George Souto is a mortgage lender with McCue Mortgage Company. He recently wrote an article about selling or re-financing a home with Solar Panels. I was happy to see it because I have been asked about solar panels quite a bit lately. The article with George’s permission is below.
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.
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 firstname.lastname@example.org