Detroit Sues RealToken for Neglecting 400 Properties

The city of Detroit has taken legal action against RealToken LLC, a real estate tokenization firm, and its affiliates, citing public nuisance violations across more than 400 residential properties. The lawsuit, filed in Wayne County Circuit Court, names RealToken LLC, its co-founders Remy and Jean-Marc Jacobson, and 165 affiliated corporate entities as defendants. City officials allege that the firm has neglected basic health and safety obligations as a landlord, leading to widespread deterioration of the properties.

City inspectors from the Buildings, Safety Engineering, and Environmental Department documented numerous violations, including structural damage, rodent infestations, mold growth, sewage backups, and illegal utility connections. Of these properties, 53 were deemed to pose an immediate threat to tenant health and safety. The city claims that RealToken used a network of limited liability companies, many of which are registered as shell entities, to obscure true ownership and avoid accountability. This has left tenants to endure unsafe living conditions.

Detroit is seeking court orders to mandate urgent repairs, establish rent escrow accounts, and hold the Jacobson brothers personally liable for allegedly refusing to fund necessary maintenance through former property management companies. Corporation Counsel Conrad Mallett stated that this is the largest nuisance abatement case in the city's history, emphasizing that innovation does not exempt firms from fulfilling legal responsibilities.

RealToken, launched in 2019, is a real estate tokenization platform that initially operated on Ethereum and later migrated to Gnosis Chain. The platform allows investors to purchase shares in rental properties via cryptocurrency from anywhere in the world. Its whitepaper claims that the model lowers investment barriers and increases transparency in traditionally illiquid markets. However, critics argue that the fractional ownership model used by RealToken has led to vacancies because properties are often acquired as investment assets rather than maintained as active rental homes. With ownership divided among numerous investors, many of whom are not locally involved, there is little incentive or clear responsibility to ensure properties remain habitable or occupied. As a result, many homes have been left empty, deteriorating over time, and contributing to neighborhood decline.

The lawsuit highlights the challenges and controversies surrounding the tokenization of real estate. While the model is gaining traction as blockchain platforms make real estate more accessible through fractional ownership, thereby lowering capital requirements and improving market liquidity, it also raises concerns about property maintenance and tenant welfare. The outcome of this legal action could set a precedent for how cities and regulators approach the oversight of tokenized real estate in the future.