Solar Panels on a House
ComplianceFinanceMay 21, 2024

How solar lenders can mitigate risk with fixture filings

When lending money or using assets as collateral, it’s in your best interest to ensure your stake in the borrower’s assets is covered; Fixtures might include items such as a hot tub, HVAC, whole-home generator, or solar panels.

Fixtures are goods affixed to the real property so that “an interest in [the fixtures] arises under real property law.” The items could be built in or around the property or bolted down.

Solar panel ownership

Single-property homes generally have a high loan turnover, either through a sale or refinance. About six percent of single-family homes sell annually, and the average span of home ownership is approximately seven years. Thus, placing solar panels on a home can complicate the financing.

Solar panel financing

When a homeowner decides to install solar panels, solar lenders need to add a clause to the contract for the solar panels so that the lender is notified of the sale or refinance. In the event of need for repossession, the lender will have several hurdles, including:

  • Difficulty reselling the equipment
  • The cost of removal of solar panels and equipment
  • Possible damage to the property

Preference for new equipment to take advantage of tax credits. Additionally, solar lenders may be unable to recover the collateral should it suffer damage from a fire, tornado, hail, or other event.

Mitigating financial risk when financing solar panels

Lenders can minimize their financial risk when financing solar panels by filing a UCC financing statement with the state, in which case, the filing protects the lender in the event of debtor bankruptcy. The lender can also file a financing statement with the county to ensure they are notified should the homeowner decide to sell or refinance the property.

The lender has a third option: Fixture Filing. A fixture filing is filed with the state and county to minimize its risk and prevent the loss of its position and equipment. A fixture filing can allow a lender to mitigate the risk of losing its financial position in case of equipment loss and bankruptcy.

What are fixture filings for solar lenders?

Fixture filings are legal recordings of a security interest in personal property attached to real estate, such as solar panels. They protect the lenders’ interests in solar panels and other movable assets that are affixed to real estate. Fixture filings offer a layer of security and mitigate the risk of ownership disputes if the debtor defaults, sells the property, refinances, or files bankruptcy.

There are several steps to filing fixture filings. The creditor should file a financing statement in the proper jurisdiction. In order to complete this process, a lender must obtain a county-approved legal description to insert in the filing. Once filed, the fixture filing becomes public record and provides notice to other potential creditors and interested parties of the lenders’ security interest in the collateral.

Challenges solar lenders face

Lenders can face several challenges with filing fixture liens, including:

  • Being unfamiliar with the steps and stages of long-term portfolio management, including managing rejection rates.
  • Fixture filing requirements vary by each local jurisdiction since they are filed at the county level.
  • Property information/legal descriptions are sometimes inaccessible or not easily accessible.
  • Fixture filings sometimes have long turnarounds and are frequently rejected due to errors.

When errors are made, lenders can risk losing the first position on the collateral.

In some cases, lenders may have scaling operational issues and/or lack of visibility into the entire portfolio. Maintaining portfolio health for securitization or resale can also become problematic, especially for larger portfolios.

Working with a provider to simplify the fixture filing process

Reliability and efficiency are essential when working with fixture filings, or you could lose your security position. Filing and managing fixture filings properly over various jurisdictions can be time-consuming.  The right fixture filing partner can simplify the process and minimize rejections while reducing your staff workload and offering comprehensive management tools. Some providers provide a one-step solution that can help to alleviate your internal efforts.

A reliable provider can help you manage your portfolio for post-closing activities such as secondary market sales and securitization. 

Additionally, as your company grows, partnering with a reliable provider enables you to scale your operations easily.

Selecting the right provider for fixture filing services is essential to achieving sustainable growth and optimizing your operations. Simplicity, reliability, and scalability are all imperative factors when choosing a fixture filing partner to help minimize rejections, manage your portfolio, and support your long-term objectives.

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Suzie Neff of Wolters Kluwer Lien Solutions
Market Segment Specialist

Suzie Neff is a Market Segment Specialist for Wolters Kluwer Lien Solutions. She has more than 15 years of experience helping customers build, review, and improve their lien portfolio.

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