Title insurance is an important part of most real estate transactions. The purpose of title insurance is to insure against any financial losses resulting from defects in a property’s title work. Most sophisticated purchasers of property will not close on a commercial real estate deal without title insurance since they do not want to assume the risk that there are problems with a property’s title work.
At this point, some of you may be wondering what exactly I am referring to when I talk about a property’s “title” or what “title work” is. What this refers to is all of the past deeds, easements, mortgages, and similar documents that concern the property, whether or not they were recorded at the county register of deeds. A “title defect” could take the form of a second chain of title (i.e. the owner sold to two separate people), an unreleased lien affecting the property, a restrictive easement, or a public easement through the property, to name a few.
Depending on the specific title defect, your ability to use the property may be affected. For example, if a public easement runs through your property, you may not be able to construct a building where you want to. As another example, if there are two chains of title, you may not be purchasing the right one. The seller may have been given a quit claim deed from the previous occupant, who may have never owned the property that he or she deeded over to the current occupant or who deeded it over to multiple people.
Title Insurance for Cannabis Properties
Now that you hopefully understand the importance of title insurance in real estate transactions, let’s talk about title insurance in the context of Michigan Cannabis Real Estate . Similar to banks, most title insurance companies won’t work with cannabis companies, or insure real estate where the intended use is as a medical or recreational marijuana facility. If there is a cannabis use mentioned in the purchase agreement, most title insurance companies will refuse to issue a policy.
Sometimes brokers or attorneys try to get around this restriction by simply keeping marijuana references out of the policy, essentially hiding the fact that the property will be used as a marijuana facility from the title insurance company. For example, if a purchase agreement has a municipal approval contingency, the purchase agreement may simply state that buyer will need to receive all necessary municipal approvals for its “intended use” rather than spelling out what that intended use is.
This sort of “hide the ball” game is best avoided as it can defeat the whole point of obtaining title insurance. A title insurance company, like any insurance company, will often look to avoid paying under the policy if the purchaser of the policy breached the terms of the title insurance agreement. If you hid the fact that the property will be used as a marijuana facility from the title company, you may have just given them the reason they were looking for to avoid payment under the policy.
Rather than trying to hide the properties intended use, we recommend working with a qualified brokerage company with access to cannabis-friendly title insurance companies, like Michigan Cannabis Properties. While most title insurance companies will not insure your property and will void your policy if they discover the property was purchased for a cannabis business, there are some that will insure you, they are just few and far between. Fortunately for our clients, we work with closely with cannabis-friendly title insurance company that will cover your losses resulting from title defects at your marijuana properties.
Title insurance is an important part of most real estate transactions, especially the purchase of expensive commercial properties. If you are trying to hide a property’s intended use from the title company, there is a good chance you will not be able to collect against the policy if you incur a financial loss as a result of a title defect. At Michigan Cannabis Properties, we help our clients obtain title insurance for their cannabis properties from reputable title insurance companies that will not void the policies once they find out the property’s intended use.
Mr. Roberts is a cannabis business and real estate attorney and the managing partner of Scott Roberts Law, a boutique cannabis business law firm.