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UPDATE to FHA & Insuring Homes with Leased Solar Panels

Real Estate Agent with Value Added Service, 602-620-2699 SA5376460000

September 02, 2014 09:02 AM

UPDATE to FHA & Insuring Homes with Leased Solar Panels -

Recently I wrote a blog stemming from FHA not Insuring Homes with Leased Solar Panels. Having great connections really pays off as our office was probably first in the city to be notified. The initial blog stated that FHA would not Insure any home with Leased Solar Panels.

I'm certain there was a lot of noise on this subject as homes with leased solar panels have become very popular, especially in Arizona. The up front cost to buy them can be thousands vs. leased solar panels that are typically no upfront cost. This is a cut and paste from the updated DRAFT Document.

Update to FHA not Insuring Homes with Leased Solar Panels

Thanks to everyone who commented. This post was written before the final HUD guidelines came out. The end result is that leased solar panels do not provide value.

If you have a home to sell in Maricopa Count with leased solar panels, give me a call. I'll be happy to run comparables and give you advice on the best way to sell the home.

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Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Diane - The change is not effective. I checked and FNMA is still denying mortgage insurance for homes with leased solar panels. I'm taking this post down.

Sep 10, 2014 08:15 PM

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Anna Banana Kruchten - I've just learned that FNMA is not allowing homes with leased systems to be insured by FHA.

Sep 10, 2014 08:16 PM

Jeff Jensen

The Federal Savings Bank/Lending in 50 states - Greenwich, CT

That is interesting. I wonder why they would take sides on the matter.

Sep 17, 2014 07:39 AM

Jan Green - Scottsdale...

Scottsdale, AZ

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Jeff Jensen It has to do with subordination of the lien. From what I understand and talking with solar folks, lenders, and appraisers, solar leasing companies file liens against the property and when the property goes into foreclosure, they are losing $. Leased solar panels remain on the roof as there are 2 agreements in place. One agreement is with the utility company for a fixed $ per Kwh, and the other with the homeowner to pay the lease. It's a mess. But the good news is that they have changed their position and they will now insure properties with leased solar panels. Solar company attornies were quick to respond!

Sep 17, 2014 02:50 PM

Krista Railey

I do not know about Arizona, but in California, solar leases are not a lien, charge, or encumbrance on title. The Independent Solar Energy Provider Contract (the lease) is not recorded. Only a notice of the contract is recorded. The lease company does file a UCC filing, however, I had no problem getting a release of the UCC filing.

In California, the liability for the lease does not run with the property because the solar equipment is personal property- not a fixture. In the event of default, the lease terminates. The lender can either cooperate with transferring the lease to a subsequent buyer or tell the solar company to repossess its equipment. Repossession of the equipment is at the expense of the solar company, and they have to repair any damage.

Solar companies are more concerned with the solar equipment being categorized as a fixture and not personal property because they might lose the equipment to a foreclosing lender if the equipment is deemed a fixture. The companies take great pain to ensure the equipment is regarded as personal property and not a fixture.

In California, solar leases are such a nothingburger in regard to title, that I have found a title company that will not show the solar energy contract as an exception on title (refinance transactions only).

Even if a solar lease had an impact on title, the solar companies are more than willing to subordinate for refinances.

In California, there are not generally two agreements in place. There is only one, and the responsibility and liability for the obligation runs with the individual and not the property as per the terms of the contract.

I hope we get clarity on this issue soon.

Sep 19, 2014 01:53 AM

Jan Green - Scottsdale...

Scottsdale, AZ

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Krista Railey - Yes our states differ greatly on this issue. We have 2 agreements with the utility company for the set pricing of Kwh, solar company and homeowner. We need to standardize our process. I'm going to contact the AZ Solar Association and request more information as to where they are in standardization of the process because it all varies by solar company.

We don't always see a lien on title. Solar leases are transferred after the leasing company receives the new Deed. Since 95% of residential solar is leased, these are big questions going forward!

There is a lot of misinformation out there. Agents are saying the new buyer can just remove the panels - not so! There is only one company that I'm aware of that will remove the panels for a seller and transfer to their new home - Solar City. And they don't advertise that fact as they lose money doing it.

I've been following sources contacting HUD directly and FNMA will insure homes with leased panels. It took a firestorm of reaction for that to change!

Thanks for the information Krista!

Sep 19, 2014 02:27 AM

Krista Railey

Hi Jan, you certainly have started a firestorm. Please keep it up because you are tackling a very important decision. This is a very complex issue, and lenders have a tendency to say "no" to issues they do not "know".

It sounds like you are describing a Purchase Power Agreement (PPA) and net metering agreement. I've reviewed a PPA, but have not reviewed a net metering agreement. The PPA itself is similar to a solar lease, and is not a real property lien. The UCC-1 FInancing Statement, however, has to be released.

I would love the opportunity to review a title report for a property with a PPA and net metering agreement and the associated documentation to see the difference the agreements have on title for Arizona vs California. Real Estate laws vary by state, and something that may be a serious title issue in Arizona might be a nothingburger in California.

Please keep sharing information on this topic. There was a really interesting reponse on your other article that included a copy of an email from HUD. Hopefully, FHA/HUD will provide that type of clarity to the local HOCs.

Sep 20, 2014 05:43 AM

Jan Green - Scottsdale...

Scottsdale, AZ

Joe Hansen

Joe Mortgage - Precision Mortgage Inc. - Phoenix, AZ

Joe Mortgage Team

Jan,

You are correct FHA allows for the solar leases but that has not always been the case or at least lenders interpreted it as not being allowed prior to the correction from HUD. Great information to share.

Oct 06, 2014 06:11 AM

Jan Green - Scottsdale...

Scottsdale, AZ

Anonymous

Ryan

I live in California and have a leased system. I am looking at putting my house on the market, but I am being told we cannot sell to anyone seeking an FHA loan due to the fact FHA will no longer loan against houses with leased solar systems. Is your update above specific for AZ or would it be applicable to CA as well (i.e. Can I sell to someone going FHA and have them assume the lease of the solar system assuming they qualify?)

Oct 08, 2014 12:58 PM

Jan Green - Scottsdale...

Scottsdale, AZ

#14

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Krista - Thank you for listing the types of agreements. It's always good to have the correct terminology for the public, so thanks for providing that. I didn't list it before as sometimes those terms are mistakenly identified with other topics. Yes, my other post mentioned that HUD has done an about face on the topic.

Ryan - This is national news and yes, you should be able to sell your home with leased solar panels. Since I published this post, HUD changed the draft document to read they will insure homes with leased solar panels.

When you list your home for sale, seek out a realtor who has either the NAR GREEN® or EcoBroker® designation. We specialize in selling these types of homes. And if you con't find one, let me know and I'll search for one and refer them to you. The key to selling a home with leased panels is to make the sale contingent on the buyer qualifying for the lease. There's more, but I'll wait to hear if you have someone to help you. Contact me directly at jan@gotgreen.info. Thanks for commenting!

Oct 09, 2014 02:51 AM

Anonymous

Alison Young

Thanks for nice blog.

Oct 21, 2014 03:33 PM

Jan Green - Scottsdale...

Scottsdale, AZ

#16

Anonymous

Aaron Christoffersen

Jan I'm a lender in Southern California and our local FHA office is still telling us that a loan with a solar lease that has any transfer restrictions is not eligible for FHA insurance.

Here is the link http://portalapps.hud.gov/FHAFAQ/controllerServlet?method=showPopup&faqId=1-BQ9UEL

I'd love to hear other lenders take on this subject. I've heard of title companies trying to provide an endorsement that insures against any losses caused by the solar agreement but I don't see how you can get these insured.

Dec 17, 2014 04:40 AM

Jan Green - Scottsdale...

Scottsdale, AZ

#17

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Aaron Christoffersen: I can appreciate your comments. I'm tabling any answers until the guidelines are published next year. It is a case by case basis. I would imagine transfer restrictions would hold up a sale!

Dec 17, 2014 08:15 AM

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

BTW, if anyone has an interest in the most recent Fannie Mae update, see this link: https://www.fanniemae.com/content/guide/sel121614.pdf

Dec 17, 2014 08:29 AM

Anonymous

alan

how does lease payment figure into the DTI or do they for FHA

Aug 03, 2015 02:19 PM

#20

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Alan, the amount of a solar lease payment is added to the total debt payments that a borrower currently owes, for FHA or conventional financing. The solar lease payment is considered another debt that the buyer will have to assume, unless the seller of the home transfers the panels to their new home, which is rare.

Solar leases are treated like security systems and given no value during a sale. The utility savings is hopefully enough to warrant assuming a solar lease for a buyer. Feel free to contact me if I can answer more questions.

Aug 04, 2015 01:07 AM

Anonymous

Charlie W.

Doesn't FHA require the term of the solar panel lease to be greater than the loan term? If a standard solar lease is 20 years and most home loans are for 30 years it would be tough to get FHA financing. I hope I'm wrong.

Sep 10, 2015 10:22 AM

#22

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

I'm not sure Charlie as I'm not a lender. You'd need to ask a lender to be sure. A borrower needs to be able to include that lease payment in their Debt to Income ratio to qualify, plus must meet the solar leasing company's FICO requirement, and I've never heard that the length of the lease makes a difference, just the DTI.

Sep 12, 2015 08:43 AM

Anonymous

Rita B

We have lost a couple of home sales we could have had if it were not for the solar leased panels we have. The underwriter included the payment in the DTI, and it shut off the deal. How can this be rectified? Lastest word I heard from SolarCity and on line after research, this is as of July 28, 2015, according to Fannie Mae guidelines, was that if the solar energy company could guarantee solar production (which SolarCity does), that the monthly solar payment should not be incorporated into DTI. How does this information get to the UW. We are very frustrated that we are running into this kind of an obstacle to sell our home. We were told initially that it would be SO easy to sell our home with the panels. We are finding that is simply not true. Any help would be appreciated.

Oct 10, 2015 01:45 PM

#24

Jan Green - Scottsdale, AZ

Value Added Service, 602-620-2699 - Scottsdale, AZ

HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Rita B - I understand that is frustrating. The bottom line is that guidelines were changed this year by Fannie Mae so that properties with leased panels are treated like personal property. The guidelines state that if the panels are leased they are not to be given any value. Therein lies the issue. The panels are not given value and the monthly payment is like a buyer is assuming a credit card payment, which must be added to debt to income ratio. All of these items must be disclosed in the listing. I always include an Addendum that states, "Sale contingent on buyer qualifying for the solar lease payment." They must sign it and I make sure the lease payment is in the MLS.

Solar City guarantees the electricity payment because they are locking ina rate with the utility provider.

Homes with leased solar systems need a knowledgeable agent who has taken the courses to earn the EcoBroker and/or NAR GREEN designation. And ask if an agent has experience selling homes with leased solar systems. That should help your sale.

You can always ask the solar leasing company if they can remove the panels and terminate your lease, but it's doubtful this will work as there are typically 2 agreements between the utility company, leasing company and homeowner.

Oct 12, 2015 09:56 AM

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