Newsday recently ran a large article about solar panels. One aspect of that article is especially important if you are considering buying or selling a house with a solar-powered system.
Homeowners whose houses have such systems installed either own the system or lease it. If the system is leased, the leasing company likely filed a lien against the house, known as a financing statement under New York’s Uniform Commercial Code (a “UCC-1”). That lien is equivalent to a mortgage. It either must be paid in full when the house is sold, or assumed by the buyer, if the leasing company agrees.
Apparently, some homeowners don’t know that such a lien exists. If no one asks questions, sometimes the issue will not arise until a title report is reviewed, after the contract has been signed.
If a buyer refuses to assume the lease obligation, the seller legally must pay the balance of the lease at closing, because ownership of the property must be transferred free from liens.
The bottom line: Sellers with leased solar panel systems should address the issue up front. If a potential buyer refuses to assume the lease, the seller should negotiate an increase in the purchase price that reflects the value of the property with the system. I expect that sellers might be reluctant to mention the options until there otherwise is a deal, but the matter cannot be avoided. If the house is listed with a real estate agent, the terms the seller is willing to offer in either case should be disclosed in advance of an agreement.
Potential buyers of a house with a solar panel system should ask up front whether the system is owned or leased. The seller’s representations and the parties’ agreement should be part of the contract, so that they clearly know their rights and obligations.
Even if a buyer agrees to assume the lease (knowing what their financial obligation is), there should be a contingency clause in the contract stating what happens if the leasing company refuses to allow the buyer to assume the lease.
If the buyer intends to assume the lease obligation, the mortgage company from which the buyer intends to obtain a mortgage loan to buy the house should be informed immediately, before contract signing. The size of the approved mortgage loan will be based on the buyer’s income and an assessment of all financial obligations.
If the buyer fails to disclose to the lending representative the future lease payments, the previously-approved mortgage loan might be withdrawn, shortly before the expected closing, when the lender’s appraiser asks about “those solar panels on the roof” or the lender’s attorney asks about “that UCC-1 in the title report”. What a mess that would be.If the buyer fails to disclose to the lending representative the future lease payments, the previously-approved mortgage loan might be withdrawn, shortly before the expected closing, when the lender’s appraiser asks about “those solar panels on the roof” or the lender’s attorney asks about “that UCC-1 in the title report”. What a mess that would be.
Copyright 2018 Joseph A. Bollhofer, Esq.
Editor’s Note: Joseph A. Bollhofer is an attorney practicing law since 1985 in the areas of real estate, elder law, Medicaid and estate and business planning and administration. He is also the president of Downstate Title Agency, Inc. His legal advice has appeared several times in Newsday’s “Ask the Expert” column, a weekly feature dedicated to elder law and estate planning issues, and in Bar Association journals. He is a member of the National Academy of Elder Law Attorneys, and of the Elder Law and Surrogate’s Court Committees of the Suffolk County Bar Association, currently serves as chair of the SCBA’s Real Property Law Committee, and is a member of the Real Property, Elder Law and Trusts & Estates Law Sections of the New York State Bar Association. His office is located at 291 Lake Ave., St. James, NY. He can be reached at info@bollhoferlaw.com or 631-584-0100.