In the 1980s, there was a substantial 70 percent federal tax credit available if you installed a solar power system on your home. During that period, solar panels on rooftops were popping up like crazy! Most of those systems were “financed” by the tax savings afforded to the homeowner. Solar back then was primarily used for heating water and space heating using a radiator system.
Today, most of the solar panels you see are Photo Voltaic (PV), which produce electricity for the home or to provide power back to the grid. These new systems are expensive and the tax credits are not as generous as previous years. As a result, homeowners usually enter into a lease agreement or a loan secured by a deed of trust against the home.
Selling or buying a home with a solar power system lease or loan could pose a few challenges for a home sale or purchase. However, if the current homeowner owns it outright, it can be conveyed just like any other appliance which has been paid for free and clear.
If a home solar system was financed through a lease or a deed of trust, it is not difficult to deal with, as long as you know the issues before listing your home for sale and before a contract to purchase has been agreed to and signed. The main challenge comes when mid-transaction, the buyer and seller realize the effect of the burden of a lease or deed of trust secured by the property. That is the time when it can get messy.
Selling or buying a home with a solar lease in place
The seller should contact the holder of the lease to determine if the lease is assumable by the new buyer and under what terms. Be sure to ask what the criteria are for approving the assumption of the lease and how long the process will take. Knowing this information will help your real estate agent write a contract with acceptable dates and contingencies to protect all the parties involved.
When contacting the holder of the lease, it is important to know what the payoff of the lease is. The seller should have this information in the seller’s original lease documents. The seller could choose to pay off the lease and own the system free and clear. Then the seller can decide on their price of the house including a free and clear home solar system. The seller should be able to show the buyer a track record of the savings on the electrical bill, thereby adding value in the eyes of the buyer.
Selling or buying a home with a loan secured by a deed of trust
In most cases, if the solar power system purchase was made via a loan from the solar company or a third party, it was secured by a deed of trust against the home with the solar system. “Secured by a deed of trust” means the loan will typically need to be paid off at the closing table upon the sale of the home. The seller should know or inquire about the payoff amount upon placing their property on the market, so there are no last-minute surprises. The seller should also check to see if the loan has any fees if the loan is paid off early. Again, with a free and clear solar system, the seller can price the home accordingly and the buyer can determine any value added based on the electrical bill savings.
There are instances in which the deed of trust holder would allow the loan to be assumed by the new buyer. The deed of trust holder would need to agree to subordinate to the new buyer’s first mortgage. The buyer’s first mortgage lender would need to qualify the buyer based on adding the assumed mortgage monthly payment.
It is possible, but rare, that the system was financed by a personal, unsecured loan. If that is the case, the seller is free to sell without paying off the loan. However, the seller is still subject to whatever the terms are of the personal loan.
Bottom line: it isn’t a problem to sell a home with a financed home solar system. The entire process can be seamless as long as the appropriate information has been collected and conveyed to all parties. This enables all parties to make informed and timely decisions. Your real estate professional can help guide you through the process.