Monday, October 26, 2015

Legal Implications of Rooftop Solar Panels

Here is an article I wrote for the October 2015 edition of the Merrimack Valley Housing Report, a joint venture of UMass Lowell and the Middlesex North Registry of Deeds. For more information about the Housing Report and to subscribe to it for future delivery to your email inbox, check out MVHR webpage.  Here's my article:

Drive through any neighborhood in Lowell these days and you will notice that the matte gray shingles on many homes have been covered with shiny black solar panels. These systems capture sunlight, convert it to electricity, and use that electricity to power the house’s appliances. Excess electricity is fed back into the power grid with the homeowner getting a credit to be applied against traditional electricity usage which occurs at night when no solar power is being created.

A typical agreement between a solar company and a homeowner lasts for twenty years. During those two decades, the solar company continues to own the solar equipment installed on the homeowner’s rooftop. To protect its property, the solar company records a UCC-1 financing statement at the registry of deeds. This form identifies the property owner, the property address, and the book and page of the property owner’s deed. The purpose of this filing is to notify everyone, especially potential purchasers of the property or lenders about to refinance the homeowner’s mortgage, of the security interest held by the solar company in the rooftop equipment.  

The solar companies vigorously assert that these financing statements are not liens.  Vivint Solar Developer LLC, one of the more active companies in this region, even includes the following language in its UCCs:


Another of the primary solar companies in this area, SolarCity, in its Frequently Asked Questions webpage responds to the question, “Is there a lien on the solar home?” with this:

No. What you’ll find on the title of a home with a SolarCity power system is a UCC-1 fixture filing. A UCC-1 fixture filing is not a lien against the home. SolarCity files a Uniform Commercial Code Financing Statement, or UCC-1, on all of our solar energy systems in the real property records where each system is located prior to or when the system is installed. We file the UCC-1 to notify anyone who might perform a title search on the address where the system is located that our property, the solar energy system, is installed on the home. This filing protects our rights as the system’s owner against any mortgage on the real property. If the lender that holds the mortgage on the real property forecloses on our customer’s home, the UCC-1 filing protects our interest in the solar energy system and prohibits the lender from taking ownership of it.

SolarCity goes on to acknowledge that “lenders prefer not to see anything on the title” so SolarCity routinely releases its UCC filing in the case of refinancing and then re-files it after a new mortgage has been recorded.  That SolarCity acknowledges the need to release its position before a lender will extend financing to the homeowner is strong evidence that the UCC filing is in fact an encumbrance on the property.

Besides complicating the refinancing process, a rooftop solar unit might also complicate the sale of one’s home. SolarCity’s website addresses this, offering three options. A property owner may transfer the existing agreement to the new homeowner; pre-pay the 20 year commitment to the solar company; or move the device to one’s new home. The website assures readers that the company will not be an impediment to the sale of a home.

The number of solar-related UCC filings is steadily increasing.  Approximately 1100 of these financing statements have been recorded at the Middlesex North Registry of Deeds with 65% of them coming in 2015 alone. Because these rooftop solar units are so new, their practical effect on owning, refinancing, and selling one’s home has not yet been fully determined. With the standard solar company-homeowner contracts being twenty years in duration, there are many rights and obligations involved. There are also many implications for lawyers, loan officers, brokers and appraisers. Should the standard purchase and sale agreement be revised to reflect the existence of a rooftop solar unit? What if the new buyer is willing to assume the agreement with the solar company but the solar company rejects that? What if the buyer wants nothing to do with solar energy and wants the unit removed? If the unit is removed, what impact will that have on the integrity of the roof? There are many unanswered questions and probably just as many questions that have not yet been identified.

Here in the northeast where energy costs are so high, the idea of powering one’s home with a rooftop solar panel is very attractive. Nothing in this article is intended to detract from that. Nevertheless, there should be a greater discussion of the real estate law consequences of these devices so that homeowners are fully aware of the consequences of adopting this type of energy solution and so real estate professionals are able to successfully navigate the legal and practical challenges posed by this new technology.


Tom Saia said...

Living this nightmare currently. Applied for a home equity loan and was surprised to find out a lien was placed on my property by my Solar Company. They call it a fixture filing but let's be serious it's a lien. I pre-paid my solar lease up front so was shocked to find out that a lien could be placed on my property. Let's be honest most of these companies will be out of business long before 20 years so what then? Honest people are stuck to deal with fraudulent liens that were placed on their properties. I have read online that Congress is looking into this matter hopefully they will get something done soon. The Solar Companies should have to stop this fraudulent business practice.

Punch Drunk Puckett said...

Tom, not exactly sure when your original post was entered but I'm curious how the equity loan worked out for you with the icc-1 filing. My husband I are in the process of buying a system from Solar City and want to know more about the UCC-1. I understand now that it's an extra step to take when refinancing, etc but is it really that bad of a problem? I mainly don't want it to go against my equity in the home. Any info greatly appreciated.