With the exception of “solar panels,” which is itself a selling point, lower utility bills, smaller carbon footprint, or modern upgrade. But if you happen to still owe money on a solar loan, or pay monthly for your solar lease, that same system can become the most complicated and convoluted line item in your whole sale. You are well-versed in what the answer is to all buyer questions. Lenders will want documents you may not have seen since the day you signed. And all at once a simple sale has an asterisk the shape of the solar system attached to it.
Fortunately, none of this will make your home unmarketable. This guide walks through the actual difference between a solar lease, a solar loan and outright ownership, what all one of these means when you sell and how selling as-is for cash is something to deal with!
This article is for general informational purposes only and is not legal, tax or financial advice. Solar contracts differ widely between providers and different states, so review your contract and consider discussing your individual situation with a licensed professional.
Why It Matters How Your Panels Are Financed
First of all, you should determine what one of three scenarios you are situated in, since each one will modify what occurs when a sale is made:
- You own the system outright. You have done a pay upfront with cash or you have already repaid a loan. The panels are as much a part of the house, like a furnace or water heater and they convey with the property automatically.
- You’re taking out a loan to pay for the system. The equipment is yours, but a lender holds an interest in that asset until the loan is paid off, much like a car loan.
- You either lease the system or have a PPA. Panels are owned by a solar company. You pay either a set amount to lease the system, or are billed for each kilowatt-hour of electricity produced but never own the equipment itself.
The FTC says you don’t own the panels, in fact, the tax credits/incentives go to the owner of the system, so if your leasing or signing a PPA agreement, you’re not buying them either. Because a buyer inherits any one of these three situations you are in, that distinction is just as important when you sell as it was when you signed up.
Implications of a Solar Lease or PPA in Sale
If you are leasing your solar panels or have a PPA, you do not own the actual asset to sell; rather, you own a contract to transfer. According to the FTC, residential solar systems are intended to function on a home for at least 20 years, so lease or PPA contracts generally align with this timeline. Most sellers no longer are handing off a lease when it is still in term.
In summary, here are the usual steps of transferring a solar lease:
- Buyer credit approval. Since the buyer is assuming the payment responsibility going forward, the solar company will conduct a credit check on them as well.
- A transfer or assignment form. The solar company gives you paperwork that transfers the contract from you to the buyer (which usually needs to be signed by each party).
- For buyers with a loan, lender review. Mortgage lenders will review the lease terms and double check that the payment won’t jeopardize the buyer’s ability to repay her mortgage, as an adverse lease will impact a debt-to-income calculation.
- Warranty and maintenance confirmation. Convincing buyers, and their lending partners, that the lease provides coverage against system failures is important since it does raise a legitimate concern of a buyer being stuck with repair expenses on equipment they do not own.
If the buyer’s credit doesn’t clear the solar company’s approval, or if specific lease terms create financing problems for the buyer’s mortgage, transfer can be stalled, or fail entirely, often later in the process.
The Implication of a Solar Loan for a Sale
If you had a loan for your panels instead of leasing them, the mechanics are slightly different and not necessarily any easier. Many solar loans are secured by a UCC-1 filing (a lien filed against the equipment and sometimes construed as something broader than that, depending on jurisdiction), has been noted also by the Consumer Financial Protection Bureau. In fact, some jurisdictions have ruled that while a UCC lien is not technically a lien on real property, as matter of practice it clouds title because the entire property may also be included in the purview of the UCC filing so there must always be either a release or subordination of such lien before they can close cleanly.
When you sell with an active solar loan in practice, however, it generally means one of two things:
- Pay off remaining loan balance from sale proceeds at or before closing, title company handles lien release
- Let the buyer take over the remaining balance assuming your loan terms allow for it and they qualify, though this is less common than a straight payoff.
Regardless, the loan balance and UCC lien must either be paid off or addressed as part of closing, typically requiring a title company or closing attorney to confirm the lien is released or otherwise resolved before allowing for clean transfer of deed.
So the thing that is common is a solar lease (or loan), it doesn’t matter how you sell, the underlying contract or lien still exists. Who has to resolve it, and when would be different.
What Eagle Cash Buyers Does With an Active Solar Lease or Loan
We buy homes in as-is condition and that includes homes with active solar you still pay for under a solar lease, PPA or loan. Sample: this is generally what it normally looks like:
Disclosure, not resolution. We ask them what they know of their situation, which allows us to find out which company is the lease or lien holder, how much money is left on it or for how long, and anything in terms of paper work that you have. At the time of reaching out you are not required to have paid it off or arranged for a transfer.
In a competitive market, that obligation gets baked into the offer. Instead of making resolving the lease or loan a condition of the sale, it may also be netted as part of determining what that property is worth, similar to including a mortgage balance, tax lien or other encumbrance on the property. For more information on how we generally handle liens and other existing balances check out our page about how we buy houses as-is.
No lender-driven approval process. There is no lender reviewing the lease terms, let alone asking for some kind of debt-to-income calculations before closing since we are not financing the purchase with a mortgage.
A documented, straightforward closing. And we coordinate whoever is needed to remove a lien or transfer property, including you and the title company. As you can view by heading under our how it works page the realist offers depends on the idea of earn your money slowly.
If you are assembling paperwork for the sale and have your solar agreement, check out our documents checklist for selling a house for cash that outlines what else is typically helpful to keep readily available.
Caution on Solar Sales Practices That Hinder a Future Sale
Part of what makes solar leases and loans hard to sell originated from how they were marketed in the first place. The FTC has brought enforcement action against companies for misstating financing terms and ensnaring homeowners in liens that made it difficult to sell their homes, and its general consumer guidance states that bona fide solar financing should never be accompanied by pressure to sign quickly or promises of “free” panels without a commitment. If you are not completely certain what your signed agreement documents were or your balance/terms to date with your solar, asking the company for a full document of your contract is likely a smart first step prior to listing or contacting a buyer.
What You Should Prepare When Reporting a Solar Lease or Loan
Getting ready takes a minute but makes things go faster, whether you’re selling conventionally or as-is:
- Locate your original solar agreement. It lays out the term length, payment structure and transfer conditions.
- Request a current payoff or transfer amount from the solar company, as balances and terms may change over time (the U.S. Treasury Department points out that some leases come with upswings in payments due to an “escalator clause”).
- If you have a loan, determine whether there is a UCC-1 filing and if your county considers it to be only a lien on the equipment or is more broadly speaking on property.
- Make any mention of warranty or maintenance terms, as this is a common early question posed by a buyer or their lender.
Frequently Asked Questions
Q: Can You Sell a House That Has an Active Solar Lease?
Yes. You can port the lease to the buyer if they are approved with the solar company, buyout the lease before selling, or sell to a cash buyer who takes out an offer without needing first for you to resolve or get rid of the existing lease.
Do I Have to Pay Off a Solar Loan Before Selling My House?
Not always, though that is the norm with traditional sale. Usually, the loan collateralized by a UCC-1 lien that must be satisfied or discharged at closing through the title company (by either paying it off with sale proceeds, or, sometimes, assuming it if allowed by the loan documents).
How Does an Existing Solar Lease Look to a Buyer Once They Are Applying for a Mortgage?
It can. A mortgage lender may consider monthly solar lease payments as a loan payment, which can affect how much a borrower is able to qualify for based on their debt-to-income ratio. This is one of the more standard reasons in a traditional sale as to why a solar-related sale gets postponed.
Does Selling for Cash Allow Me to Completely Bypass My Solar Lease or Loan?
Not quite, because that agrement or pledge is still part of the transaction. The thing that a cash sale alters is that the responsibility is written into the offer and wrapped up at closing as opposed to being something you need to straighten out yourself during a particular timetable before the loan specialist for a buyer you get offers from via deal and promotion will say yes.
All This Being Said, What Is a UCC-1 Filing and Why Should I Care When I Go to Sell?
A UCC-1 filing is a type of lien, typically filed by a lender in its role to secure a loan against personal property, solar equipment in this example. As some jurisdictions consider this filing as touching more broadly than the property specifically, in practice it has to be released or made subordinate to a mortgage or new sale prior to having title transfer cleanly.
Does a Solar Lease Mean My Cash Offer Is Lower?
One of the things that a property is assessed on includes any outstanding lease or loan balance, like a mortgage balance or degree lien. This isn’t an automatic disqualification, but rather looked at as a consideration of the offer.
The Bottom Line
No matter if you are squired into a solar lease, paying off a loan or slogging through the touchy details associated with that pesky UCC lien you didn’t really appreciate when you signed up, these kinds of tangles need to be sorted out before you’re free and clear to sell. You have genuine options: you can pay it off, transfer it, purchase it out or sell the property as-is and allow the liability be part of what is considered in the proposal. What often complicates a traditional sale such as credit checks, lenders appetite and timelines beyond your control is exactly was cash sales are designed to circumvent.
If you’re trying to sell your home, have an active solar lease or loan and want to learn how much you could receive from a cash sale, contact our team. The good news is we invest in homes nationwide (Including 44 states) in any condition and we can help you understand how your specific solar situation fits into the equation. Head to our sell my house page to begin.
