The housing bubble of 2008 is gone, but it doesn’t mean that people are no longer losing their homes due to foreclosure. 

If a borrower fails to make mortgage payments on time and in full over an extended period of time, a lender has the legal right to reposses a home.

Buying foreclosed homes can be a good real estate investment. These are properties being sold for a much lower price than their original market price and with a little bit of work, they can be turned around for great profit margins. 

But what if the home comes with a certain “extra”, in this case, a green fixture.

It’s what happened to a Massachusetts resident, who posed the following question on an Internet board dealing with solar power.

“I recently purchased a bank owned foreclosure that had a solar system on the roof. The bank had ‘no’ knowledge about the system (right before we closed we found out that the panels were leased). The bank told us to consider them fixtures and that we owned them. Our title came back clean and all liens having to do with the panels had been wiped out in the foreclosure. We received a generic letter from (the company that owns the panels) addressed to ‘current home owner’ stating we had to sign a lease or they would come take the panels. Has anyone else dealt with this?”

A California Real Estate Broker responded that the lease was with the previous owner and attached to the property. “It would then transfer to the new owner, if the property didn't go into foreclosure. But the foreclosed loan being in place before the lease, may wipe out the lease agreement as it pertains to the property because the lease is subordinate to the lien. So the solar company's sole recourse may be to only go after the previous owner.”

“You purchased a property and all of the attached fixtures are real property and included with the sale. It is likely that you have a greater claim to the solar panels than the solar company,” he added, before cautioning that this may depend on state law and the type of foreclosure.  

However, Bob Olson of the legal firm Snell & Wilmer wrote in a Real Estate Litigation Blog entry titled “Green Energy Can Complicate Real Estate Foreclosures” that even a clear title may not guarantee ownership of a solar system attached to a foreclosed home.

“Many believe that foreclosure of a deed of trust that was recorded before the solar panels were installed would extinguish any liens in favor of the vendor that sold or financed the sale of the solar panels,” Olson wrote.

But not so fast. “In cases where the solar panels are leased, the purchaser of the property at a foreclosure sale would not obtain legal title to the solar panels because the lessor owns them,” he explained. 

Rich Reed, a real estate agent, also explained that “Most solar companies file a UCC-1 and continue to own the equipment even after foreclosure.” UCC stands for Uniform Commercial Code and there are different types. A creditor files a UCC-1 to provide notice to interested parties that he or she has a security interest in a debtor’s personal property. This personal property is being used as collateral in some type of secured transaction, usually a loan or a lease.

Doug Howe of HighRock Consulting LLC also answered a similar question with caution.

“It varies by state and depends upon how the solar installation has been financed. The simplest case is where the installation was purchased outright by the homeowner. In this case, the installation is generally considered a part of the property and follows the house into foreclosure, just as any other structures located on the property would. If the installation was paid for with an ordinary bank loan, which has not been paid off, then the lender would have a claim on the foreclosed property but that claim would almost certainly be junior to the mortgage holder. If there were PACE or HERO loans attached to the installation, they may be senior to the mortgage holder’s claim and that will complicate things.

“If the solar installation was leased then the solar equipment may have become an attachment to the home and therefore part of the home meaning that the lessor may have given up the right to repossess the solar facility. A court may have to get involved to settle it. I don’t believe the law on this is absolutely settled in all cases in all states,” Howe noted.

Yet another response sided with the solar company behind the lease.

“In that case, the solar provider owns the panels, they are legally allowed to come and collect them and the related equipment (inverters, monitoring) if the payments have been missed,” the responder said.

The reality is that these type of transactions are murky, at best, and complicated at worst. 

And they illustrate that while solar panel leases offer a low ($0) down and immediate savings on your electricity bill, they do come with caveats:

• You never own the solar power system
• You wind up with a multi-year leasing contract
• If you break the lease before its terms, you have to pay hefty penalties

Typically, if a home you’re purchasing has leased solar panels, you need to find out the lease agreement details, including monthly fees and the contract term. It is also important to know the manufacturer of the solar power system or its components to find information regarding the product and installer’s warranties.

If you’re faced with a similar case, the most important persons you can speak to will be the title officer at the company that insured the title on your transaction, as well as your real estate agent. 

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