California Notices of Solar Contracts
The recorded Notice of Solar Contract is just that – it is a notice informing us there is a contract between the homeowner and the solar company regarding leased solar equipment on the subject property. It is not the contract itself, and the contract is usually not recorded. It can be mistaken that if the solar company records a release of the Notice, any exception for the solar contract can be removed from the commitment/policy. However, releasing the Notice is kind of like that old adage about closing the barn door after the horse has escaped. You can release the Notice, but despite the Release we still have actual knowledge of the underlying contract because the Notice was recorded in the first place. We still know there is a contract out there that affects our property.
There are only two ways we can remove the exception for the solar contract: 1) The homeowner to provide us evidence that the solar contract itself has been terminated between the parties and that the solar panels and equipment have been removed from the property, which is usually accomplished by an inspection of the property. 2) The homeowner to buy out the solar contract so that he/she owns the panels and equipment outright.
The issue that title insurers have with these solar contracts has nothing to do with lien priority. The solar companies readily admit, and state in their documents, that the contract does not create a lien on the property. However, insurers are concerned because the Notice does impart knowledge that the solar facility is not part of the real property and that the solar company retains ownership of the solar facility and can enter the property and remove it, potentially causing damage to the property. Some of these contracts also grant the solar company certain easement rights over the property. While title companies are not willing to remove the exception except under the conditions mentioned earlier, they did create endorsements we can offer the lender (see attached example). They insure the lender against loss due to any impairment of the lien of the insured mortgage caused by the solar contract (addresses the lender’s main concern about lien priority), except to the extent that the solar contract discloses the solar company’s rights of ownership to the solar facility (addresses the insurer’s concern about ownership rights).
The only options regarding solar are: terminate the solar contract, buy it out, or take a policy with the exception (and endorsement, if so desired.) Additionally, if the lender agrees to take the exception (with or without the affidavit), amended closing instructions stating they will accept the exception on their policy will be required.
Example of a Solar Endorsement: Solar Endorsement
