Closing The Deal on Your Marijuana Facility

Escrow, Title Insurance, and Settlement
Updated: Jan 2, 2022

Marijuana title insurance covers any underlying issues with a property’s title.  A title company may have missed this information during the purchase process. In any real estate transaction, the title company runs a public records search. Therefore ensuring that the home being purchased is free and clear of any liens or ownership disputes.

Marijuana title insurance will defend against a lawsuit attacking the title. Also, it will reimburse the insured for any monetary loss incurred up to the dollar amount of insurance provided by the policy.

What Is Title Insurance?

When a property is bought or sold, a record of that real estate transaction is immediately put into public archives.  This not only records the change of ownership but also records other significant events related to the property, whether is be liens or levies. Basically, title insurance protects the new owner from any pre-existing issues related to the property such as liens or levies.

When you order title insurance, the title company does a deep search of public archives on the property to find (and remedy, if possible) several types of ownership issues.  This process starts with a search of public record to determine the ownership status, and depending on their findings, the underwriter will then decide the insurability of title.

Despite the title company’s ability to search public archives, even the most skilled underwriters will not find all problems associated with any given property.  With this comes several risks, including filing errors, forgeries, and undisclosed heirs to a property. These risks are often incredibly difficult to identify.

At closing, the title company provides an insurance policy to protect the owner from further risks that may be uncovered later.  In many instances, this insurance policy may save a new owner from losing their investment. Furthermore, this policy insures ownership rights to the property.  A title insurance policy is typically paid once up front but protects the owner for the life of ownership on the property. Think of it as buying peace of mind for your property.

Marijuana Business Title Insurance Issues

The marijuana industry is plagued by the contradictions of states with legal marijuana laws, and that of the Federal Government’s Controlled Substances Act.  These contradictions negatively affect marijuana business owners all over the country.  They limit access to banking and limit the ways these companies can get insurance.  One of the many troubling aspects of this legal grey area is the business owner’s access to marijuana business title insurance.

Despite the near necessity of title insurance for business owners, including marijuana business owners, most title insurance companies are not able to work with a marijuana-related property. This means there is a missing aspect of the transaction. Someone needs to act as an escrow agent, handle closing documents, handle the transfer of funds, and provide insurance. Many title insurance companies have a specific exception in states that have any type of legal marijuana laws in place.

There are title companies available to issue a cannabis related insurance policy. However, most title companies have taken a hard stance on marijuana properties, with some even instructing all underwriting agents not to insure properties if the property is, or ever has been, used as a marijuana facility.  This is not only affecting marijuana businesses but any business using property related to marijuana in its past. These restrictions can now impact transactions of undeveloped land, commercial buildings, and retail stores alike.

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What Can You Do to Protect Your Ownership Right?

If title insurance is not available because of your property’s status as a past, present or future marijuana facility, you have a few options.  Before purchasing the property, make sure to obtain a thorough title search, just as a title insurance company would do. This will uncover most title issues surrounding the property, and allow you to make strides towards a resolution before you take possession.  Additionally, you can negotiate for the seller to deliver a warranty deed. Warranty deeds provide the purchaser with a limited cause of action for any title defects.

As a marijuana business owner, you have to jump through additional hoops that others never have to think about.  Make sure you are taking all the possible actions to protect your property and investment.

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