Yes, a home with a solar lease can qualify for a Home Equity Conversion Mortgage (HECM), but the process is difficult and depends entirely on the solar company’s cooperation. The primary problem is a direct conflict between two rules. A federal requirement states the FHA-insured HECM must be the first and only primary loan against your home’s title.
Solar leasing companies, however, file a legal notice called a UCC-1 fixture filing to protect their equipment. Mortgage lenders view this filing as a competing lien on your property, which directly violates the FHA’s “first-in-line” rule. This conflict immediately stops the loan approval process until it is legally resolved.
This issue affects a growing number of seniors, as 4.4% of all U.S. homes now have solar installations. Understanding how to navigate this specific legal hurdle is essential to successfully accessing your home’s equity.
This guide will show you exactly how to solve this problem. You will learn:
- 📜 Why a solar company’s paperwork creates a legal roadblock for a government-insured reverse mortgage.
- ✍️ The precise step-by-step process for fixing the title issue with a critical document called a “subordination agreement.”
- 🛡️ The exact clauses your solar contract needs to protect you and the lender in a worst-case scenario like foreclosure.
- 💰 Real-life examples of how this process can work perfectly, become very expensive, or fail completely.
- 👨👩👧👦 How a solar lease can create a financial and legal trap for your children when they inherit the home.
The Core Conflict: Why Your HECM and Solar Lease Are at Odds
To solve this puzzle, you must first understand the three pieces involved. These are the HECM reverse mortgage, how you paid for your solar panels, and the legal document that causes the conflict.
Your Reverse Mortgage’s Unbreakable Rule
A HECM is a reverse mortgage insured by the Federal Housing Administration (FHA), an agency of the U.S. government. It is for homeowners 62 and older and lets you turn home equity into cash without a monthly mortgage payment. The loan is repaid when you sell the home, move out, or pass away.
Because the FHA insures the loan, it has a strict, non-negotiable rule: the HECM must be in the first lien position. A “lien” is a legal claim on a property, and “first position” means that lender is the first to be paid back when the home is sold. No other loan or claim can be ahead of it.
How You Paid for Solar is Everything
The problem isn’t that you have solar panels; it’s about who legally owns them. This single detail determines how a lender views your system. There are three main ways people finance solar.
A solar loan means you bought and own the system, even if you’re still paying it off. The lender sees this as a simple second mortgage, which is easy to handle. You also get all the federal and state tax credits.
A solar lease is like renting the panels. A solar company owns and maintains the system on your roof, and you pay them a fixed monthly fee. The solar company gets all the tax credits, not you.
A Power Purchase Agreement (PPA) is similar to a lease, where a company owns the panels. The difference is you pay a set price per kilowatt-hour for the electricity you use, so your bill changes each month. The company still gets all the tax credits.
| Financing Method | Who Owns the Panels? | How a HECM Lender Sees It | | :— | :— | | Solar Loan | You, the homeowner. | A simple second mortgage. | | Solar Lease | The solar company. | A third-party liability and title problem. | | Solar PPA | The solar company. | A third-party liability and title problem. |
The UCC-1 Filing: The Paper That Stops Your Loan
Solar companies that lease systems file a legal notice called a UCC-1 Financing Statement. This document is a public notice that they have a security interest in the solar equipment on your roof. It gives them the right to repossess the panels if you stop paying your lease.
A solar salesperson might tell you the UCC-1 is “not a lien on your house, just on our equipment”. This is misleading. Because the panels are attached to your home, the UCC-1 is filed as a “fixture filing” in your county’s land records, right alongside mortgages and deeds.
To a title company and a HECM underwriter, this recorded document is a lien against your real estate. It creates a “cloud” on your property’s title. This directly challenges the FHA’s first lien rule and brings your HECM application to a complete stop.
The Underwriter’s View: Why a Solar Lease Is a Red Flag
A HECM underwriter’s job is to identify and minimize risk. A solar lease introduces several risks that must be resolved before your loan can be approved.
Your Leased Panels Add Zero Value to Your Home’s Appraisal
This is an absolute rule for all lenders, including the FHA. Because you do not own the leased solar panels, they are considered the solar company’s personal property. An appraiser cannot assign any value to them when determining your home’s worth for the HECM.
You could have a $30,000 solar system on your roof, but it will not increase the amount of money you can borrow. Only systems you own outright can potentially add to the appraised value.
Your Lease Payment Can Shrink Your Loan Eligibility
Lenders conduct a Financial Assessment to ensure you can afford ongoing property taxes and insurance. Your monthly solar lease payment is counted as a recurring debt in this calculation. This reduces your leftover income and could make it harder to qualify.
There is one key exception. If your lease includes a production guarantee—a promise that the system will produce a certain amount of energy—the lender may exclude the payment from your debts. The logic is that guaranteed energy savings offset the monthly payment.
Your Solar Contract Must Contain Specific Protections
An underwriter will read your entire solar lease, looking for specific clauses that protect the lender’s interests. If these are missing, the loan will be denied until the solar company agrees to add them.
The lease must state that it is transferable to a new buyer if the home is sold. It must also make the solar company responsible for repairing any damage caused by the panels. Most importantly, it must give the HECM lender specific rights in a foreclosure, including the option to terminate the lease and have the panels removed.
Real-World Outcomes: The Good, The Costly, and The Deal-Breaker
How this process unfolds depends almost entirely on your solar company’s policies.
Scenario 1: The Smooth Success Story
- The Situation: Jane, 75, has a solar lease with a large, national company. She applies for a HECM, and her lease already contains all the lender-required protections.
| Jane’s Action | The Result |
| The title company requests a subordination agreement from the solar company. | The solar company processes the request in four weeks for a $250 fee. |
| The signed agreement is sent to the title company. | The title issue is resolved, and Jane’s HECM closes on time. |
Scenario 2: The Expensive Buyout Requirement
- The Situation: Robert, 68, has a solar lease with a small, local installer that is unresponsive and refuses to sign a subordination agreement.
| The Problem | The Forced Solution |
| The HECM lender cannot proceed because the UCC-1 lien remains on the title. | Robert’s only option is to use the buyout clause in his lease, which costs $15,000. |
| The HECM is structured to pay the solar company directly at closing. | Robert gets his HECM, but his available home equity is reduced by the $15,000 buyout cost. |
Scenario 3: The Equity Trap
- The Situation: Mary, 80, has a PPA with an uncooperative company. Her contract is non-transferable and has no buyout option.
| The Obstacle | The Final Outcome |
| The solar company will not subordinate the UCC-1 lien. | The HECM lender cannot secure the required first lien position. |
| The non-transferable PPA makes the home nearly impossible to sell in the future. | The lender denies Mary’s HECM application, trapping her home’s equity. |
The Solution: A Step-by-Step Guide to Clearing Your Title
If your solar company is willing to cooperate, there is a clear path forward. This process is the most common source of delays, so you must begin immediately.
Step 1: Immediate Disclosure When you apply for a HECM, tell your loan officer about the solar lease and provide a full copy of the agreement.
Step 2: The Title Search The lender will order a title search, which will identify the UCC-1 fixture filing as a lien that must be resolved.
Step 3: The Subordination Request Your lender or title company will formally contact the solar company’s legal department to request a subordination agreement. This is the legal document that solves the problem.
Step 4: The Waiting Period This is the longest part of the process. It commonly takes six to ten weeks for a solar company to process the request and sign the document. Be prepared for delays and follow up regularly.
Step 5: Document Execution and Fees The solar company signs the subordination agreement, which legally moves their UCC-1 lien into second position, behind the HECM. Many companies charge a fee of $200 to $500 for this service.
Step 6: Closing and Recording At closing, the title company records the new HECM and the subordination agreement at the same time. This action legally secures the HECM in the first lien position.
Solar Financing: Weighing the Pros and Cons for HECM Seekers
| Pros of a Solar Lease/PPA | Cons of a Solar Lease/PPA |
| Low Upfront Cost: Often requires $0 down to get panels installed. | Creates HECM Roadblocks: The UCC-1 filing directly conflicts with lender requirements, causing major delays. |
| No Maintenance Responsibility: The solar company owns and maintains the system, covering repairs. | Adds Zero Appraisal Value: Leased panels do not increase your home’s value for the HECM loan calculation. |
| Predictable Payments: A lease offers a fixed monthly payment, making budgeting easier. | Complicates Home Sales: Transferring the lease to a buyer requires credit checks and can scare potential buyers away. |
| Immediate Savings: Can lower your monthly utility bills by 10-30% right away. | Burdens Your Heirs: The lease obligation passes to your estate, complicating the sale of the home after you pass away. |
| No Tax Liability Worries: The solar company claims the tax credits, which is beneficial if you don’t have enough tax liability to use them yourself. | Less Long-Term Savings: You save significantly less money over 25 years compared to owning the system. |
Critical Mistakes That Can Cost You Thousands
- Mistake: Hiding the Solar Lease from Your Lender.
- The Consequence: You will waste money on an appraisal and other fees before the title search inevitably reveals the UCC-1 lien, stopping the process cold.
- Mistake: Assuming the Solar Company Will Be Fast and Helpful.
- The Consequence: Many solar companies are notoriously slow, and delays of several months are common. This can cause you to lose a locked-in interest rate on your HECM.
- Mistake: Believing What a Salesperson Told You Years Ago.
- The Consequence: Verbal promises are meaningless. The only thing that matters is the legally binding text in your 20-year contract, which an underwriter will scrutinize.
- Mistake: Ignoring the Impact on Your Children and Heirs.
- The Consequence: The lease becomes your heirs’ problem. They must find a buyer willing to assume the lease or use money from your estate to buy it out, reducing their inheritance.
Frequently Asked Questions (FAQs)
Q: Can I get a HECM if I have a solar lease? A: Yes, but only if the solar company signs a subordination agreement. This document legally places the HECM in the first lien position on your title, which is a non-negotiable requirement for the lender.
Q: Will my leased solar panels increase my home’s value for the HECM? A: No. Leased panels are considered the solar company’s personal property and add zero dollars to your home’s appraised value. Only panels you own outright can potentially increase the value for the loan.
Q: What is a UCC-1 filing and why is it a problem? A: It is a public notice that the solar company has a security interest in the panels. Lenders view it as a lien on your property that must be legally moved to a secondary position.
Q: How long does it take to get a subordination agreement? A: Expect significant delays. The process commonly takes six to ten weeks and sometimes longer. The timeline depends entirely on the solar company’s internal procedures and responsiveness, so start the process immediately.
Q: What if my solar company refuses to sign the agreement? A: Your HECM application will be denied. The only other path forward is to buy out the solar lease if your contract allows it, which can be very expensive and reduce your available equity.
Q: Is it easier to get a HECM if I own my solar panels? A: Yes, it is much easier. An owned system can add value to your appraisal. A solar loan is treated like a standard second mortgage, which lenders can subordinate quickly and easily as a routine part of their process.
Q: What happens to the solar lease when I pass away? A: The lease stays with the house and becomes the responsibility of your estate. Your heirs must find a buyer who can qualify to take over the lease, which can complicate and delay the sale of the home.