This content is for informational purposes only and does not constitute legal advice or create an attorney-client relationship.
One of the most common questions we hear from homeowners is: What is the difference between a secured and an unsecured loan, and how do liens come into play with solar panel financing? Understanding this distinction is important, especially if you are considering legal action or planning to sell your home.
A solar panel loan is typically considered a secured loan, similar to a car loan.
This means the loan is backed by collateral—in this case, the solar panels themselves. If you default on the loan, the lender has legal rights to take certain actions. While it is rare for a lender to physically remove the panels, they do have the ability to turn them off or enforce other penalties.
This is possible because the lender files a lien through the Uniform Commercial Code (UCC.) This lien becomes part of the public record associated with your property.
This UCC lien does not qualify as a traditional real estate lien, but it behaves like one. When you try to sell your home, your buyer’s mortgage lender will usually require that the solar panel loan be paid off before the sale can go through.
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This is because the lien, although technically on the panels and not the house, is attached to the property address. This attachment may delay or complicate the transaction.
In contrast, an unsecured loan does not involve any collateral.
Examples include personal loans or credit cards. The lender gives you money based solely on your creditworthiness, without having legal claim over any specific property. If you default on an unsecured loan, the lender cannot repossess a physical asset like solar panels, since there is no security agreement in place.
In Summary
In summary, most solar panel loans are secured personal property loans. While they are not technically liens on your home, they can significantly impact your ability to sell it.
Understanding this distinction can help you make informed decisions about financing and legal strategies related to your solar system.
This content is for informational purposes only and does not constitute legal advice or create an attorney-client relationship.
