Patent Application
20220414773
The present application relates to a computerized network system and method that creates and trades securities from equity, and more particularly to an electronic service system for providing enhanced artificial intelligence in creating and trading securities from equities in real estate properties.
Note that the points discussed below may reflect the hindsight gained from the disclosed inventions, and are not necessarily admitted to be prior art.
Problem scope: when the paper was written on Dec. 24, 2013, only 13% of mortgaged homes in the United States are “under water”, where their value is less than the sum of liens and that percentage is on a downward trend. So, the vast majority of home owners who have a mortgage have positive equity and the amount of equity per home is also on an upward trend. Further, ⅓ of all homes in the United States do not have a mortgage at all—they are owned free and clear. There are about 50 million mortgages and about 25 million homes owned free and clear. The median home value is $200,000 and the average equity in a mortgaged home is about 40% of its value. So, the total asset value of combined home equity in the United States is: 200,000×25,000,000+(200,000×40%)×50,000,000=9,000,000,000,000 or $9 trillion. That $9 trillion is illiquid and non-transactional and is essentially “sitting out of the economy”. Today, as of this filing, that number is $26.3 trillion. The only broad methods to liquidate home equity are to refinance or sell and in a much lesser volume, use reverse mortgages. These methods are not applicable to all owners with equity. For instance, wealthy owners who do not have a high income may not qualify for a refinance. As the life expectancy in the United States increases, reverse mortgages are less attractive to those recently retired. Enabling a person with high net worth or considerable equity in their real properties or other non-cash flow producing assets to create some liquidity out of their assets stimulates the economy as a whole.
Previously, there are Mortgage-Backed Securities and REITs that create an investment vehicle from cash flow generating assets. Unison.com now provides securitization of home equity; however, they do not offer an artificial intelligence enhanced and computerized marketplace for home equity sellers or buyers to trade with each other.
Problems solved: when the provisional patent application was written in 2014, there was no system or method in existence to create tradable securities from assets not intended to produce cash flow such as home equity. Though a couple of systems do provide that today, those are limited to very few selected properties. There isn't an artificial intelligence enhanced marketplace where homeowners can sell their equity for cash with fairness and there isn't a computer managed process where members of the public can purchase and sell such equity.
With this invention, a computer system with artificial intelligence is constructed to create tradable securities out of equity in people's homes. These homes could be owner occupied or rental homes. Cash flow is not a pre-requisite for these securities; however, cash flow does not preclude a property from participating in this system. Though this invention is written illustrating equity in US homes, the same idea is applicable globally and also to other situations with equity such as farm land, precious metals, art or any other perceivably appreciating asset.
The present application discloses a novel user interface and software platform at the application level to function as security trading network based on real estate equity values with artificial intelligence.
An example embodiment of the system builds a securities portal where an asset owner can declare his equity in the asset, sell a portion of his equity and receive cash compensation for it, a method for shares to be created out of the sold equity, method for the shares to be advertised and sold to buyers, method and system for such shares to be traded among the public, method for share value to be adjusted based on appreciation of the asset, method to record the agreement between the home equity seller and the securities buyer that the buyer will be compensated for the portion owned from the eventual sale of the home, a method to insure the contract against fraud, a method to insure the contract against home value loss. The portal also performs bookkeeping functions using blockchain technology such as registration of equity-sellers, share-purchasers, tracking outstanding shares and total share value assigned to each property and functions needed to enable variations to the solution and derivatives from the solution.
In the basic embodiment, a person who has equity in a property, equity-owner, decides to create and sell securities out of his equity on the portal. Equity is the value of the property minus sum of all liens on the property. The transactions are executed using the following steps and actions, includes computer software implementing functions for Declaration of Intent to Sell, Assessment of Property Value and Owner Equity, Equity-Owner Payment, Creation of Shares, Advertisement and Sale. Creation of Contract, Constructing a Secondary Market, Providing Security Insurance, Sale of Property and Gains, Recording the Release of Liens.
An example computer embodiment implements a Model View Controller architectural pattern for the processing of application data that are separate from the viewer and controller of the host machines. The presentation layer implements data instances that deliver an interface that implements the logic for processing user data and input.
An example embodiment of the portal network system includes collective intelligence data hubs for property value and equity assessment and for trading platforms. The data communication hub transforms the various user data components to be communicated through various computer components made up of web services, networks, and trading application services for performing TCP/IP related tasks as well as the utilization of many of computer communication protocols such as interactions with its own embedded databases and other internal databases via its domain network pool. It also wraps services, such as multiple computer transactions as a single executable binary.
In one embodiment, each network of profiled users act through an interconnected set of internal and external networks based upon role(s), the users will be assigned multiple user interfaces for its VLAN or wireless computer Network implementations such as Virtual Private Network (VPN), Internet and/or a Cellular Network Address, network protocols include Link Aggregation, IEEE 802.3 Standard, IEEE802.0 standard, layer 2 tunneling protocol (L2TP) over IPSEC or Internet Protocol Security.
The disclosed application will be described with reference to the accompanying drawings, which show important sample embodiments of the invention and which are incorporated in the specification hereof by reference, wherein:
The numerous innovative teachings of the present application will be described with particular reference to presently preferred embodiments (by way of example, and not of limitation). The present application describes several embodiments, and none of the statements below should be taken as limiting the claims generally.
For simplicity and clarity of illustration, the drawing figures illustrate the general manner of construction, and description and details of well-known features and techniques may be omitted to avoid unnecessarily obscuring the invention. Additionally, elements in the drawing figures are not necessarily drawn to scale, some areas or elements may be expanded to help improve understanding of embodiments of the invention.
The terms “first,” “second,” “third,” “fourth,” and the like in the description and the claims, if any, may be used for distinguishing between similar elements and not necessarily for describing a particular sequential or chronological order. It is to be understood that the terms so used are interchangeable. Furthermore, the terms “comprise,” “include,” “have,” and any variations thereof, are intended to cover non-exclusive inclusions, such that a process, method, article, apparatus, or composition that comprises a list of elements is not necessarily limited to those elements, but may include other elements not expressly listed or inherent to such process, method, article, apparatus, or composition.
A “Component” is functional unit of the claimed software portal system that provides an actual transactional interaction realization with its results being stored either in database or displayed on a screen, through a set of user interfaces. It includes automated software user interfaces that comprises computer processors, computer memory and storage, binary code, executables, scripts that are packaged for performing the intended functions.
“Method(s) or process” term means a method for object oriented programming code whereas it performs a subroutine and is exclusively associated with a class or an object. Normally, consists of a sequence of programming statements to perform an action, a set of parameters to customize those actions, and possibly an output value (sometimes called a return value).
A “portal” means a set of multiple but unique methods (methodologies) for the automation of data network services, data communications, data storage, and data storage retrieval, Live Multimedia Streaming, Social Media Hubs, Collective Intelligence Hubs that can enable collective intelligence as stored business intelligence data, enabling a method that reverses the need for large data centers by enabling machine to machine connection with like-peers in blockchain technology.
“Web-Service” is an application layer service that executes via a public internet interface via TCP/IP. A web service is one that can be located, discovered, and published via a network channel. Additionally, a web service can also act as an intermediary business application service agent that is an encapsulated service provider, but can also be a service requestor. Normally, this type of service-agent acts as lightweight program executable that has a small memory footprint and can be custom developed. This component may not encapsulate a true web service as it does not have a WSDL endpoint, but will expose an internal, yet unique set of API libraries that will allow a single binary executable to “wrap” services so that tens of millions of requests can be granted at a time. With optimal load balancing being achieved a CPU is not taxed to the max as to crash a physical server disk or its domain network community. A “Web Service” generally means Services that are application oriented and encapsulate a business logic that executes an application as a business service.
For “Network Services”, there are two types. One type of “Network Services” mean file sharing services, file services, collaboration services, and messaging. They can also be located, discovered, and published. Another type of Network Service, taking the form of a Network Interface, implements a standard connection protocol, such as Ethernet, Wireless, etc.
“Service” means either a Network Service and/or Web Service.
A “Model View Controller” is an architectural pattern for the application data that are separate from the view and controller of host machines. The presentation layer implements its own views, as mirrored instances that deliver an interface that will implement the logic for processing user data and input on a locally virtual application server instance. It also wraps services, such as multimedia services as a generated instance of a single executable binary.
Additionally, it is contemplated and intended that the architecture not only functions in reverse of client serving computing, but also encapsulates and build application services through a service oriented architecture layer consisting of an application layer, a business service layer, and the orchestration layer. Then, the service models encompass utility services and wrapper services, etc., including their corresponding hardware components.
A system and method are described in this invention includes a specifically programmed hardware components that are functionally transformed into a securities portal—also simply knows as the portal henceforth—where an asset owner can declare his equity in the asset, sell a portion of his equity and receive cash compensation for it, a method for shares to be created out of the sold equity, method for the shares to be advertised and sold to buyers, method and system for such shares to be traded among the public, method for share value to be adjusted based on appreciation of the asset, method to record the agreement between the home equity seller and the securities buyer that the buyer will be compensated for the portion owned from the eventual sale of the home, a method to insure the contract against fraud, a method to insure the contract against home value loss. The portal also performs bookkeeping functions such as registration of equity-sellers, share-purchasers, tracking outstanding shares and total share value assigned to each property and functions needed to enable proposed variations to the solution and derivatives from the solution. In the basic embodiment, a person who has equity in a property, equity-owner, decides to create and sell securities out of his equity on the portal. Equity is the value of the property minus sum of all liens on the property. The system transactions and uses are described as in following steps and actions.
Step 1—Declaration of Intent to Sell: The equity-owner accesses an online portal made available to him for the purposes of this solution, identifies his property and declares an intent to create and sell shares for a percentage of his equity in the property. The portal is optionally capable of restricting how much—as a percentage—of his equity he is able to sell to create securities. For a single-family home in the United States, the property may be identified by its complete street address or legal description. The portal in addition may optionally require parameters that identify the financial strength of the equity-seller, his credit score, annual income, net worth or other parameters deemed necessary to create confidence in the system.
Step 2—Assessment of Property Value and Owner Equity: The portal may employ one of several methods to assess the value of the property submitted for security creation by the equity-owner. The options are stated value by equity owner, value assessed for purposes of property taxation, value as estimated by systems such as Zillow or other online automatic value assessment method, value as determined by a licensed real estate appraiser, value as determined by real estate brokers opinion, or any other method the portal deems appropriate. Owner equity may be optionally verified by cross-checking existing databases that track outstanding liens, obtaining a statement from the lending institution that has a current lien on the property or other methods suitable to the portal. The portal also has information about any prior equity sales associated with the property. The portal validates Property Value and Owner Equity through the Artificial Intelligence statistical analysis module that compares multiple geographic factors, property tax history, property built time, conditions of the property, information from government permits database and recent sales data, mortgage interest, etc. The artificial intelligence is constructed using several mathematical model, and is market tested, and tested by empirical data of appraisers for accuracy.
Step 3—Equity-Owner Payment: After the owner has declared an acceptable percentage of equity to be sold for share creation and the portal has assessed his property's value and equity position, the portal optionally registers a lien with existing registrars such as the property's county registrar so that the portal will be consulted if the property is offered for sale or encounters other encroachments that will interfere with the rights the portal earned through this transaction. In an embodiment, the equity-owner is compensated for his sold equity as cash minus applicable portal commissions and fees. In another embodiment, the shares as described below are created and sold and the owner compensated as the shares are sold.
Step 4- Creation of Shares: The portal creates shares from the sold-equity. The face value and number of shares are not fixed in the invention and are determined based on the portal's calculations of what provides best sale velocity. The portal may use factors such as location of property, amount of equity to convert to shares, availability of investors who may buy the shares and any other factor to arrive upon the number of shares and its face value. For the purposes of this invention, these shares are called primary market shares.
Step 5—Advertisement and Sale: The portal advertises these shares to qualified and accredited investors or investors who are otherwise allowed and eligible to purchase these shares or the members of the public. In an embodiment, the portal collects payment form the share-buyers and recuperates the amount paid to the equity-owner (or equity-seller as he is now). As there is a time period between when the portal paid the equity-owner and sells shares and collects cash from share-buyers, the portal is carrying a risk. This is a factor that the portal developer may use in calculating commissions and fees applied to this transaction. The share purchasers may also be charged a commission or fee. The portal has a motivation to sell these shares as quickly as possible. In another embodiment where the equity seller has not been paid, the portal credits the equity seller as the shares are sold. The portal's risk is reduced in this case.
Step 6—Creation of the contract: A contract is created between the home equity seller and the securities buyer conferring a portion of the future sale price as determined by the number of securities the buyer purchased when the home sells. This contract is also transferrable to the new buyer of the home if the new buyer agrees.
Step 7—Secondary Market: The securities obtained by a securities buyer as stated in the above paragraph can be sold on the platform to others who want to purchase the securities for presumably a higher price than what the securities buyer bought it for. The securities buyer can also “offload” these securities for a lower price than what they bought it for to cash out. When securities are traded in this manner, the contract between the home equity seller and the securities buyer is updated to reflect the new securities buyer.
Step 8—Securities Insurance: Along with the securities, the platform also offers insurance that the security buyer can purchase. Two kinds of insurance products are offered: first is one that protects the security buyer against fraud. An example of fraud is where the home equity seller, sells the property and does not compensate the portal for distributing gains to the securities holder. In this case, the provider of the insurance—“the insurance company”, compensates the security buyers who bought this insurance and then has the option to take legal action against the seller for violation of contract. The second kind of insurance provided on the platform insures against an agreed upon minimum value of the future sale price of the home or a rate of return for the securities buyer on the value of their securities. It is expected that in this second kind of insurance, where the year-over-year appreciation of homes is about 10%, the assured rate of return could be a lower 3% and all the upside is to the insurance company and they get this reward for taking the risk to at least provide 3% to the securities buyer. It is expected that the second kind of insurance is built on-top of the first.
Step 9—Sale of Property and Gains: In an embodiment, when the property from which equity-shares were created as described in this invention sells, the ratio of the value of the property at point of sale to the value of the property at point of share creation is applied to the sold-equity. The resulting amount is handed to the portal by the home equity seller. Where a lien was created, the lien is released. The portal then assigns the proceeds to be distributed as gains to the securities holders. In an alternate embodiment, distributing funds to the portal at the point of sale is done by the closing company involved in the home sale closing transaction.
Two operation models are presented. First model is that the portal digitally buys the offered equity from the equity seller and compensates the equity seller before creating securities from the offered equity and placing those securities for sale on the market. Second model is that the portal places the created securities on the market for the members of the public to purchase and compensates the equity seller as the securities are sold on the marketplace.
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In this illustration the total cash proceeds received by owner is $175,000+$100,000=$275,000. If the owner had not participated in the system and sold his equity, he would have received $500,000−$200,000=$300,000. The difference of $25,000 is the price the owner is paying for the benefit of drawing cash from his otherwise illiquid asset much before sale. The investors made $2,500 each.
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Blockchain
Several new software objects are defined: “hashlib” is imported for the encryption, JSON library is used to format the blocks, and time for each block's timestamp.
“chain”: an empty list to add blocks to.
“pending_transactions”: when users send our transaction object to, their transactions will sit in this array until it is approved & add them to a new block.
“new_block”: this is a method defined to add each block to the chain.
“new_transaction( )” method with several most important variables: Equity Seller, Equity Buyer and Tradable Equity, Owner Equity, Share Value, Number of Shares, Total Share Value, Appreciation, Total Share Value at Point of Sale. Blockchains use SHA-256, an encryption hash function, which takes in some text string (stored as a Unicode value) and spits out a 64-character long encrypted string.
In addition to the simple embodiment above, several variations are described here that extend the embodiment and are seen as the more likely methods this invention will be deployed and used.
Pooling: This variation modifies the basic embodiment by employing not one but a pool of properties whose owners have declared to sell their equities. Such pools may be created based on owner profiles, property locations, communities the properties belong to, property appreciation expectation models, property type (single family vs condominiums), properties in gated communities, under home owner associations or several other factors. Pools may also be created or formed by the portal based on securities buyer behavior or explicitly created and shared by securities buyer. Pooling may create a time period when similar properties may be accumulated before shares can be created. These shares now represent a portion of the value of the combined equity in the pool. The total value of these shares is the value of the pool. Pools may optionally require the same maximum equity-to-cash conversion percentage or a fixed equity-to-cash conversion percentage. Even when properties are pooled, applicable gains from appreciation at point of property sale are individually dispatched to the portal for further processing by the portal.
Impact on Variations from Property Sale. When properties are pooled as described in variation 1 effect of a single property sale is indirect. Pool values may be adjusted on a predefined schedule, such as every quarter of the year and property sales that have occurred in that period contribute to the adjustment. For example, if a similar type and size of properties in similar kinds of neighborhoods are in a pool, then the average sale price per square foot for the period may be used in computing the total adjustment for the pool value.
Application of Pool Value to Primary and Secondary Market Shares. After the pool values are adjusted, where there is only a primary market of shares, the face value of those shares is correspondingly increased or decreased. Where there is a secondary market, a considerable appreciation of pool value may result in a dividend optionally paid to the secondary market share holders from the funds collected over a period of time from property sales. Where there is a depreciation in value when property sells, it is expected that as secondary market shares are traded, the share value will implicitly decline resulting in appropriate losses for the secondary market share holders.
No Distribution at Point of Sale. In the simple embodiment, funds are distributed to primary market share holders when the property sells. Where there is a secondary market, a dividend may be optionally paid from property sale proceeds. In this variation, instead of distributing the funds to the primary or secondary market shareholders, the portal retains the funds as that property's or where the properties are pooled, that pool's “community investor share”. Where a secondary market does not exist, the portal must be able to distribute funds from this community investor share to primary market share holders on demand and adjust the community investor share accordingly. Alternately, the portal allows for the new purchaser of the property to inherit the contract between the home-equity seller and the collection of share owners, thereby deferring the need to settle at the point of sale. This process allows for the new home purchaser to effectively secure the home at a lower price or a lower down payment.
Zero Equity/Appreciation Rights. The invention also applies where at the start the home owner has no equity at all in the asset and is also not expecting to grow an equity in the asset by making principal payments to a lender. What's tradeable in this scenario is the appreciation and merely the current or future equity portion that the home owner gets through appreciation alone. As a portion of future value is sold to share buyers, there is no need for the home-owner to have current equity in the property when shares are created. The agreement is to simply share a portion of future sale.
Rate of Equity through Principal Reduction. Where the homeowner is making principal reductions and his equity growth is faster than that or others, the invention allows for the share values to grow above the asset appreciation rate to entice more participation from the share buying community. This creates share demand, which will in turn entice the asset owner to make more equity available to be sold through this invention as shares. The reverse of the above is also allowed by this invention where if the principal reductions are slower or missed, the share value growth can be computed below the asset appreciation rate to show more risk to the share buying community.
Portal is a Pass Through. As shown in Diagram 1 and Diagram 2, the solution and all variations above can operate where the portal is the broker and transacts with the principal equity-seller or the portal can be a pass-thru where it enables share buyers to transact directly with the principal and facilitate creation and trading of fractional shares on behalf of the equity seller.
Other assets. This method and its implementation are not limited to residential real estate assets but is applicable to commercial real-estate assets or digital and virtual assets such as art, music, intellectual property, creative work or assets in the Metaverse.
Impact of Community Investment Share on Cash to Purchase Property. When a portal retains and maintains a community investor share or where the existing contract to share future appreciation between the home owner (also the equity seller) and the collection of security buyers is transferred to the new home buyer, that share is taken out of purchase price of that property or in the case of a pool whatever proportion applies to a single property in that pool. This reduces the cash to close for that property. From the simple embodiment illustration above, the new purchase for the property will pay:
Vs−TSs=$500,000−$125,000=$375,000
As is normal, assuming an 80% loan to “value” where value in this calculation is the reduced price and not the value of the property at time of sale, the property purchaser will need a cash to close of $375,000*20%=$75,000. Without the community investor share applied, the purchaser would have had to bring a cash to close of $500,000*20%=$100,000. This makes home buying more affordable and does not add the risk of lower skin in the game as the community of investors have their vested interests. Akin to homeowners' associations it is expected that the community of investors will have a body overseeing their investment. Their motivation is aligned with the lenders. Therefore, in this model, we have a three-body system that can cross check and counter balance each other.
Consideration for other Liens on Property. As this invention proposes shares, it is assumed that they are of a lesser standing than debt-based liens that may be on the property. In the event of a foreclosure, the primary lien holder recovers the property and attempts to sell the property in a foreclosure auction. After a sale, the seller may be compensated for built-up equity based on applicable contracts and laws. From the balance, both primary and secondary market share holders may be compensated. It is conceivable that in a foreclosure event, the primary and secondary market share holders will lose their investment just as the home owner might. Pooling reduces the direct impact from a single foreclosure as the foreclosure merely results in a possible reduction in market value of the kind of properties that constitute the pool. In the most likely embodiment of this invention, there will be pools and there will be a secondary market, so the impact of foreclosures is marginalized as long as there is not an unusual amount of foreclosures in a pool. Collection of parameters to determine owner's financial strength at the time of share creation by the portal is to mitigate and correctly evaluate this risk.
Mitigating Foreclosures with this Method. When a home owner is in default, lenders can now use the method in this invention to take the rights to collect a portion of the future sale value of the house and sell that on the platform as securities, collecting either what's owed, what's in default or any other portion they deem good to address their risk, thereby allowing the home owner to continue to own the property. This allows lenders to not enter into an expensive foreclosure process or to take possession, evict and manage the property and possible tenants, none of which is the core of their business.
Derivatives. It is expected that derived financial instruments such as options to buy and sell primary or secondary market shares described in this system, mutual funds created by pooling shares from different pools and other investment methods will be created. The system does not preclude creation of any of these derivatives.
Laws. It is conceivable that some country, state or community laws or regulations may disallow portions of this invention and existing laws may have to be modified to accommodate parts of this system. It is expected that embodiments will be limited accordingly based on where they are implemented and governed.
Values of the System. The system allows anyone to potentially participate in the appreciation of a neighborhood without having to purchase a property in that neighborhood (which is the only method available today). This enables people to participate in real property appreciation with smaller investment amounts and so broadens the investor base.
With the “community investor share” variation, the system allows homes to be bought with lower cash to close while providing for a method to preserve property value by way of investor participation.
Provides for great liquidity by tapping into unrealized wealth and creating economic transactions from it. With the foreclosure mitigation method discussed provides stability to the real estate market.
None of the description in the present application should be read as implying that any particular element, step, or function is an essential element which must be included in the claim scope: THE SCOPE OF PATENTED SUBJECT MATTER IS DEFINED ONLY BY THE ALLOWED CLAIMS. Moreover, none of these claims are intended to invoke paragraph six of 35 USC section 112 unless the exact words “means for” are followed by a participle.
The claims as filed are intended to be as comprehensive as possible, and NO subject matter is intentionally relinquished, dedicated, or abandoned.
This is a continuation-in-part Application to the U.S. patent application Ser. No. 17/383,480, filed on Jul. 23, 2021 and U.S. patent application Ser. No. 17/384,862, filed on Jul. 26, 2021, entitled “System and Method to Create and Trade Securities From Equity,” from which priorities are claimed, and the entirety of which are hereby incorporated by references. Priority is also claimed from the U.S. Provisional Patent Application No. 63/215,497 filed on Jun. 27, 2021, entitled “System and method to create tradable securities from equity”, the entirety of which is hereby incorporated by reference.
| Number | Date | Country | |
|---|---|---|---|
| 63215497 | Jun 2021 | US |
| Number | Date | Country | |
|---|---|---|---|
| Parent | 17383480 | Jul 2021 | US |
| Child | 17830691 | US | |
| Parent | 17384862 | Jul 2021 | US |
| Child | 17383480 | US |
