The solar lien process: Key steps for lenders
First, let’s review the solar lien process for residential solar financing companies and other lending institutions committed to providing solar energy to homeowners and businesses.
- Review the borrower’s credit worthiness
As with any lien process, the first step is to review the borrower’s creditworthiness. You want to ensure that you have a reliable person or entity to work with so that the chances of a default on loan are minimal. A credit review will give you the information you need to know if moving forward is a good idea.
- Valuation and certification of the system
It is essential to determine the monetary value of the system after it has been installed. The loan of a solar system is like a builder’s loan. To create the lien, the actual value of the loan must be determined after the installation should there have been any changes in the price quoted to the customer.
In some jurisdictions, it is important to capture the exact amount the borrower owes on the UCC Financing Statement for tax purposes. After the valuation process, the installer must have the system certified. The inspector must issue a certificate by a certified installer to state that the system is up to code and can be connected to the grid. The date of the certification of the system is the date that is used for the creation of the lien.
- Creation of the lien on the solar panel system as collateral for the loan
The final step is to create the lien by filing a solar UCC and ensuring that you put down the solar panel system as collateral for the loan. That means you have the legal right to repossess the system in the case of a defaulted payment so you can recoup your investment and maintain your reputation.
Benefits of the solar lien process for lenders
There are many reasons why the solar lien process is a good idea for lending institutions in the future. Here are a few of the significant benefits that you can receive from a solar UCC filing.
- Liens increase security for loan repayment - A lien is a great way to increase your security in a loan and your chances of being paid back. When you have a lien against a system, the person or entity who owns the system wants to keep it, so they are more likely to pay their loan to avoid repossession. This helps guarantee your investment.
- Ability to prioritize loan repayment in case of default - In the case of a loan default or bankruptcy, having a lien already filed and in place ensures that you will prioritize recuperating your loss and getting assets and collateral back to make up for the default. With a lien, you might be able to claim property before other creditors.
Complexity for long-term loan management
As with all types of liens, there is some complexity regarding long-term loan management. Here are a few of the most important factors to monitor to avoid complications.
- The complexity of lien creation and lien management - Creating a lien and filing a UCC isn’t easy, nor is keeping track of all the liens you might have for solar loans. Having the right tools and technologies is essential for keeping track of your financial statements and ensuring that you are tracking all your existing UCC filings.
- Lien management of multiple filings – Multiple filings can further complicate an already complicated process. Multiple filings mean you have multiple deadlines to keep track of multiple fields and names to keep straight, and even multiple states and counties, which may have different financing rules. However, it’s important to keep straight for success.
- Auto continuation of filings if the loan has not been repaid - When a loan has yet to be repaid by the time the initial timeframe of the UCC filing has ended, the loan needs to be refiled. The auto continuation of a lien can help you ensure that your paperwork is up to date, but it can still complicate things if debtor names have changed or if you are unsure what liens have updated and which haven’t.
Best practices for lenders in the solar lien process
As you work through the solar lien process, here are a few critical best practices to keep in mind to help guide you to success.
- Thorough evaluation of the borrower’s financial situation - Before filing a solar UCC, you must thoroughly know the borrower’s financial situation. You must dive deeply into their credit history, other loans and obligations, and income levels. This helps you avoid loaning someone likely to default.
- Proper documentation and record-keeping - Staying on top of your documents and having excellent, accurate record-keeping is essential to success in any lending institution. Having technology and adapting to modern tools rather than manual processes is a great way to ensure you do your due diligence regarding liens and UCCs.
- Professional advice to ensure compliance with regulations and best practices - If you are unsure of what to do and are looking for guidance regarding ensuring compliance and maintaining best practices, it helps to look for professional advice. A professional consultant firm can help you determine the best options for your lending institution and give you the guidance you need to move forward.
Conclusion
A solar UCC filing is an essential step for any lenders offering solar loans to customers. You need to protect your interests and ensure you can get back your investment in the case of a default or bankruptcy. By staying current on best practices in the solar lien industry, you can protect your interests and still deliver a great experience to your customers looking for solar loans.
