Short Sales, Foreclosures, and the Panels on a Claremont Roof

A distressed transaction is difficult because the money is short and the decision-makers are institutions. Add an array on the roof and you add a third party who is not part of the negotiation, has its own agreement, and did not agree to take less.

This is one of the harder corners of the subject, and it is worth understanding before anybody makes assumptions about what can be delivered.

Anyone facing financial difficulty on a home should speak to a HUD-approved housing counselling agency and to their own attorney early. Nothing here is legal or financial advice, and nobody should be paying upfront fees to a company promising to fix a distressed situation.

Why solar makes a short sale harder

The defining feature of a short sale is that the sale price does not cover what is owed, which means the lienholder is being asked to accept less than the balance.

Solar obligations sit inside that arithmetic, and they do not necessarily behave like the mortgage.

A financed system with an obligation in the seller's name is another payoff competing for proceeds that already do not stretch. Whether the solar creditor will accept less is a decision for that creditor, and it is a separate negotiation from the one with the mortgage holder. The ordinary version of these mechanics is set out in the payoff guide, and in a short sale every part of it gets harder.

A third-party-owned system is not a payoff at all. It is an agreement that either transfers to the buyer or does not, and the provider's approval process does not adjust itself because the seller is in difficulty. That process is described in the transfer guide.

An obligation collected through the property tax bill is a different animal again, and it is likely to remain attached to the parcel regardless of anybody's negotiation, as covered in the tax-roll financing guide.

The arrears problem

A homeowner in financial distress has been prioritising payments, and a solar payment is rarely at the top of that list.

So a distressed file frequently arrives with the solar account in arrears, which changes the questions.

Is the agreement in default, and does the provider have remedies it has begun to exercise? Are there recorded items reflecting any of that? What has to be cured, by whom, and out of what money, before anything can be delivered to a buyer?

The estoppel request becomes essential rather than optional here, because the state of the account is the whole issue and nobody should be guessing at it. That request is set out in the estoppel letter guide.

Bank-owned property

When a property has already gone through foreclosure and is being sold by an institution, a different set of limitations applies.

The seller now has NO HISTORY WITH THE HOUSE. It did not install the array, did not sign any agreement, and generally cannot tell a buyer anything meaningful about the equipment because it does not know.

Institutional sellers commonly sell in as-is condition with limited representations. What that means for a specific property is set out in that seller's own documents, and a buyer should read them rather than assume.

The practical consequence is that the buyer performs all of the diligence, unaided. Nobody is going to volunteer the contract, the warranty file, the permit history or the production record, because nobody at the institution has them.

That makes the public record the primary source. The title report, the permit file at the city, the itemized tax bill, the utility interconnection record. The reading approach for the first of those is in the title report guide.

The orphaned equipment scenario

The worst version is an array on a roof with no traceable relationship to anybody.

No contract in the file, no live provider, no warranty holder, and a system that may or may not be functioning. It is hardware attached to a house, and the buyer has to decide what it is worth to them on the assumption that nobody is coming to service it.

That situation and its consequences are examined in the orphaned systems guide. It is not automatically a reason to avoid a property. It is a reason to value the array at what an unsupported, uninspected system is worth, which may be very little, and to budget for the possibility that it eventually has to come off.

What a buyer should actually do

Establish, from the record rather than from the seller, what exists.

Assume no cooperation and no information, and price on that basis.

Get the array looked at by somebody qualified before removing contingencies, if you have any.

Ask your lender early what they make of anything you find, because a distressed purchase with an unresolved solar obligation is exactly the kind of file that stalls late. The lender's general perspective is in the underwriting guide.

Take the documents to your own attorney. In this corner of the subject, more than any other, the specific paperwork governs and general descriptions are not good enough.

The honest summary

Solar does not make a distressed transaction impossible. It makes it slower and it adds a decision-maker.

The transactions that fail here are the ones where somebody assumed the solar would sort itself out alongside the mortgage. It is a separate agreement with a separate counterparty, and it needs its own answer, in writing, early.

Start at the solar homes hub for how a normal solar file is supposed to run, then assume a distressed one will take longer.

Anthony Grynchal has been licensed in California since November 2009.