With energy costs constantly rising, investing in solar may seem like an easy decision for a homeowner. The reality is, between selecting an installer, determining the right system for their needs, taking advantage of tax incentives, and paying for the project, going solar can be quite complex. The decision is even further complicated if the homeowner decides to finance the solar installation with a loan since many lenders will secure the system with a solar lien. As a solar professional, understanding how solar liens work will help you guide your customers through the solar installation process smoothly.
What is a Solar Lien?
A solar lien is a legal claim or right against a property established by a lender or solar company to secure the repayment of a loan or service provided. In the context of solar energy, it is specifically tied to the financing of solar panels and related equipment installed on a property. The lien ensures that the lender or service provider has a legal stake in the property, which can be exercised if the homeowner defaults on their loan payments.
Types of Solar Liens
- UCC-1 Financing Statement: This is a common type of lien used in solar financing. Filed by the lender, a UCC-1 Financing Statement gives notice that the lender has an interest in the solar equipment installed on the property.
- UCC-2 Lien Amendment: This refers to using the UCC-2 form, also known as the Financing Statement Amendment, to modify details of an existing lien documented by a UCC-1 Financing Statement. It is used for updating creditor or debtor information, assigning lien rights to another party, extending the lien’s duration, or terminating the lien upon satisfaction of the underlying debt.
- Mechanic’s Lien: If a homeowner fails to pay the solar contractor for installation services, the contractor may file a mechanic’s lien against the property. This type of lien is more commonly associated with construction and home improvement projects.
Impact on Homeowners
- Sale or Refinance Limitations: A solar lien can affect a homeowner’s ability to sell or refinance their home. Potential buyers or lenders may require the lien to be paid off or transferred before proceeding with a sale or refinance.
- Credit Implications: Like any financial obligation, failing to meet the terms of a solar loan can negatively impact a homeowner’s credit score. This is particularly important if the lien is recorded in public records.
Navigating Solar Liens
- Understand the Terms: Homeowners should thoroughly understand the terms of their solar loan agreement, including how and when a lien might be placed on their property.
- Consult Professionals: Seeking advice from legal and financial professionals can help homeowners navigate the complexities of solar liens.
- Explore Alternatives: Homeowners should consider different financing options, such as leases or Power Purchase Agreements (PPAs), which might not involve a lien on their property.
- UCC Subordination: Sometimes, a lender will allow for a UCC subordination – temporarily lifting a UCC2 to refinance a home. In these cases, the homeowner will generally pay a fee for the subordination.
Understanding solar liens is crucial for both homeowners and solar professionals. It ensures transparency in the financial aspects of solar installation and helps make informed decisions. With the proper knowledge and guidance, homeowners can confidently invest in solar energy while being aware of the implications of solar liens on their property and financial health. That’s where an experienced solar financing lending partner steps in. Armed with an in-depth understanding of the industry, these financial institutions offer more than just capital. They provide a partnership that seeks to understand and cater to the specific needs of solar installation companies and their customers.
Partner Forward with Salal Dealer Direct
Headquartered in Seattle, Salal Credit Union has been helping members thrive for over 70 years. In addition, through our Dealer Direct contractor financing program, we team up with contractors nationwide to provide their customers with affordable financing for various solar and home improvement projects.
Since 2009, we’ve financed over 60,000 solar and home improvement projects for our member-owners through our Dealer Direct contractor financing program.
We can offer some of the most competitive rates and dealer fees because we’re part of a member-owned credit union. That means our profits return to our members—and business partners—through lower rates and fewer fees.
Our Dealer Direct Financing programs feature:
- An online loan application with fast credit decisions and a high approval rate.
- Terms and loan amounts are available to fit various budgets and project sizes.
- Partners pay ZERO dealer fees on our standard program.
How to Start Offering Salal Dealer Financing to Customers
We’re serious about helping your business grow with fast funding times and personalized support from a dedicated and experienced team of lending specialists. To get started, our dealer application process requires these documents:
- Completed dealer questionnaire
- Current income statement and balance sheet
- Copy of business license and/or contractor’s license
Learn more about becoming a Salal Dealer Direct Partner.
Disclosure: Salal does not provide legal advice. Businesses should contact their own legal representative for any questions.
