Is the seller required to pay off a loan on their solar panels?

QUESTION: When I was going over the “Current Liens” section in paragraph 12 of the Exclusive Right to Sell Listing Agreement (Form 101) with a prospective seller client, a question came up about the solar panels that the seller had installed on her home several years ago. The panels were expensive and the seller took advantage of an attractive option offered by the solar panel company that enabled her to finance a significant part of the purchase price. The seller told me she still owes the solar panel company approximately twenty-five thousand dollars. The question is whether the seller would be required to pay off the balance owed to the solar panel company as a part of a sale to a buyer, or would the buyer take title to the property subject to the loan?

ANSWER: Assuming that the Offer to Purchase and Contract (Form 2-T) would be used to put the property under contract, our opinion is that the seller would be required to pay off the balance owed to the solar panel company unless the buyer was willing to assume the obligation to the solar power company and an appropriate addendum to the contract is drafted by an attorney.

The transaction between the seller and the solar panel company might have been structured as a sale or as a lease. If structured as a sale, the seller would be considered the owner of the solar panels, the panels would be considered fixtures, and under paragraph 3 of Form 2-T, the seller agrees to convey all fixtures as part of the purchase price, free and clear of all liens (whether covered under subsections (a) or (b)). On the other hand, if the transaction between the solar panel company and the seller was structured as a lease, the solar panels would still be owned by the company, they could be identified in subsection (d) as items that are leased and not owned by the seller, and they would be excluded from the sale to the buyer. However, if they are excluded from the sale, they would need to be removed from the property prior to closing and any damage caused by the removal repaired, and if that is not a practical option, the seller will need to either pay off the balance owed to the solar panel company out of her gross proceeds or the buyer will need to be willing and able to assume the obligation, however it was structured.

The bottom line is that brokers (listing agents and buyer agents alike) who are involved in the purchase and sale of a home that includes solar panels that aren’t owned free and clear by the seller need to make sure that there is a clear understanding between the parties how the panels will be handled as a part of the transaction, and that that understanding is clearly reflected in the written contract between them. In addition, it would be wise, prior to contract, to ensure to the extent possible that the terms of the transaction proposed by the parties are acceptable to the solar panel company and the buyer’s lender, if any.