Purchasing Real Estate in the Metaverse: Establishing NFTs, IP Rights, Jurisdiction, Venue, Foreclosure, Governing Law

Digital property owners are hoping to be the early entrants--the equivalent of owners of property on New York's Madison Avenue or the Hollywood Hills before they were developed. Just as in the real world, virtual property owners are exploring ways to further monetize their virtual real estate assets. With that opportunity comes risks, both analogous to real estate ownership, but also unique to digital assets.

In the real world, property owners have a deed that gives them a reasonably unassailable claim on their land (assuming a locale with reliable property laws). That claim is more easily lost in the metaverse given the risk of theft and even the collapse of the platform on which the land exists. Owners of virtual property must store their tokens in a "wallet," which is a method of storing the private keys to crypto assets. Theft of crypto assets from digital wallets is possible as wallet holders fall susceptible to exploits or otherwise fail to ensure the safety of their assets.

Mortgages have now appeared in the metaverse to help finance this virtual real estate boom.

This new virtual real estate market is regulated by existing law but there is little specific guidance on how loan enforcement, foreclosure, or bankruptcy might affect virtual real estate and virtual mortgages. Significant questions abound over what will happen if there are legal disputes over whether or not a loan is in default and potential due process arguments that could be made by borrowers. The loan documents need to consider how a virtual lender can ensure that it enforces its security interest in virtual collateral.

Finally, a digital property owner should be aware that there is no guaranty that the owners of the platform in which the property exists will continue to operate the platform, or even remain in business. The major metaverse platforms make it clear in their legal terms that they are not responsible for keeping their platforms accessible. Owners will need to know their rights in the event of a failure of a platform provider.

Listen as our expert panel discusses real estate purchases in the metaverse. The panel will address the key provisions that the mortgage and financing documentation will need to include for these metaverse contracts.