By Jay Bender, Monica Wilson Dozier, R. Aaron Chastain, Britney M. Crawford of Bradley Arant Boult Cummings LLP
Whether a solar system is a “fixture” sounds like a mundane legal issue – but it has significant implications for the residential solar industry and for the financing of residential solar systems.
If a system is regarded as a “fixture” of the house to which it is attached, then the enforceability and priority of the finance company’s lien on the system will be subject to applicable real estate law. If, however, the system is not a “fixture,” then the system would be viewed as a “consumer good” with the finance company’s rights in the system governed by the Uniform Commercial Code (UCC) – which provides for a much more straightforward process for finance companies to preserve and protect liens on their financed systems.
The risk to a finance company is particularly acute if a solar system is deemed a “fixture” of the house on which it is installed, as that could render the finance company’s lien on the system either unenforceable or subordinate to any mortgages on the house itself.
Despite the significance of this issue, few courts have considered the issue of whether residential solar systems should be viewed as fixtures or consumer goods. Recently, however, in the In re Evans case, the United States Bankruptcy Court for the District of New Mexico addressed the issue, first determining whether the home of the couple in bankruptcy was encumbered by a purchase money security interest in the solar system installed on the roof of the couple’s house before it could consider the otherwise unrelated issue of a judgment lien asserted by another creditor against the house.
In a potentially significant ruling for solar power finance companies, the bankruptcy court held that “solar panels are not fixtures” and that the residential solar system retained its character as a consumer good even after installation (see In re Evans, No. 23-10622 T13, 2023 WL 8606655, at *1 (Bankr. D.N.M. Dec. 12, 2023).
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