BILL ANALYSIS

C.S.H.B. 5067

By: Bhojani

Land & Resource Management

Committee Report (Substituted)

BACKGROUND AND PURPOSE

A distributed ledger, or distributed ledger technology (DLT), is synchronized digital data that is geographically spread across multiple institutions and sites. DLT is a supporting infrastructure that allows computers to validate transactions and update records across a network and is efficient in maintaining a secure and decentralized record of transactions. Currently, there are no mechanisms in place to utilize DLT for title registry purposes in Texas counties. C.S.H.B. 5067 seeks to address this issue by providing for a study of the potential impact of establishing a pilot program that utilizes distributed ledger technology for title registry purposes.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the General Land Office in SECTION 5 of this bill.

ANALYSIS

C.S.H.B. 5067 requires the General Land Office (GLO) to conduct a study on establishing and implementing, in partnership with the working group established by the bill, a distributed ledger-based title registry pilot program to record title transfers with distributed ledger technology. The bill requires a pilot program considered by the study to do the following:

·         include at least two counties of which at least one is a rural county and one is an urban county and determine the potential impact of the pilot program on those types of counties in particular and counties generally;

·         incorporate the recording of property liens simultaneously with existing recording methods so as to not disrupt current processes;

·         collect cost data sufficient to allow comparison of the costs to a participating county of continuing to facilitate onchain recordation and adapting to a distributed ledger;

·         determine whether existing data must be migrated to an immutable and public ledger for backwards compatibility;

·         evaluate both the public ledger and hybrid model as methods of recording to compare costs, security, transparency, and overall complexity;

·         provide for the recording of title transfers in connection with the pilot program in addition to existing recording methods;

·         determine the ability to expand the pilot program methods to other types of documents and information relating to real property;

·         incorporate the requirements of existing statutes related to the recording of property liens; and

·         ensure data privacy and proper protection against fraud.

C.S.H.B. 5067 requires the goals of the study to include the following:

·         establishing a protocol for implementation of distributed ledger-based recording;

·         identifying counties to be included in a pilot program;

·         determining the costs of the pilot program and of converting to a statewide distributed ledger system;

·         developing protocols for:

o   working with the selected counties to implement the program by training, educating, and collaborating with the counties to ensure that the pilot program is successful, efficient, and complies with a budget established by the GLO; and

o   partnering with a software company to create an application programming interface to integrate existing systems with the distributed ledger system and ensure that title transfer records are seamlessly incorporated;

·         identifying and considering issues concerning transparency and regulation of a distributed ledger-based title registry system;

·         determining funding sources for and other available resources to support implementation of the pilot program; and

·         determining appropriate vendor selection processes.

C.S.H.B. 5067 requires the GLO to establish a framework for a working group to discuss ideas, give feedback, and explore other opportunities relating to the study. The working group must consist of representatives from the following:

·         counties;

·         title insurance agents;

·         title insurance companies;

·         the banking industry;

·         appropriate regulators; and

·         the Texas Blockchain Council.

C.S.H.B. 5067 defines the following terms for the bill's purposes:

·         "distributed ledger" as a peer-to-peer network that operates without a central administrator or database and uses a distributed network of devices to utilize cryptography to immutably record and verify the accuracy of data;

·         "hybrid model" as a method of recording title to real property in which basic information from the deed is recorded on a public ledger with an identifier to the full document that is held on a separate, permissioned distributed ledger;

·         "onchain recordation" as recording and verifying the accuracy of data through a central administrator or database;

·         "public ledger" as a method of recording titles in which all records are documented on a publicly accessible distributed ledger where the county provides free public access to all documents;

·         "rural county" as a county that is outside the boundaries of a primary metropolitan statistical area or a metropolitan statistical area; and

·         "urban county" as a county that is partially or entirely inside the boundaries of a primary metropolitan statistical area.

C.S.H.B. 5067 requires the GLO to engage appropriate regulators to provide information for the study regarding the manner in which regulators could participate in crafting guidance for a pilot program that would include protection for all parties involved in a real estate transaction the title transfer for which is recorded with distributed ledger technology. The bill requires the GLO, not later than October 1, 2023, to adopt rules necessary to administer the study, and, not later than January 1, 2025, to submit to the legislature a report on the study's findings and any recommendations for legislative or other action. The bill's provisions expire September 1, 2025.

EFFECTIVE DATE

September 1, 2023.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 5067 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

While the introduced required the GLO to establish and implement a ledger-based title registry pilot program in partnership with the working group, the substitute requires the GLO in partnership with that working group instead to conduct a study on establishing and implementing such a pilot program.

Both the introduced and the substitute require an applicable pilot program, whether established and implemented or studied, to meet certain requirements, some of which are the same in both versions, and others that are different, as described herein. The introduced included a requirement for the GLO to ensure that the program considers the guidance that would be necessary to allow title companies to utilize government regulated stablecoins as an acceptable form of good funds for closing a real estate transaction and allow escrow agents to accept digital assets in transactions involving stablecoins or like-kind exchanges, whereas the substitute does not include this requirement. Accordingly, the introduced included definitions for "like-kind exchange" and "stablecoin" that are not in the substitute.

The substitute includes the following requirements for a pilot program that were not in the introduced:

·         a requirement for a program to determine the potential impact of the program on rural and urban counties in particular and counties generally;

·         a requirement for a program to determine the ability to expand the program methods to other types of documents and information relating to real property;

·         a requirement for a program to incorporate the requirements of existing statutes related to the recording of property liens; and

·         a requirement for the program to ensure data privacy and proper protection against fraud;

Whereas the introduced required the GLO to take certain actions to accomplish the goals of the pilot program, the substitute requires the goals of the study on the pilot program to include those same actions but also includes the following actions that were absent from the introduced:

·         determining the costs of converting to a statewide distributed ledger system;

·         identifying and considering issues concerning transparency and regulation of a distributed ledger-based title registry system;

·         determining funding sources for and other available resources to support implementation of the pilot program; and

·         determining appropriate vendor selection processes.

Whereas the introduced required the GLO to engage appropriate regulators to participate in crafting guidance that includes protection for all parties involved in a real estate transaction the title transfer for which is recorded with distributed ledger technology, the substitute requires the GLO to engage appropriate regulators to provide information for the study regarding the manner in which regulators could participate in crafting guidance for a pilot program that would include such protection.