Bulletin: CA2020002

Dear Associates:

The consumption and popularity of solar energy is becoming more prevalent as homeowners increasingly adopt renewable energy sources. As an alternative to photovoltaic (PV) systems owned and installed by the property owners, solar companies, also referred to as Independent Solar Energy Producers, also provide electric service to the homeowner. In such arrangements, the energy and systems, consisting of solar panels and all related equipment, are typically provided, owned, installed, and maintained by the solar company through a lease or other contractual arrangement with the homeowner.

Pursuant to California Public Utilities Code (PUC) 2869, the producer shall record a Notice of An Independent Solar Energy Producer Contract against the title to the real property on which the electricity is generated and against the title to any adjacent real property that it services, in the office of the county recorder in which the property is located. In order to secure the personal property interest in and to the PV systems, the solar companies will typically also record a UCC Financing Statement concurrently with the Notice of An Independent Solar Energy Producer Contract.

Mortgage interest rates are at the lowest they’ve been in decades and many homeowners with existing PV Systems are seeking to refinance their existing loans. Lenders will usually require the solar company to subordinate the financing statement to their new loan putting them in a position of seniority. We are finding that many solar companies are using their own Subordination and Non-Disturbance Agreement forms which contain language that survives foreclosure and may be missing the operative subordinate language that a title insurer prefers. These so-called subordination agreements provide that while the lender’s Deed of Trust constitutes a lien prior to and senior to the Financing Statement, the PV system remains unaffected by the lenders Deed of Trust. It also provides that in the event of a foreclosure of the lenders Deed of Trust, the effect of the Financing Statement to provide notice of the ownership of the PV system remains undisturbed.

Your careful review of the language in such subordination agreements, particularly those that mention conditions, exceptions or agreements with the new lender, is required. Consult with an underwriter if you have any question about its validity and effectiveness.

The following practices are effective immediately:

When relying on a UCC Solar Company Subordination Agreement to insure a new loan in a prior and senior position, you can show the UCC Financing statement and the subordination agreement in Schedule B part Two. The Notice of Independent Solar Energy Producer Contract shall remain as an exception to title in Schedule B Part One and you must obtain lender's written approval to show the exception.

Post Foreclosure: Examiners and Title Officers should NOT eliminate the Notice of Independent Solar Energy Producer Contract OR the UCC Financing Statement by reason of foreclosure. Both items MUST appear on all preliminary reports or commitments for title insurance post foreclosure.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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