While there is plenty of information out there on the benefits of installing a solar panel system on a home, there isn’t much guidance when it comes to selling a property with solar panels.
I have had a lot of questions recently regarding this issue. This article will address (1) what usually occurs on the public record when solar panels are financed, (2) the options a buyer and seller have at closing when financed solar panels are involved and (3) contract provisions that should be included when negotiating the sale of a home with a financed solar panel system.
Solar Panel Systems and the Public Record:
Anytime you are listing a home that includes solar panels, you must ask the seller if the system is or was financed. If they didn’t finance it, then nothing further needs to be addressed. If the seller financed it, please keep reading.
When an owner finances solar panels, the finance company usually records a document called a UCC financing statement on the public record. A UCC financing statement is similar to a security deed that is recorded when a buyer obtains a loan to purchase a home. Like a security deed, the UCC financing statement must be cancelled on the public record once it is paid off.
It is critical that you inform the closing attorney if a solar panel system is or was financed (even if your client says that it has been paid in full). While a finance company generally records a UCC financing statement, sometimes they do not. Without a UCC recorded on the public record, the closing attorney will have no knowledge that there are financed solar panels on the home. You want to make sure the closing attorney has plenty of time to work with the seller and the finance company to ensure that a payoff is timely received.
Oftentimes we are informed that a solar panel system has been paid in full, but the UCC was never canceled of record by the finance company. Until the cancelation is recorded, it creates a title issue and the home cannot be sold. Again, you want to make sure the closing attorney is made aware of the prior financing as soon as possible to allow them enough time to obtain a cancellation of the UCC.
Options at Closing When Solar Panels are Involved:
There are three options when addressing a solar panel system that is being financed. The first is for the seller to pay it off at closing. The closing attorney will order a payoff just like they do with a mortgage and collect the payoff amount at closing. Second, the buyer and seller can agree to split the payoff amount at closing. The last option and most complicated is for the buyer to assume the seller’s existing solar panel loan. While this may sound like the easiest option, I have only seen the successful assumption of a solar panel loan a few times.
If your client is open to assuming the existing seller’s solar panel loan, the first step is to ask the buyer’s mortgage lender whether that is even an option in light of the home mortgage loan. For many individuals, obtaining a mortgage for a home purchase and assuming a secondary loan for a solar panel system is not possible. The additional debt the buyer proposes to assume relating to the solar panels will disqualify them from the home mortgage.
Even if the mortgage lender states that the buyer is in a position to assume the solar panel loan, the buyer has to qualify with the solar panel finance company to assume the same. I have seen a number of individuals who simply could not qualify for the solar panel assumption even though the mortgage lender said it would not affect the home mortgage.
Contract Provision Relating to Financed Solar Panels:
So usually I provide great sample stipulations to help guide you through the issues I write about. Solar panels are a little different because there are numerous scenarios.
The first one is easy if the seller will be paying off the solar panel loan at closing (I don’t even think you need a sample on that one).
If the buyer and seller agree to split the payoff you want to make sure the contract provision is very clear. It may be as simple as the buyer and seller agree to evenly split the solar panel payoff at closing. Or maybe it would say the buyer shall pay a certain dollar amount towards the seller’s payoff of the solar panel system loan at closing and the seller shall pay the remaining balance.
The scenario that can get a lot more complicated is when the buyer agrees to assume the seller’s solar panel loan, but later finds out they can’t qualify for the assumption. My best advice is to address that issue with the listing agent upfront. The parties will need a plan B so if the buyer is not able to qualify for the assumption (even if the buyer’s lender approved it), the parties are not scrambling to keep the transaction together.
Water Filtration Systems, HVAC Systems and Alarm Systems:
A few of the other common items I see homeowners finance are water filtration systems, HVAC systems and alarm systems. Sometimes we learn of these loans because the finance company filed a UCC on the public record. Other times we are told about them by the seller when we ask. When you are working with your seller and any of these items are in the home please make sure you ask if they are financed. If they are please make sure you alert the closing attorney as soon as possible to ensure a smooth transaction.
CAUTION: I recently had a situation where a seller signed a financing agreement for solar panels on her home. Shortly after the loan was signed, she listed her home for sale. She was under contract the next day. When we reached out to the solar panel finance company, they told us that they could not send us a payoff for 35 days due to a rule that the seller had a recission period to cancel the loan. If we waited that long to receive the payoff we would have missed the closing date. After researching the issue the seller decided to rescind the loan and we were able to get a payoff and paid it off at closing.
As always, if you need help with anything at all please call me on my cell anytime (even nights and weekends and even if the closing is not in my office) at 912-484-1996 or email me at jgerber@brannenlaw.com.
