenced by or tethered to a non-fungible token (NFT) that can be transferred without an electronic mortgage loan registry system. The NFT evidences the secured obligation if the obligation is embedded in the code of the NFT.

Paper promissory notes were formerly preferred because of the advantages and certainty they provided under UCC Article 3. However, both state and federal statutes enable an electronic equivalent to the negotiable promissory note, which is called a transferable record. More recently, states have begun to adopt the 2022 revisions to the UCC, including Article 12. Article 12 creates a new type of electronic record called a controllable electronic record (CER), which may evidence a payment obligation secured by real property. Under Article 12, a CER may be an NFT using blockchain technology, thus making the crypto mortgage a real and viable option.

Listen as Professor Julia (Julie) Patterson Forrester Rogers, Professor of Law at SMU Dedman School of Law, considers the current status and future of eMortgages and crypto mortgages and provides guidance for attorneys navigating the uncertain current and future legal framework in this area.