Topic: Secured mortgage borrowing & lending through self-issued crypto-bonds concept... (Read 1882 times)

The Australian Supreme Court would support a claim on the mortgage or any legal security on land title where an applicant has an equitable claim on the land. This would only happen if the borrower defaults. They would just need to employ a local lawyer to represent them.
The applicant making the claim would be the "holder in due course" [as set out in the Bills of Exchange Act 1909- this act governs all financial instruments including 'promissory notes' or as we refer to them as 'cash'] of the "token" or smart-contract. It is a contractural arrangement and there would be a equitable claim in any commonwealth country, I only know the 'laws' (statute law) in Australia. One does not need to be a resident to claim on a contract because in the judicature act it states; "if there is a controversy between equity and common law, the rules of equity shall prevail." (contract/equity over rules statute 'law') - Supreme Court Act WA sec25 (12) - http://www.austlii.edu.au/au/legis/wa/consol_act/sca1935183/s25.html

Which courts will enforce these bonds?

DavidMc0 - This post is quite old now, I don't know who will still be following it, - Have you put any more research into this? I am relatively new to crypto-currencies but know the basics enough to tie the Australian legals to a smart-contract. I am a property investor/deal-maker in Australia. My partner and I work for the DG institute, founded by a reputable barrister in Sydney.
We are currently raising our own mortgage for a off-grid sustainable eco-development in Margaret River Western Australia - 'Ecopodz'.
Australia's property boom has been fuelled by large investment from the Asian-pacific region, where I hear they banks are creating problems for cryptocurrency holders/investors. We thought a mortgage in a Western country with strong legal framework would be a safe haven for crypto-investors without "cashing out" so to speak.
If a crypto-investor invested in a mortgage it would come with a fixed interest rate - in our case 10%. Once the mortgage was tied to the smart-contract it could be broken down into minimal "tokens or coins" and traded and a "mortgage or property backed token or investment" - maybe a $1 value. Yes it would be somewhat 'pegged' to the underlying currency because the mortgage would need to be paid in the base currency (AUD), but this it not a speculative investment. It would be considered a "blue chip" asset. If someone was to default on their mortgage, the holder of the tokens can employ a local lawyer and repossess the property - exactly the same procedure as the banks. If this were to happen there would be costs involved which would come out of the owners equity - hence why banks normally only lend to 80% of the properties value.

The attraction for a crypto-investor would be that they could trade this token (part of the mortgage) and it would represent a fixed $ value with interest. It is backed by a tangible asset (land) and supported by strong Australian legal framework. This would save the investor having to cash back through traditional banks into fiat currency which is becoming a problem for some people, especially in Asia and I believe some parts of India and eastern Europe?

That's interesting that Bitcoin lending sites have volumes of 1-2m USD even with negative returns. 

With this concept the returns should easily be positive, with average interest rates of 2-5%, and default rates of well under 1% (assuming necessary legal accountability and due diligence is completed before people issue / buy assets).  The assets are much more liquid than loans from other platforms, as you would be able to trade mortgage assets you hold on an exchange at any time.

My hope for the long term is that this kind of P2P mortgage lending in one form or another makes big inroads to the global mortgage markets, and savings markets, so that individuals benefit with cheaper borrowing & better savings returns, instead of banks sitting in the middle taking a slice.

If this model works for mortgages, it could also be extended for unsecured debt, which of course would require higher interest rates, and different due diligence.

I hadn't thought of having a site to manage these, but that could be a good idea, as a site / platform could provide some level of due diligence, and potentially insurance options for approved assets.  However, if a company were set up to run this platform, there would be all kinds of regulatory issues to face, so person to person may be best initially, and then figure out what a company could do to facilitate the market to those less comfortable with P2P or holding some risk.

I dont think there any problem with liquidity for bitcoin investment. This ide would basically work simular to the other bitcoin lending sites like btcjam/btclendingclub/... that also have possibilitys to lend in fiat currency denominations but it would also have the added benefit of a real valid security in the form of a house. The other bitcoin lending sites probably have a lending volume of the equivalent of around 1-2 million usd a month in total so around 12-24 million usd a year. The main problem why they dont grow faster than they have done is that they havent got there loan/btc/fiat returnrate up in the 95-99% region yet and that really should be there number one priority to get there as soon as possible, the bitcoin lending site that first gets there has huge potential for increase in volume and will without a doubt grow a lot when they get there.
With your ide of a site with loans with house as security and the loans croudfunded from investors from around the wourld in it i see a huge potential as it should be easy to get the returnrate up in the desired region, so handled right i dont see why you shouldent be able to get past the othere lending sites and easily reach 100 millions $ volumes in a couple of years time.

Hi Odolvlobo,

It's similar to a normal bond in how it works, but it is issued by an individual, is secured to their property, and will take the form of a crypto-asset. 

Normal bonds require a centralised exchange, and are usually only issued by companies or governments.

With these mortgage crypto-bonds, asset holders would receive interest payments in Bitcoin directly through the crypto-asset protocol to ensure that the holders of the assets are the ones that receive the payments.  This is what would give the holders a bitcoin income stream, which they would of course be free to exchange for fiat or another crypto-asset or crypto-currency of their choosing.

This could be an issue at first, and hopefully less so as Bitcoin becomes more widely used.

The market cap of NuBits + BitUSD is only a little over $1m, so the demand for stable crypto assets doesn't seem to be huge.  This concept would have the advantage of offering predictable interest, and its future value is linked to a specific property.

I would hope that prospective borrowers would 'crowd fund' a good portion of their mortgage from their own friendship & family networks who aren't Bitcoin savvy, thereby introducing new people to Bitcoin & crypto assets & reducing the need for liquidity (until the initial lenders want to sell their assets).  I don't know how significant this would be, but I guess it would depend on the attractiveness of the interest rates compared to what's offered by savings accounts.

I didn't think costs would need to be high for the legal structure, assuming a clear loan agreement specifically for this purpose could be made based on cheap or freely available templates, and possibly a bit of crowd sourcing by interested people.  Once a template is available, anyone could use it for this purpose freely.

Another poster mentioned permits.  What are these in this context, and what is the requirement for permits for lending money between individuals? (I'm based in the UK, and maybe these are a US thing?)

Then it is just a normal bond except that payments are made using Bitcoin. Asset holders wouldn't need an bitcoin income stream because they can easily convert the payment from fiat.

The main problem is market liquidity. Bitcoin investment for the most part is quite stagnant, and in order to just do an average mortgage, you're talking about a significant sum of money. It can be done legally, but the cost is going to be rather high due to the required legal structure, permits, ect.

Thanks for your reply.

Yes, my idea is that the mortgages would be tied to the fiat currency of the country where the property is located, though actual interest payments would be made in Bitcoin.  This means that asset holders would have a steady income stream of Bitcoin.

I guess people could choose to denominate their mortgage fully or partially in Bitcoin, but to me this would be a bad idea.  If the Bitcoin price were to rise, their mortgage payments would rise in proportion, and vice versa for the lenders.  This would be a risky proposition over many years, or even a much shorter time period.

DavidMc0 If it would work simular to how loans with house as security does in the fiat world i surely think there should be a market for that type of secured bond/PTP lending for house loans in the BTC crypto sector. Is your ide that the loans would be tied to a fiat currency like USD/EUR/GBP.. or straight BTC loans or that people can choose anywhere in between (1-99% BTC tied) also ?

I’ve been considering a new mechanism for funding mortgages, and potentially other forms of debt, which is effectively individuals self-issuing bonds.

I’m wondering if there would be demand for mortgage debt in the form of crypto bonds that are legally secured to a property?

Would you be interested in crypto-bonds that would:

• be legally secured to the property being bought
• be a highly stable store of value
• predictably generate interest
• easily be sold or bought on exchanges
• be person to person with no platform in between (hopefully unaffected by regulators)
• enable savers to get better interest rates than saving accounts (depending on market)
• enable borrowers to borrow more cheaply than through traditional lenders (depending on market)
• reduce dependence on the lending institutions who helped cause the financial crisis in 2008

In principle, if trust & legal enforceability could be established, do you think people would be interested in buying, holding, and trading this type of asset as part of their crypto portfolio?

There would certainly be challenges in achieving this, which I think can be overcome, but there’s little point working on it unless there’s a good chance of demand for the assets.

What do people think?

• Would you be interested in stable value, interest bearing crypto-assets?
• Do you like the idea of peer-to-peer mortgage borrowing without banks or middlemen?
• Do you like the idea of directly holding high-quality mortgage debt?
• Have others tried this or discussed it elsewhere?

I’d love to hear people's thoughts.