Basics of buying a home with solar

What to Know (and Do) If Solar Matters Appear on a Preliminary Report. Tips from Dave Erb and Bill Thomas with California Title Company.

Solar panels are a great way to reduce energy costs, and earn tax credits. Homeowners across Orange County are embracing solar energy to power their homes. Furthermore, in just a few years, new homes are expected to have solar systems installed.

So, what does this mean for the real estate industry? To start, all solar leases are recorded at the Orange County Recorder’s office and reported on the Preliminary Report. When it’s time to buy or sell a property with existing solar panels, this matter will show on a title search.

Buying a house with fully-owned solar panels

This is the ideal situation. Panels are purchased up front, and are owned entirely by the seller of the Orange County home. This means you will not have to pay a monthly fee or lease.

Buying a house with leased solar?

If the house you are interested in has a leased solar energy system, it means that the current homeowner sends a monthly payment to the company that installed the panels. Before you buy, you’ll want to find out more information about the lease terms. It is always a good idea to review the original lease contract. In fact, your lender may need to take any potential lease payments into consideration when it comes to your loan pre-approval.

Additionally, before you decide to purchase a home with a leased system, you will want to look at your own financial situation. Because leases can raise your debt-to-income ratio, there’s a chance that qualifying for a home mortgage may be more difficult with an acquired solar lease.

The solar company issuing the lease can transfer the lease to your name once they confirm that you meet their credit qualifications.

What about a home with panels purchased through a loan?

If a homeowner installs solar with a secured or unsecured solar loan, the loan will remain their liability, even if the property is sold. As a result, if you’re looking to buy a home and the previous owner installed solar panels through a loan, you probably don’t need to worry about any additional payments or contracts. Of course it is always advisable to confirm the specific situation surrounding the solar purchase.

Buying a house with PACE financed solar panels?

Unlike other solar loans, PACE financing is attached to a property, not to the person who took out the loan. The payments are made through the owner’s property taxes. When solar is purchased with PACE, the payments become your responsibility. If the home you choose has PACE financing attached to it, you should always check the financing terms before you purchase.

How is the title affected by solar?

When a homeowner decides to enter into a contract with a solar energy producing company to lease or purchase a solar system for their real property, there is a notice recorded against the title to the real property on which the electricity is generated. The notice is named “Notice of an Independent Solar Energy Producer Contract.” This is to establish that an independent solar energy company has entered into a contract for the use or sale of electricity produced by a solar energy system, to an entity or person, for the use in a residence. In addition to the “Notice of Independent Solar Energy Producer Contract” being recorded, a Financing Statement will be recorded to reflect that financing has been provided for either the lease or purchase of the Solar System.

The recorded “Notice of an Independent Solar Energy Producer Contract” does not constitute a title defect, lien, or encumbrance against the real property. However, the financing statement indicates that there is a lien against the property. The independent solar energy company shall be solely responsible for the accuracy of the information provided in the notice and for recording the documents with the County Recorder.

To extinguish the “Notice of Independent Solar Energy Producer Contract” if the contract is terminated, a document terminating the notice must be recorded. The independent solar energy company must produce the release to extinguish the “Independent Solar· Energy Producer Contract.” A Termination of the Financing Statement must be recorded as well. If the contract is assigned or assumed by the buyer, the solar energy company is responsible for recording a new “Solar Energy Producer Contract” and Financing Statement under the new ownership name.

Questions to ask before buying an Orange County home with solar.

Here are some general questions you should look to have answered by the lease contract and previous property owner:

• What are the monthly fees, if any? 
• Are the payments escalating/increasing? 
• What is the lease term (20 years is common), and how many years are left on the lease? 
• When was the solar system installed and was it done by a qualified roofer/solar installer?
• What is the warranty?
• Has the condition of the roof/ solar system been inspected recently?
  
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Contact your Title Representative or Title Officer for further assistance regarding solar matters on a preliminary report.

SOURCE: California Title Company, EnergySage