Homes with Solar Panels Are Creating Re-Sale & Refinancing Issues

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149
http://actvra.in/52W6

 

Homes With Solar Panels are becoming more and more common, in fact many towns and cities are providing incentives for homeowners to install solar panels on their homes.  However, Homes with Solar Panels Are Creating Re-Sale & Refinancing Issues.  As a result Realtors and Loan Originators need to ask a very important question required in order to obtain financing on a Fannie Mae backed loan.  Are the solar panels owned or leased?

  • If the solar panels are owned the following will be required: 
    • Standard Fannie Mae Eligibility requirements will apply ( such as appraisal, insurance, and title), and
    • A copy of the recipe/sales agreement will be required.
  • If the solar panels are leased or owned by a third party the following will be required:
    • A copy of the Power Purchase Agreement (PPA) is required, and MUST comply with the following:
      • The solar panels may not be included in the appraised value of the property.
      • The property must maintain access to an alternate source of electric power that meets community standards.
      • The monthly lease payment must be included in the Debt-To-Income (DTI) Ratio calculation unless the lease is structured to :
        • Provide delivery of the specific amount of energy at a fixed payment during a given period, and
      • have a production guarantee that compensates the borrower on the prorated basis in the event the solar panes fail to meet the energy output required for in the lease for the period.

NOTE:  Payments under the power purchase agreements where the payment is calculated solely based on the energy produced may be enclosed from the DTI ratio

  • The Power Purchase Agreement MUST INCLUDE/STATE:
    • Any damage that occurs as a result of installation, malfunction, manufacturing defect, or the removal of the solar panels is the responsibility of the owner of the equipment and the owner must be obligated to repair the damage and return the improvements to their original or prior condition (for example, sound and watertight conditions that are architecturally consistent with the home).
    • The owner of the solar panels agrees not to be named loss payee (or named insured) on the property owner's property insurance policy covering the residential structure on which the panels are attached.  As an alternative to this requirement, the lender may verify that the owner of the solar panels is not a named loss payee (or named insured) on the property owner's property insurance policy, and
  • In the event of foreclosure, the lender or assignee has the discretion To:
    • Terminate the lease/agreement and require the third-party owner to remove the equipment
    • Become, without payment of any transfer or similar fee, the beneficiary of the borrower's lease/agreement with the third party, or
    • Enter into a new lease/agreement with the third party, or
    • Enter into a new lease/agreement with the third party, under terms no less favorable than the prior owner.
    • An exception to coverage on the title insurance policy for recorded instruments relating to the solar panels must comply with B7-2-05, Title Exceptions and Impediments.

The last condition above is required because some companies will file a Uniform Commercial Code Financing Statement (UCC-1) which is recorded on the land records and shows up on title.  When this happens, the company either has to release the filing or be subordinate to the mortgage.

"A UCC-1 is a fixture filing, and not a lien against the home.  The UCC-1 is filed against all real property records where the solar panel system is located prior to or when the system is installed.  The UCC-1 serves as a notification to anyone who might perform a title search on the address where the solar panes system is located, and installed on the home.  The UCC-1 protects the Lease Holder, or third party owner against any mortgage on the real property.  If the Lender who holds the mortgage on the property forecloses on the customer's home, the UCC-1 filing protects the interest of the Lease Holder, or third party owner's interest in the solar energy system and prohibits the lender from taking ownership of it." 

However, the Lease Holder, or third party owner knows that Lenders do not want to see anything on the title, so it is a common practice for the Lease Holder, or third party owner to release the UCC-1 fixture filing for financing purposes and re-file at a later time.

Fannie Mae also requires a letter on the Lease Holder, or third party owner's letterhead, dated, and signed stating the following:

"In the event of foreclosure, the lender or assignee has the discretion to:

-  Terminate the lease/agreement and require the third-party owner to remove the equipment.

-  Become, without payment of any transfer or similar fee, the beneficiary of the borrower's lease/agreement with the third party or

-  Enter into a new lease/agreement with the third party, under terms no less favorable that the prior owner."

 This is a lot to comply with, but Solar Panel Companies are aware all these conditions will be required in order for a Buyer of the property to obtain a mortgage.  So most Solar Panel Companies have already amended their Power Purchase Agreements (PPA) to comply with all the above requirement, or will amend their contracts to comply.  However, Realtors and Loan Originators would be VERY wise to be familiar with these requirements, and request them from the Seller at the time the Purchase & Sales Agreement is executed in order to avoid mortgage approval delays.

 

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam,# Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. Mary Yonkers 04/13/2017 05:30 PM
  2. Frank Rubi 04/14/2017 07:24 AM
  3. Jeff Dowler 04/19/2017 05:33 PM
  4. Praful Thakkar 04/20/2017 03:00 AM
  5. Roy Kelley 05/22/2017 01:00 AM
  6. Gabe Sanders 04/22/2017 11:50 PM
Topic:
Mortgage / Finance
Location:
Connecticut
Groups:
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Tags:
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Rainmaker
1,221,065
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi George - I have heard all of these issues.  I have also wondered about what you do when the roof needs to be replaced. 

Apr 14, 2017 07:15 AM #29
Rainmaker
243,768
John Wiley
Jones & Co. Realty - Cape Coral, FL
Lee County, FL Real Estate GRI, SRES,SFR,PSA

George, thanks for reminding us of the areas we should take note of when a property has solar panels.

Being able to inform the seller or the buyer about possible concerns will help the consumer make informed decisions.

Apr 14, 2017 07:37 AM #30
Rainer
201,440
Stephen Turner
Coldwell Banker Residential Brokerage - York, PA
The BIG Guy of NEW HOME SALES

Great article, Thank you so much. We've all heard about issues with solar panels but has really put some facts and understanding behind it. Again, thank you! 

Apr 14, 2017 08:31 AM #31
Rainmaker
1,772,449
Andrew Mooers
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

So are wind generators!

Apr 14, 2017 08:34 AM #32
Rainmaker
1,003,046
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

George...we aren't running in to this much yet, but like everything in this business...it is better to know before it happens than after it happens. Thanks for the heads up - Happy Easter my friend.

Steve

Apr 14, 2017 09:03 AM #33
Rainmaker
1,306,204
Sybil Campbell
Long and Foster REALTORS® 5234 Monticello Ave Williamsburg, Virginia - Williamsburg, VA
REALTOR® ABR, SFR, SRES Williamsburg, Virginia

I had no idea there were so many problems associated with solar panels George!

Apr 14, 2017 09:26 AM #34
Rainmaker
515,652
Mike McCann - Nebraska Farm Land Broker
Mike McCann - Broker, Farmland Broker-Auctioneer Serving Rural Nebraska - Kearney, NE
Farm Land For Sale 308-627-3700 or 800-241-3940

Hi George Souto Well...I read these blogs to keep up to date as much as I can on houses since I no longer sell houses...but rather farms.  In central Nebraska there are very few homes with solar panels. Color me naive: I was not aware that any of the systems were leased. I cannot understand why anyone would want to lease a solar system. I encourage family and friends to never lease anything in their homes that is attached and will stay.  Thanks for the enlightenment on solar panels!!

Apr 14, 2017 09:30 AM #35
Ambassador
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Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

I got a headache just reading about the issues. I think I will wait until Elon Musk reinvents them.

Apr 14, 2017 10:51 AM #36
Rainmaker
241,905
Wayne L. Brown
Broadview Mortgage - Alpine, CA

George

Wow!  Excellent post.  Who would have known?

Thank you again for the informative post.

Happy Easter.

Apr 14, 2017 01:24 PM #37
Rainmaker
2,233,560
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of Manchester NH's Leading Agents

I had my first leased panel listing and it is proving to be a chore George Souto 

Apr 15, 2017 06:18 AM #38
Rainmaker
327,768
Nathan Gesner
American West Realty & Management - Cody, WY
Broker / Property Manager

Solar works for some people but I am personally thankful we don't have to deal with them in my area. The technology and cost still isn't where it needs to be. Have a great weekend, George.

Apr 15, 2017 06:32 AM #39
Rainer
344,469
Sham Reddy
H E R Realty, Dayton, OH - Dayton, OH
CRS

Thanks for sharing!

Homes with Solar Panels Are Creating Re-Sale & Refinancing IssuesAs a result Realtors and Loan Originators need to ask a very important question required in order to obtain financing on a Fannie Mae backed loan.  Are the solar panels owned or leased?

Apr 15, 2017 01:19 PM #40
Rainer
86,770
Mega Team Real Estate
Realty ONE Group Alliance - San Mateo, CA
San Francisco and Peninsula Real Estate Concierge

Wow! Thank you for the excellent and informative post. 

Apr 16, 2017 02:18 AM #41
Ambassador
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Praful Thakkar
eXp Realty - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

George Souto thanks a lot for such a detailed explanation of what to do when there are solar panels on the home.

I am in the middle of selling a home with solar panels - and I now know, having a 'strong' buyer would make a huge difference for the seller.

Apr 17, 2017 08:35 PM #42
Rainmaker
3,016,275
Dorie Dillard
Coldwell Banker United Realtors® ~ 512.346.1799 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good evening George Souto ,

I'm so glad this post was re-blogged! A very timely post that one needs to consider if purchasing solar panels!

Apr 19, 2017 05:50 PM #43
Rainmaker
1,098,674
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Los Angeles CA

Great blog, George! 

Congratulations on the feature! Well deserved. 

Apr 19, 2017 07:04 PM #44
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Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

George- I am so glad that Jeff Dowler reblogged this and that it was featured.  This is excellent information for not just agents!  I hope that all buyers will become more aware of the issues of solar panels and whether or not they are leased. 

Apr 20, 2017 05:43 PM #45
Rainmaker
3,952,073
Roy Kelley
Realty Group Referrals - Gaithersburg, MD
Roy and Dolores Kelley Photographs

Congratulations, George, on your feature recognition. This is excellent advice to share.

Apr 21, 2017 05:40 AM #46
Rainmaker
791,914
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Excellent feature!  I  reviewed the solar course that NAR is coming out with next month and that should help a LOT with this issue. It doesn't touch on as much detail re UCC-1 but the clarity is there for lease vs. owned panels and DTI.  Critical information!   Thanks for sharing and congrats on your feature!

Apr 21, 2017 05:31 PM #47
Rainmaker
1,276,265
Sandy Padula and Norm Padula, JD, GRI NMLS#1483386
Realty One Group - Carlsbad, CA
Presence, Persistence & Perseverance

George Souto This post should be 'FEATURED', since you have packed it with so much timely and important information for all of us to keep in mind.

May 22, 2017 05:47 AM #48
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