What to Know about UCC Liens before Going Solar

Residential solar power generation has increased dramatically in Virginia over the past several years. Solar panels are an attractive upgrade for homeowners looking to save on their energy bills, help the environment, or both, but many are unaware that installing solar panels can create a lien on their property. Homeowners interested in installing solar panels should make sure to talk with a real estate attorney before doing so.

Benefits of Solar Panels

Solar panels can help homeowners save money. Improvements in panel technology combined with new federal, state, and local tax incentives make installing solar panels an intriguing proposition. Homeowners who install solar panels can save over $20,000 over the lifespan of the panels. Plus, utilizing solar power helps the environment, as solar is the most cost-effective energy resource for Virginia to meet its near-term goals to reduce carbon emissions. For these reasons, now is a good time to install solar panels.

UCC Liens on Leased Solar Panels

While solar panels are beneficial, they can also be expensive. Many homeowners choose to lease their solar panels. When leasing solar panels, homeowners purchase their panels over time. However, before signing on the dotted line, homeowners should be aware that leasing solar panels may require a UCC lien on their property.

The Uniform Commercial Code, or UCC, is a set of laws adopted by all 50 states that provides a framework for commercial transactions. A UCC lien is a type of security interest that can be used by creditors to secure their interest in the property of a debtor. A UCC lien is enforceable for five (5) years, and the lien can be continued if it has not been fully paid off during that period.

§8.9A-512 of the Virginia Code provides creditors with two options for how to file UCC liens on solar panels. A UCC lien can be created when a UCC-1 financing statement is filed with the State Corporation Commission. This statement is a form that identifies the creditor and debtor, describes the collateral involved, and indicates the amount of the debt secured by the lien. Alternatively, a UCC lien can be created by a fixture filing. A fixture is any property that is physically bolted or connected to your home or property. For example, a ceiling fan, which is physically attached to a house, is a fixture. Solar panels are usually similarly affixed to roofs, and they are considered as fixtures under Virginia law. A fixture filing is similar to a UCC-1 financing statement, but it also includes an addendum that is filed and recorded in real property records.

Effects of a UCC Lien on Solar Panels

UCC financing statements are a common form of financing for homeowners who decide to lease their solar panels. When a solar company leases panels to a homeowner, the company wants to ensure their investment is secure. A common means of doing this is filing a UCC-1 financing statement or fixture filing to create the UCC lien.

After the UCC-1 statement or fixture filing is properly completed and filed, the creditor solar company has a legal claim on the panels. In the event of a default by the homeowner, a creditor solar company can remove the solar panels and reclaim possession of them under the financing statement. Most typically, the collateral in a UCC-1 filing statement is the panels themselves and any hardware associated with their installation and operation. However, it is possible to put up other property as collateral for your panels. If that were the case, then the solar company could technically take possession of any collateral listed on the UCC-1. Therefore, homeowners should consider working with an attorney to review UCC-1 statements before they are filed to ensure they are not risking more than they intended.

Effects of a UCC Lien on Your Property

UCC liens are public records that have the potential to create issues for homeowners. UCC liens will appear on title reports that are created from the State Corporation Commission website. A lien on solar panels will show up as “attached to real estate” because, as discussed above, solar panels are considered fixtures. As a result, a lien on solar panels may appear as a lien on the entire property.

A UCC lien on a title report may cause concern for potential home buyers and sellers because the lien could complicate the sale of a house. For one, a UCC lien can simply create delays. When a lien is found on a title report, both parties involved in the sale of a house likely will have to conduct additional due diligence. Further, a UCC lien could create the appearance of a cloud on the title. In reality, a UCC-1 financing statement will not affect the ownership of a home, but only the property listed on the statement. However, a lender or someone doing a title search who is unfamiliar with solar panel financing may not understand the difference. This can lead to issues and the need for clarification in the real estate transaction process.

Terminating a UCC Lien

A UCC lien is not automatically removed from a property when the remainder of the lien is paid off. Under §8.9A-513 of the Virginia Code, once the amount owed by the debtor is paid to the creditor, the debtor must send an authenticated demand to the creditor to terminate the lien. The creditor then has twenty days to either file a termination statement in the same office where the UCC financing statement was filed, or to send a termination statement to the debtor. If the creditor sends the termination statement to the debtor, then the debtor must file the termination themselves where the UCC financing statement was filed. In practice, it may take several weeks or more from the date that a debtor requests a lien to be terminated for the lien to actually be terminated and for the termination to be fully reflected in real property records.

Conclusion

Overall, UCC liens are an important tool for securing financing for solar panel installations in Virginia, as they can provide valuable protection to creditors while allowing homeowners without enough funds to purchase solar panels the ability to lease them for their homes. Homeowners interested in installing solar panels should consult a real estate attorney to ensure they’re preventing problems that can arise from UCC liens.

Ryan Suit is a Pender & Coward attorney focusing his practice on civil litigation with an emphasis on construction law and personal injury.