Buying a home with leased solar panels in Arizona

Arizona has a lot of rooftop solar, and on any given house the panels are one of two completely different things.

I'm Jen Keene, a REALTOR® in Scottsdale, AZ helping long-time homeowners sell the family home and find the next one. Solar is the item I see derail more escrows than anything except financing, and nearly always because nobody asked the first question early enough.

Owned outright. The panels are part of the house, like the air conditioning. They convey with it, there's nothing to assume and nothing to approve. If the seller financed them and paid the loan off, this is the situation. Ask for the paid-in-full documentation and move on.

Leased, or on a power purchase agreement. The panels belong to the solar company. The seller has a contract with monthly payments, and that contract is going to be handed to you. A PPA differs from a lease in that you buy the power the system produces rather than renting the equipment, but for the purposes of your purchase they behave the same way: a third party is now involved in your closing, and they don't work to your timeline.

Ask the question at the showing. Not at inspection, not when the preliminary title report lands. The answer decides whether the rest of this article applies to you.

When a solar company puts leased equipment on a roof, it typically records a UCC-1 fixture filing. In Arizona that's recorded with the county recorder, the same place deeds and mortgages are recorded, which is why your title company finds it.

What it is, in plain terms: a public notice that somebody else has an interest in equipment attached to this house. It's not a mortgage and it isn't a debt you personally owe. It's a marker saying the panels belong to the solar company rather than to the property.

Why it matters to your lender: a lender making a first mortgage wants to be first. A recorded filing against the property sitting ahead of them is a problem for that, so they'll require one of three outcomes before funding. The filing is terminated, because the system was bought out and released. Or it's subordinated, with the solar company signing a document agreeing their interest sits behind the mortgage. Or the lender declines.

Subordination is the usual path on a leased system and it's routine for the larger solar companies, who have a department for it. Routine does not mean fast. It's a request sent to a third party who has no interest in your closing date, and it comes back when it comes back.

The practical instruction is simple: the moment the preliminary title report shows a fixture filing, that becomes the item you track. Not the item you assume will sort itself out.

This is the part that surprises people most, and it's worth saying directly.

A leased system doesn't transfer because the house sold. The contract generally requires the solar company's consent, and granting it usually means running a credit check on you. The buyer qualifies for the solar agreement in much the same way they qualify for a mortgage, and a solar company can decline.

Two things follow from that, and both have cost you something if you learn them late.

Your debt-to-income ratio is now doing two jobs. The solar payment is a monthly obligation and your mortgage lender will count it, while the solar company is separately assessing whether you qualify with them. A buyer who's approved comfortably on the mortgage can still be declined on the lease.

And there are usually transfer fees, plus new utility authorisations for net metering or whatever arrangement the system sits under. None of it is large. All of it takes time.

Consent, transfer paperwork, a credit check and the utility authorisations commonly add somewhere between ten days and a month to an escrow, and on some systems it runs longer.

Put that against a typical Arizona escrow of thirty to forty-five days and the arithmetic is uncomfortable. The solar transfer isn't a step that fits inside the timeline; it's a parallel process that can easily exceed it.

So the rule I give buyers is: start the solar transfer in the first week of escrow, not the last. The day the contract is accepted, the seller should be contacting their solar provider to open the transfer, and the provider should be telling you in writing what they need and roughly how long they take.

If a seller hasn't started it by the end of the inspection period, that's the moment to find out why, while you still have the ability to act on the answer. The inspection period is where your options live, and a solar transfer that hasn't begun is a timeline risk rather than a defect, which is exactly the sort of thing that's easy to miss until it isn't.

Give these to your agent at the showing. Every one has a documentary answer and a seller who can't produce it is telling you something.

1. Are the panels owned, leased, or on a PPA? If owned, get the proof of payoff. If leased or PPA, continue.
2. Who's the provider and what's the monthly payment? You're going to be paying it.
3. How many years are left, and does the payment escalate? Many of these contracts have an annual increase built in. The payment in year twelve is not the payment today, and the term can run twenty years or more.
4. Can I see the full agreement? Not the summary. The transfer provisions, the escalator and what happens at the end of term all live in the document.
5. What's the buyout figure? Sometimes the cleanest outcome is the seller buying the system out at closing so it conveys owned. On a deal where the seller is already contributing to concessions, this is a conversation worth having.
6. What does the system actually produce, and what are the utility bills with it running? Twelve months of statements, not an estimate. A leased system on a north-facing roof with a payment attached is worth knowing about before you take over the contract.
7. Has the transfer process been started? Ask in week one and keep asking.

The end of term is the part almost nobody reads, and on a twenty-year agreement it's the part you're most likely to actually live through.

Agreements differ, and the document is the only authority on yours. Broadly there are three possibilities and the contract will say which apply. The system can be bought at some stated value. The agreement can be extended, sometimes at a different rate. Or the equipment can be removed by the provider.

Removal is the one worth thinking about properly, because panels come off a roof that's had holes in it for two decades. Who's responsible for the roof afterwards, and to what standard, is a contract question rather than a general one, and the answer belongs to you now if you're taking the agreement over.

Two more things in the same document that are easier to read now than to discover later. What happens if the system underperforms, which matters most on a power purchase agreement where you're buying production rather than renting equipment. And what the provider's maintenance obligation actually is, including how long they have to respond to a fault, because while the system is theirs the repairs generally are too.

None of this is exotic. It's all in the agreement, which is why the question to ask is for the whole agreement rather than a summary of it.

Usually not. It's a reason to do the work early and to price it in.

A leased system with a sensible payment, a transfer process that's already begun and a cooperative provider is a manageable part of a purchase. Plenty of these close on time. What makes them difficult is a buyer who finds out at day twenty-five, a seller who hasn't contacted their provider, and a lender who's just seen a fixture filing on the title report for the first time.

The two situations I'd look at harder: a payment with a steep escalator over a long remaining term, where you should work out what you're committing to across the whole period rather than this year's figure. And a system where the production doesn't justify the payment, which the utility statements will show you plainly enough without anyone needing to argue about it.

If you're moving here from a state where rooftop solar is less common, this is one of the local items that catches people, and people arriving from out of state hit several of those in a predictable order. I'd rather go through them with you early.

And if you're selling a home with leased panels, the same facts apply from the other side: start the transfer the day you're under contract, have the agreement and the buyout figure ready before you list, and treat it as part of preparing the house. How I prepare a listing includes it for any home that has a system.

Call me on (480) 203-6605 or get in touch with the address, and I'll tell you what the title report is likely to show before you're under contract.