Refinancing a Claremont Solar Home: The Subordination Request

Most writing about solar and money assumes a sale. A refinance is a different transaction with a different pressure point, and Claremont owners meet it in the same place every time: a filing on the title report that somebody has to agree to move.

In a sale, recorded interests get cleared because the property changes hands and proceeds are available to clear them. In a refinance, the owner keeps the house and no proceeds appear for that purpose. Everything attached to the parcel is still attached when the new loan funds, which means the new lender has to accept the company it now sits behind, or ask that company to step back.

This is not lending, legal or tax advice. Anthony is a real estate licensee, not a lender, an attorney, a contractor or a tax adviser, and the only authority on a particular refinance is the lender handling it. Solar contract terms, utility rules and lender requirements change; verify each specific with the parties themselves before relying on it.

Priority is the whole issue

A lender making a first-position loan expects to be in first position. Position is a function of recording order and of agreements between the parties, not of who feels most important.

A solar arrangement can leave a recording against the parcel in more than one form. A financed system may be secured by a filing covering the equipment. A third-party-owned system may be protected by a filing that announces the provider's interest in its own hardware. A tax-roll financing arrangement sits somewhere else entirely. What each of these looks like on paper, and how to tell them apart, is the subject of the title report guide.

The distinction matters because it decides the remedy. A filing securing a debt in the owner's name can often be resolved by payment. A filing announcing a provider's ownership of its own equipment usually cannot be paid off at all, because there is nothing to retire: the equipment simply is not the homeowner's.

What subordination actually is

Subordination is an agreement by one recorded party to accept a lower priority position than it would otherwise hold. It is a document, signed by someone at another institution, produced on that institution's schedule.

It is routine in the industry. It is also, reliably, the item that runs late, for a simple structural reason: the party being asked has no transaction of its own at stake and no deadline it is accountable to. It is doing paperwork as a courtesy to a process it is not part of.

The practical rule follows from that. Identify the filing at the beginning of the refinance, not when the file is otherwise ready to fund. The request needs a running start.

The three shapes a refinance runs into

OWNED AND PAID FOR, with nothing recorded. Nothing to do. The array is part of the home and the refinance proceeds like any other.

OWNED WITH A BALANCE. There is a debt, and a lender may require it released, subordinated, or paid. Where payoff is the route, that is money the owner supplies rather than proceeds from a sale, which is a budget question worth answering before the loan is structured. The mechanics of a payoff and the release that must follow it are covered in the payoff guide.

THIRD-PARTY OWNED, under a lease or power purchase agreement. Here the monthly amount is a payment for the use of equipment, and the recorded interest belongs to a company protecting hardware it owns. Subordination is usually the path, because there is no principal balance to retire. Many providers have a standard process for exactly this. Ask what it is, in writing, on day one.

The obligation the underwriter also sees

Priority is one question. Affordability is another, and the two get confused.

A recurring solar payment is a monthly obligation, and an underwriter reviewing a refinance may treat it as one when assessing what the borrower can carry. A homeowner who has been quoted terms on the basis of an informal conversation may find the picture shifts once the payment is on the application. The way that assessment works, and what to hand over, is set out in the lender's view guide.

Disclose it at the start. A refinance that is going to be difficult is better known in week one than in week six.

Tax-roll financing is its own animal

Where an improvement was financed to be repaid through the property tax bill, the obligation attaches to the parcel and continues regardless of who owns the home. Loan programs do not all treat that the same way, and the treatment is not something to assume from a neighbor's experience. This is a question for the lender before an application is submitted, not a detail to raise later.

A sequence that works

• Order a preliminary title report or a property profile early and read what is recorded, rather than relying on memory of the installation.
• Identify the arrangement behind each filing: owned with a balance, third-party owned, or tax-roll.
• Tell the lender what exists before an application is taken, and ask what it will require for each item.
• Contact the provider or recorded party in writing, ask specifically whether it will subordinate, request its form and its stated turnaround, and record who said what.
• Track it weekly. Nobody outside the file will chase it.
• Confirm after funding that the intended documents recorded in the intended order, and keep copies.

The failure that repeats

The most common one is quiet. An owner refinances, the solar item is handled at the last minute, and the release or subordination is either never recorded or never checked. Years later the property goes on the market and a filing appears on the title report that everybody believed had been dealt with. That specific failure, and how to unwind it, is a known enough problem to have its own treatment in the unreleased filing guide.

Confirming the recording at the end of a refinance costs one request. Discovering it during a sale costs a closing date.

Where to go next

Pull the title report first, name the arrangement, then talk to the lender and the provider in the same week. The wider set of transaction issues is collected in the solar homes guide.

Anthony Grynchal has been licensed in California since November 2009.