Why solar panels can be a burden rather than an asset

Solar panels are the poster child of home energy efficiency.

They are viewed as highly desirable in California’s environmentally-conscious society.

They offer reduced electricity expenses and greater energy resilience and when paired with battery storage can help properties command a significantly higher price.

But they are not always the asset they may appear to be.

A property with a recently renovated interior and solar panels on the roof may look to have strong resale potential.

But what if those panels are subject to a 25-year lease, an outstanding loan or a lien affecting the property?

The underlying agreement can change the economics of the entire deal.

The solar state of play

The Golden State might well be rebadged the ‘Solar State’.

According to the Solar Energy Industries Association’s September 2026 state report, California leads the country in installed solar capacity with 56,458MW.

There are more than 2.4 million solar installations in California (not solely residential rooftop systems) amounting to a total solar investment of $124 billion.

But here’s the catch …

As of March 2026, the state’s PACE Loss Reserve Program had enrolled 73,787 financings with a combined principal value of approximately $1.7 billion.

The reality is that many solar systems carry a financial burden.

Depending on the original financing arrangement, that debt may pass to the property’s new owners upon sale – or even make selling the property to a retail buyer very difficult indeed.

The five common solar arrangements in California

Solar panels in California are usually acquired in one of five ways.

The key is to distinguish ownership of the equipment from the contractual obligations attached to its use, financing or installation.

The difficulty is that some solar leases and Power Purchase Agreements (PPAs) run for up to 25 years and contracts may include scheduled price increases and transfer or buyout provisions.

1. Outright ownership – The system generally transfers with the property, subject to ownership and title verification.
2. Panels purchased using a separate solar loan – The investor must establish the outstanding balance, collateral and repayment obligations.
3. Leased solar panels – The solar provider owns the equipment and the property may be subject to a continuing lease.
4. Power Purchase Agreement (PPA) – The provider owns the equipment and the homeowner purchases electricity under a contract.
5. PACE (Property Assessed Clean Energy) Financing – Pays for improvements upfront with repayment collected through property-tax assessments.

The issue with PACE financing

Unlike an ordinary unsecured personal loan, a PACE obligation is tied to the property and may affect its sale or refinancing.

That’s because it recovers the cost of improvements to the panels via assessments which are then added to property tax bills for a period of up to 30 years.

The California Department of Financial Protection and Innovation warns that PACE assessments can complicate transactions because they place a lien on the property.

It also advises that many mortgage lenders will not originate or refinance loans on property with outstanding PACE obligations.

This can become a major issue for investors using short-term acquisition or hard money financing and planning to sell to buyers using conventional mortgages.

If buyers can’t source finance to buy the property, flippers face a tricky and potentially costly exit strategy to unload it.

Fannie Mae generally requires a PACE obligation to be paid in full at or before closing to qualify for a mortgage.

Its rules also distinguish between borrower-owned panels from systems leased or owned by third parties.

Solar due diligence

The ownership and financing arrangements of solar panels are not their only issues.

Panels should be examined carefully for their physical condition and operational performance.

Consider the following when appraising a property with solar panels:

• Roof condition and expected roof replacement timing
• Potential expense of temporarily removing and reinstalling panels for roofing work
• Age and performance of the panels and inverter
• Battery storage condition, where installed
• Remaining equipment and workmanship warranties
• Responsibility for maintenance and repairs
• The system’s utility billing arrangement and level of electricity export compensation
• Whether existing utility arrangements or contracts are maintained after transfer

A solar system that is beneficial for one family may produce entirely different results for a subsequent owner with different usage patterns.

Checklist before buying

A potential investor should seek copies of the following to properly assess the value, risks, condition, warranty and potential liability of a solar system before purchasing a property:

• Copies of the solar purchase agreement, lease or PPA
• Any loan or PACE documentation
• Current payoff or buyout amounts
• Title and UCC filings
• Recent electricity bills
• Proof of system commissioning 
• Applicable permits
• Transfer requirements
• Warranties

Potential buyers should also confirm that the system is included in any sale and who will bear any transfer, release or termination expenses.

Get finance and support today

Flippers and developers may assume solar panels increase the ARV of a property, only to discover their ownership structure prevents the equipment from being valued in the same way as an owned system.

What looks like an asset may in reality be a liability.

These challenges can impact things like loan eligibility, title clearance and buyer qualification which can all blow out timelines and prove extremely costly for developers.

That’s why due diligence, accurate ARV valuations and protecting margins are essential.

Property investors need to understand obligations attached to prospective purchases before determining acquisition costs, loan requirements and formulating a realistic exit strategy.

For more information or guidance about assessing the status of solar panels on properties, a chat with the professionals at Equidy is advisable.

Equidy has an intimate and personal history with all aspects of property development in California and has done so for well over 40 years.

And here’s the best part – Equidy is also a hard money lender that can finance flippers and developers in as little as 48 hours.

They stand by their core belief that anything is possible and they strive to prove it every single day.

Even in tough times, they are determined to reward entrepreneurship and resolve to help their clients crystallize their wealth creation dreams.

Equidy enjoys long and established relationships with serious investors, sellers and real estate professionals while leveraging their reputation and trust, using clear communication to minimize the risk to all parties.

Contact Equidy today to book your free strategy call.

‍