Leased Solar Panels Change a Cash Offer

A cash buyer can remove a lender from your sale. A cash buyer cannot remove a solar company.

That sentence is the whole article, but the consequences take a few minutes to explain, and sellers regularly discover them halfway through escrow instead of before they sign.

First, find out what you actually have

Rooftop solar in California comes in several arrangements and they behave very differently at sale.

An owned system, bought outright and paid off, is a fixture. It transfers with the house and it raises no third-party question.

A leased system belongs to the solar company. You are paying for the use of equipment on your roof, and the agreement governs what happens when the property is sold.

A power purchase agreement is similar in effect: you are buying the electricity the panels make rather than owning the hardware.

A financed system that you are buying on credit is different again, because the balance is a debt with its own security interest, and sometimes that security interest is a lien recorded against the property rather than the equipment.

Some homeowners genuinely do not know which they have. The paperwork is often years old and the monthly charge may be bundled in a way that obscures it. Find the original agreement before you respond to any offer, because every question below turns on it.

The UCC filing that shows up in title

Leases and equipment financings are frequently secured by a UCC-1 fixture filing recorded against the property. It is not a mortgage and it does not mean you owe the balance to a bank. It does mean the filing appears in the preliminary title report, and title companies will want it addressed before issuing a policy without exception.

This is where sellers meet an unwelcome surprise. Order the preliminary title report early, precisely so a filing you had forgotten about surfaces while there is still time to work it out.

Three ways it resolves, all of them on someone else's clock

Broadly, a leased or financed system resolves at closing in one of three ways: the buyer assumes the agreement and the provider approves the transfer, the seller pays the agreement off from proceeds, or the parties negotiate some blend of the two.

Assumption sounds simple and is usually the slowest, because the solar company runs its own approval process on the new owner. That process has its own forms, its own timelines and its own contact centre. It answers to neither escrow nor the buyer.

Payoff is faster to describe and harder on proceeds, since it comes out of the seller's side.

The practical consequence for a cash sale is that the very short close a buyer proposed may be impossible, not for any reason connected to the buyer's money. Ask the provider directly, at the start, how long a transfer takes and what documents they need. Then set the closing date to that answer rather than to an optimistic one.

Investor buyers and solar

Some buyers of Claremont homes are buying to renovate and resell, and a panel array complicates roof work. Others intend to rent, and a lease payment on a tenant-occupied property is a line in their model that they will look at hard.

Either way, expect the system to be a negotiating point rather than a selling point, and expect the treatment to differ depending on who the buyer is; the difference between a national purchaser and a local operator is discussed in institutional buyers versus local investors.

Disclosure obligations do not soften

A seller must disclose material facts about the property, and the existence of a lease, a power purchase agreement or a financing obligation attached to the home is squarely material. So is a known roof issue caused by the installation, or a system that has not been producing.

An as-is sale does not relieve you of that. As-is describes the condition the buyer accepts; it is not a waiver of the duty to tell the truth about what you know. Sellers sometimes hear otherwise from a buyer who is eager to move quickly, which is a reason to be more careful rather than less.

Verify the buyer as usual

None of this changes the underlying diligence. Funds in the name on the contract, a deposit delivered on time, an identifiable entity, and no artificial deadline. If the offer arrived by postcard or text, the standard cautions apply, and it is worth reading how to verify a cash buyer before you send anyone your solar agreement, which contains personal information.

A sequence that avoids the usual mess

Locate the agreement. Identify which of the four arrangements you have. Call the provider and ask, in one conversation, whether transfer or payoff applies, how long each takes, what the fees are, and who signs what. Order the preliminary title report and look for a fixture filing. Disclose the arrangement in writing at the outset. Only then agree to a closing date.

Sellers who do this find that solar is a paperwork item. Sellers who do not find that it becomes the reason a deal falls apart in week three, and by then the buyer has usually asked for a price adjustment as the price of patience.

For the wider picture on evaluating an offer, start at the cash offers hub. If missed payments rather than preference are pushing the sale, a HUD-approved housing counselor is the free place to begin and no one should be charging you upfront fees for that help.

Anthony Grynchal has been licensed in California since November 2009.