Avoiding Headaches
Imagine you’re in the process of selling your home. After months of haggling with prospective buyers while simultaneously juggling all the stressful demands of moving yourself, you’ve finally come to terms and are ready to close the deal.
Then, out of the blue, you get a very unwelcome phone call. The buyer’s mortgage company says they can’t proceed. They claim there’s a lien on your home related to that loan you took out for your solar system and, hence, that it’s not yours to sell.
It’s a headache no one needs but, unfortunately, it’s also a common mistake made by lenders who lack experience in the burgeoning new solar energy market. So, it pays to be aware of wherein the potential for misunderstanding lies to avoid any unpleasant speed bumps in the already stressful journey from one home to another.
Liens
A lien is a legal right attached to a loan that allows the creditor to seize a specified asset of a borrower should the latter default. It also forbids the borrower from selling the asset without the lien-holder’s consent until the loan is paid off.
The lien attached to a loan is typically on whatever it is that the loan was used to finance. So, for example, when you take out a mortgage on a house, the lender will hold a lien on it until it’s paid off. When you take out a loan to buy a car, the lender will, likewise, hold a lien on it for the life of the loan.
But, importantly, a lien doesn’t have to be on the same asset bought with the loan. If, for example, you already fully own your home outright, you can use it as collateral for a loan to buy something else by giving the lender a lien on it.
The Uniform Commercial Code
The Uniform Commercial Code (UCC) is a set of laws that governs all commercial transactions in the United States, including liens. Rather than being federal law, however, the UCC was uniformly adopted by each individual state.
If you took out a loan to install a solar system in your home, you had to authorize your lender to file a UCC filing with the state and county where it’s located indicating that there’s a lien on it. The filing is public and can be accessed online so that other potential creditors or anyone else concerned has a means of knowing there’s already a lien on your solar system and, hence, that it’s not really yours to dispose of as you see fit.
The potential for misunderstanding arises because the UCC filing for your solar loan will come up whenever someone does a lien search on your property’s address. So, if the buyer’s mortgage company has little experience with how solar loans work, they’re apt to think that the lien is on the property itself rather than merely on the solar system and, hence, immediately put a halt to the mortgage.
Forestalling Confusion
The easiest way to handle a solar lien when selling your home is to eliminate it by paying off the balance of your loan. At that point, your solar system becomes simply part of the property and gets sold along with it just like a swimming pool or garage.
Since owning your solar system outright is almost certain to increase the value of your home, you can try to arrange things with your finance companies so that, in effect, you wind up paying off your solar system with that added value.
If for some reason paying off your solar loan isn’t an option, in addition to the mortgage to buy your home, the new owners will also have to qualify for and assume the loan for your solar system and of course, along with it, the lien.
If you wind up going with option two and selling your solar system as a separate asset, it’s worth making sure that everyone involved understands that:
There’s a lien on your solar system that’s going to come up whenever a lien search is done on your property.
But the lien is, nonetheless, merely on the solar system itself and not on your home.
That way, you’ll avoid any annoying misunderstanding if it turns out your buyer’s mortgage company lacks experience in solar financing.