cannabis-shane-rounce-390475-unsplash

Cannabis and Title Insurance

As state and federal law enforcement agencies try to figure out how best to deal with conflicting cannabis statutes, it can be difficult for some industries to figure out how to position themselves. This should not be the case for title insurance companies, because their primary job is to provide a policy that guards against unknown liens or a flaw in the chain of title (who can prove legal ownership of a property).

This is why I am baffled by recently published statements saying properties in the 28 states that have in some capacity legalized cultivation, distribution, manufacture or sale of marijuana products will not be able to purchase title insurance. This includes the purchase and sale of undeveloped land, commercial properties, retail stores, and houses—any property where marijuana has been used (regardless of whether that use is legal under state law).

Title insurance typically deals with issues like easements, old deeds of trust, reconveyances, liens and the like. It does not have anything to do with how property owners use their property.

It’s true that the government can seize property under property forfeiture laws, some of which relate to the Controlled Substances Act. The government can also change a property’s zoning or designation, or red-tag a building rendering it uninhabitable. None of these actions are covered by title insurance. Standard title insurance policies already exclude coverage for this type of government action.

In reading the title insurance bulletin, I couldn’t find an explanation to drive their anti-cannabis policy. They point to the discrepancy between state and federal laws for seizure of property, but again, that offers no explanation for not insuring title.

It is important to note that most title companies are informing prospective insureds of their anti-cannabis policy up front, so if prospective insureds proceed on the what-they-don’t-know-won’t-hurt-them basis, and later file a claim for a missed deed of trust or easement, could the title company decline the coverage if the property is involved in the cannabis industry? One title company told me no, BUT a word to the wise: if your property will be used for cannabis and the title company asks, don’t hide it! As I have said before, make full disclosures (on this and any other issues) at the earliest possible time.

It seems to me that title insurance is all about guaranteeing property ownership; I don’t understand how the cannabis issue affects it at all. I cannot imagine how any title insurance company would be liable for cannabis issues, any more than they would be if a house burned down or someone slipped and fell while walking around on the property. Those issues are addressed by homeowners’ insurance, not title insurance.

Eventually, I expect conflicts between state and federal cannabis laws will be resolved, but until then, people complying with state laws can still be prosecuted under federal law. I spoke with Mendocino County Sheriff Tom Allman who let me know that his job is to enforce state and local laws. He has no jurisdiction when it comes to federal laws, and that’s fine with him.

If you have questions about getting into real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

What Is Title Insurance and Why Does It Matter?

If you don’t spend much of your time buying and selling homes, you probably don’t have a clear sense of what title insurance is or why it’s important. Like many types of insurance, it’s not important–unless it is, and then it’s crucial.

People can have unrecorded or unofficial rights to your property, so it’s important to be aware of these. Title insurance is typically a guarantee from the insurance company that your ownership of (or lien on) a property is senior to other claims on the property. If there are other claims (recorded liens), a title report will reveal them and the title insurance will indicate where your ownership falls on the list with respect to other claims on the property.

Just to clarify, a lien is a legal right relative to property belonging to another person until a debt owed by that person is paid.

Some liens are unrecorded. For example, the owner of a home may borrow money from Aunt Mathilda and offer her a deed a trust to secure the loan, but not record the transaction through the Assessor’s Office. If a buyer or lender is aware of the unrecorded lien, they are beholden to it. “Unrecorded” doesn’t mean “invalid.”

When it comes to title insurance, there are two main types: CLTA and ALTA. California Land Title Association insurance includes recorded easements, deeds of trusts, a legal description, recorded owner(s), and whether property taxes are paid. American Land Title Association insurance is more comprehensive (and expensive). In addition to the elements included with CLTA insurance, ALTA insurance includes information like whether structures are built within the property lines, whether there are obvious signs of prescriptive easements (pathways used by the public – I’ll talk about these in more detail next week), and precisely where the property lines fall with regard to property improvements or roadways, new or anticipated.

Title insurance is different from other types of insurance because you’re really paying for the research. With most insurance, your premium is based on the worst coming to pass. With title insurance, you’re paying to see if something has already happened. This explains why title companies will do research on the property and present you with a preliminary report. The research discloses to you the condition of publicly available knowledge about the title of the property and tells you that the title company will insure your ownership or lien on the property subject to those conditions.

My advice to you is to read the report and ask questions. Talk to your realtor or the title company. If you’re buying a property for cash, you can opt out of title insurance, but I wouldn’t recommend it. If the seller suggests saving some money by skipping the title insurance, your sixth sense should hear sirens and see warning lights flashing wildly. Run (don’t walk) to the nearest title insurance company and sign up for title insurance.

In Ukiah, you have three options: Redwood Title Company, Fidelity Title Company, and First American Title Company. All are reputable. Redwood Title is independently owned and locally operated; the other two are company-owned and provide jobs for local folks. Policies from all three are underwritten by title insurers, so they’re all secure.

The long and short of it is this: title insurance will generally prevent you from buying a property (or lending money secured by a property) only to find out there are back taxes or recorded liens which weren’t paid; or worse yet, that the deed you were given was not signed by the true owner of the property and therefore what you paid for is worthless.

If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.

Getting Through Escrow

With so little inventory available, the market is shifting to a seller’s market, even with rates at record lows. So, if you’re a buyer fortunate enough to have signed a purchase contract and gone into escrow, here’s what you need to know to complete the process.

First, let’s define “escrow.” Escrow is a neutral place where money and property are both safe. An escrow officer is like an impartial judge who makes sure everyone keeps his or her word. The escrow officer has a fiduciary responsibility to all parties (buyer, seller, and lender). When all the conditions for the transfer of property are met, the escrow officer oversees the exchange of the deed for the payment.

As a buyer, you may have already worked with a lender to become pre-approved for a loan. If not, you’ll need to find a lender and get all your financial information in order (see last week’s column for details on what you’ll need).

Hopefully, you’ve been working with a real estate agent who walked you through the process of carefully outlining contingencies you need, exactly what is included in the purchase and who will pay for inspections, any repairs, closing costs, etc.

Inspections are a big part of an escrow. My advice to buyers is to take advantage of as many inspections as you can. Yes, you will probably have to pay for them, but better to know what you’re buying, than to end up with nasty surprises after the property is yours. Unless you are buying a property and planning to tear it down and build from the ground up, order inspections!

Here’s a list to consider:

○     Home Inspection

○      Electrical

○      Plumbing

○      Roof

○      Heating & Air conditioning

○      Foundation

○      Structural

  • Well – both quantity and quality of water
  • Septic – physical condition of the tank and function of leach field
  • Pest and Fungus – check for dry rot and bugs, both of which are abundant in Mendocino County
  • Hazardous Materials – e.g., asbestos and lead paint. Although both were outlawed in 1978, contractors still had supplies on hand and sometimes used those supplies illegally for some time.
  • Soil/Geology – if you are unsure of the history of the property and plan to plant vineyards, for example, you will want to know what you’ve got. Are you on the side of a cliff that may be about to give way? Check it out.
  • Energy Audit – are you going to need new windows and insulation as soon as you purchase the house? Best to know ahead of time.
  • Structural Engineering – two-story house with cracks in the walls, any house with cracks in the foundation? In addition to inspections, making sure you are aware of any liens, easements, or tenant rights connected to the property can save you from big headaches later. Many easements aren’t a big deal; they assure that your neighbor can access their driveway or that a utility company can pass behind your property to access communication or electricity lines.

However, some legal restrictions could prevent you from inhabiting your home for several years or require you to pay bills that weren’t yours in the first place. An easement through the only building site could reduce the value of the property dramatically. If the property has renters, be sure to get written verification of the rental terms (called an estoppel agreement). Because, verbal agreements are only worth the paper they’re written on.

The escrow process is based on everyone acting in good faith. If inspections or the preliminary title report indicate problems, the buyer can withdraw from the contract if the seller is unwilling to remedy the problems. However, the contract is a legally binding document, so there must be a compelling reason to dissolve the contract. Most escrows go through, and the property changes hands in 30-45 days.

Enhanced by Zemanta