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Foreclosed Property with Power Purchase Agreements

A Power Purchase Agreement, or commonly referred to as a PPA, is an agreement in which home and business owners, along with nonprofit and government groups, have a photovoltaic (PV) system installed on their property by a third party developer who typically owns, operates, and maintains the PV system and the property owner, or host, purchases the power that is produced by it. Depending on the agreement, there is usually no upfront cost for the host of a PPA and the agreement typically results in predictable electric bills and overall monthly savings. The right to receive the electricity is tied to the ownership of a property and thus is transferred with the title of the property whether it is a voluntary transfer or a foreclosure.

Many solar companies are doing property due diligence prior to signing a PPA to ensure the host who is signing is the owner of the property and that the property isn’t in the process of foreclosure. The reason for this is due to the fact that most property owners are paying off a mortgage to a bank when they sign a PPA and if that property owner were to fall behind on their payments then the bank would have the right to foreclose on the property. When a foreclosure occurs, the bank can then take the land, the house or building on the property, and all permanent fixtures attached to the house or building. According to Solar PPA Protection in Foreclosure, if the PV system is separate property, aka personal property or chattel, then the solar company can repossess it.  If the PV system is deemed a “fixture” then the bank that is foreclosing the property has the rights to the system. When this happens the solar company not only loses the ongoing energy payments they were receiving but also the money and resources it took to install the system itself.

It is recommended that any third party developer entering a PPA have a title search done on a property. A title search would generally help the developer protect their investments, assuming that, if a foreclosure is in the foreseeable future, they would either not proceed to enter the Power Purchase Agreement or they would ensure that the system is considered separate property so they could repossess it if a foreclosure were to occur.