Solar Power or No Solar Power?

OK, so I walked out of my house this morning to discover a street littered with cars and a solar panel installation truck. The cars were the workers and the truck brought supplies to start the project.

As it turns out, my neighbors are getting solar panels, much like everyone else has recently been doing in our neighborhood.

According to the Solar Energy Industries Association (SEIA), over 135,000 installations where completed in the first half of 2015, nearly 784,000 U.S. homes and businesses have now gone solar and a new solar project was installed every 2 minutes. As the industry scales, the prices continue to drop. The solar Investment Tax Credit (ITC) is a 30 percent tax credit for solar systems on residential and commercial properties further accelerating the growth in 2016 with the multiple-year extension of residential and commercial installations. ITC has helped annual solar installation grow by over 1,600 percent since implementation in 2006, this amounted to a compounded annual growth rate of 76 percent.

Solar power purchase agreements and leasing models are available to leverge a product at zero or minimal cost. The different models allow you to either keep the energy yourself and pay for the system or not pay for the system upfront and the developer sells the power generated to the customer at a fixed rate, typically lower than the local utility. In the lease model, you sign a contract with an installer or developer paying for the solar energy system over a period of years or decades, rather than paying for the power produced. Solar leases can be structured so customers pay no up-front costs, some of the system cost, or purchase the system before the end of the lease term.

However, regardless of whether you lease or finance, homeowners are not told that, when entering into the solar lease, the solar company will secure the contractual obligations of the customer by placing a lien (UCC-1) or other encumbrance on the homeowner’s property. As a result, the contractor/installer or holder in due course of the lien has a security on the entire real property not just on the solar installation.

Certain solar energy providers claim that a UCC-1 fixture filing is not a lien against the home? The UCC-1 *IS* a legal form that a creditor files to give notice it has or may have an interest in the personal property of a debtor. The UCC-1 is filed in order to “perfect” the creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with respective priority to position.

Liens cause delays and expense while closing on the sale of a home and obtaining title insurance. Add to this the fact that it would be very difficult to sell a home with a potentially inoperable solar energy system affixed to a roof. The cost of removal of the system alone would be of great expense to homeowners.

Product technology has surely progressed and production is up as a result of this market scale driving costs lower. However, as a real esate investor, I don’t think consumers understand the impact a solar system has on the sale of their home?

Why is this a problem? Well, it has many advantages as a homeowner, but only if you keep your house for the duration of the lease and buy, upgrade or tear it out. If you bought the system, will it be efficient enough by the end of the finance period, or would you upgrade to newer technology?

OK, let’s say you want to sell your house and the new buyer is qualified for x amount with their current income. However, when they go back to the bank to apply the pre-qualified loan to your property, the bank discovers that there is a UCC-1 against the property, now what? Lenders do not want anything on title during a purchase transaction. They are looking to secure their loan, allowing a UCC-1 on title while closing on a property (very unlikely) would create risk and not get approved. Now, you’ve lost a potential client and lost time.

I really like the idea of going solar, but the UCC-1 has to go away and more traditional finance methods have to be implemented before I’m convinced. Ultimately, the declining cost may be the answer, but for now there is too much risk of your single biggest investment in life, your home!