Title insurance is a critical element of real estate transactions in Washington State. Without a preliminary title commitment, it is extremely difficult to determine what encumbrances exist in regard to a piece of property. Additionally, without title insurance, it is difficult if not virtually impossible for a seller to provide a deed containing the full statutory warranties of title to a purchaser as well as obtain financing from a commercial lender.
Until recently, buyers of cannabis related real estate were generally able to obtain title insurance policies that excluded coverage over governmental actions resulting from the property being used for the production, processing or sale of marijuana, such as civil and criminal forfeiture of the property pursuant to federal law. This is no longer the case.
Currently, insurance underwriters are refusing to insure any property that is currently or may be used in the future for the production and/or distribution of marijuana even if these activities are done pursuant to a state license. Title companies are also refusing to provide escrow services for any transaction that involves cannabis related property. Title companies with this stated policy include: Fidelity National Title Company (Commonwealth); Old Republic Title Company; First American Title Company; and Chicago Title Insurance Company.
The title companies maintain that providing insurance and escrow services for cannabis related property transactions likely runs afoul of the Federal Controlled Substances Act and the Money Laundering Control Act. They believe that any entity knowingly or unknowingly involved in handling or settling financial transactions for marijuana-related businesses could be considered complicit in “unlawful activity” pursuant to either of these federal statutes.
The question is, however, why not simply continue to provide title insurance subject to an exception related to the use of the property for marijuana purposes and any resulting federal action? It appears that uncertainty surrounding the Trump administration’s stance on marijuana is likely to blame.
The current administration’s revocation of the Cole Memo, left open the prospect that the federal government would now intervene in state legalization efforts. Apparently, the subsequent 2018 memo issued by the then Attorney General Jeff Sessions, which deferred to the US Attorney Generals in each state as to whether to enforce federal marijuana laws, did not provide sufficient comfort to title companies as to whether state legalization efforts could proceed without federal interference.
Given the title companies’ intransigence on this issue, the question is what options exist for sellers of cannabis related properties if title insurance cannot be obtained? Without the availability of title insurance, sellers are really limited to conveying property via a quit claim deed or real estate contract, since neither of these generally require full warranties of title. Alternatively, the parties could consider a long term lease with an option to purchase at such time as title policy can be issued. As to escrow services, more options exist since some law firms and independent agencies are willing to provide escrow services for cannabis related property transactions.
The unavailability of title insurance for cannabis related property transactions is a big problem for buyers and sellers of these properties. It would seem that the best solution would be for the real estate industry to conduct lobbying efforts both on the state and federal level to push for title insurance to be offered with carve outs for federal enforcement of marijuana laws. Until such time, however, owners of cannabis related properties should consult with legal counsel before putting their property on the market.
For more information on the regulation of hemp and marijuana businesses in Washington State, please contact Heather Wolf.