The Quick Read: A solar lien does not automatically block a conventional cash-out refinance, but the type of solar debt decides what must happen first. Owned panels follow the standard rules. A PACE assessment generally has to be paid off from the proceeds. A UCC-1 filing on a leased or financed system has to be released, subordinated or covered by a title endorsement. HOA litigation is a separate test that applies mainly to condo units.
Two gates control these files. Gate one is title: what solar or energy debt is recorded against the home, and where it sits in line behind or ahead of the new first mortgage. Gate two is the project: if the home is a condo, the association’s lawsuits can make the whole building ineligible, however strong the borrower is. Most files on Lendmire’s cash-out refinance programs only face gate one. A condo with solar faces both.
Key points:
- Solar panels you own outright are treated like any other improvement.
- A PACE lien, repaid through the property tax bill, usually has to be paid in full at or before closing.
- Leased and power-purchase-agreement (PPA) systems usually leave a UCC-1 filing that needs a release, subordination or endorsement.
- HOA litigation only matters for condo units (and sometimes for the project type), and only certain kinds of suits make a project ineligible.
- Paying off solar debt comes out of the cash-out proceeds and counts against the leverage cap.
Key Terms Defined
UCC-1 financing statement: A public notice filed by a solar company saying it owns or has an interest in the panels.
Fixture filing: A UCC-1 recorded in the county land records, so it shows up on the title search for the house.
PACE: Property Assessed Clean Energy financing, repaid through the real estate tax bill and typically given priority over earlier mortgages.
PPA (power purchase agreement): A contract where a company owns the panels and the homeowner buys the power they produce.
Cash-out refinance: A new first mortgage larger than the payoff of the old one, with the difference available to the borrower or used to pay off other debts.
Non-warrantable (ineligible) project: A condo or HOA project that fails agency rules, so loans on its units can’t be sold to Fannie Mae or Freddie Mac.
What a Solar “Lien” Actually Is
The word “lien” covers four different things on solar files, and the lender treats each one differently. Across the wholesale programs Lendmire places files with, the first task is always sorting which of the four you have.
Fannie Mae’s guide says the lender must determine the panel ownership and financing structure, so it can underwrite correctly and keep the new mortgage in first-lien position. That determination drives everything else. Fannie Mae’s Selling Guide on special property considerations says standard appraisal, insurance and title rules apply when the borrower owns the panels. That means they were bought for cash, included in a purchase price, financed and repaid, or secured by the existing first mortgage.
| Structure | What shows on title | What usually has to happen |
|---|---|---|
| Owned, paid off | Nothing | Standard rules apply |
| Leased or PPA | UCC-1 notice, sometimes a fixture filing | Review the agreement; release, transfer or subordinate |
| Separately financed | UCC-1 or fixture filing, sometimes a recorded deed of trust | Payoff and release, or a title endorsement route |
| PACE | Tax-bill assessment with priority | Paid in full at or before closing |
Fannie Mae’s newer appraisal-form policy also lists “separately financed solar panels” as its own structure: panels pledged for debt that is separate from the existing mortgage, per Fannie Mae’s UAD 3.6 policy document.
Is a UCC-1 really a lien on the house?
Solar companies describe a UCC-1 as a notice that the panels belong to someone else, not a claim on the rest of the home. That is accurate as far as it goes. But it still shows on the title search, and a lender will not close over it without a plan. Whether you call it a lien matters less than the practical result: it must be cleared, subordinated or endorsed around. In files like this, the argument over the word is a distraction. The title commitment decides.
How Conventional Underwriting Treats Each Structure
Owned and paid-off systems are the easy case. They can contribute to appraised value like other improvements, and nothing needs to be cleared.
Leased and PPA systems work the other way. The panels are not the borrower’s, so they generally add no appraised value. The lease or PPA agreement goes into the file. The lease payment can also count in the debt-to-income ratio, unless the contract transfers on a sale. Confirm that point against the live guide, since the wording is updated over time.
A financed system is where the title work matters. If the lender recorded a fixture filing, the old approach was to have it subordinated or released. Freddie Mac’s Bulletin 2026-13 now allows an alternative: an ALTA solar-panel endorsement on the title policy, which confirms the UCC-1 does not adversely affect title. Whether your lender uses that route depends on its own overlays, so ask early.
PACE is the one that stops files
PACE is the hardest of the four. It is repaid through the tax bill and typically sits ahead of the mortgage in priority. The uniform security instruments Fannie Mae and Freddie Mac use prohibit a senior lien. Fannie Mae’s PACE rules say it will not purchase a loan on a property with an outstanding PACE obligation unless the program does not give the PACE lien priority over the first mortgage. They also say borrowers with enough equity must pay off the PACE obligation as a condition of the new loan.
Freddie Mac takes a similar position. Its energy retrofit program page says that when cash-out proceeds pay off PACE, the obligation must be paid in full and the loan follows the cash-out rules. Both agencies will accept a PACE program whose lien is truly subordinate. Few are. There is also a narrow carve-out for older PACE loans that originated before July 2010 under specific purchase conditions.
Cash-Out Classification and the Proceeds Math
The loan is classed as cash-out when the new mortgage pays off more than the old first mortgage and closing costs. Paying off a PACE balance, a solar loan or another lien with the proceeds counts. A borrower who walks away with no cash can still be in a cash-out transaction. That surprises people who think of it as “just a solar payoff.”
The conventional cash-out envelope Lendmire works within on a one-unit principal residence is 80% loan-to-value. Two- to four-unit principal residences, second homes and investment property sit at 75%. Fannie Mae’s Eligibility Matrix publishes the caps by occupancy and unit count. Figures are subject to lender guidelines and full file review.
Seasoning applies too. The mortgage being paid off must be at least 12 months old, measured note date to note date. At least one borrower must have been on title for six months. Delayed financing, inheritance and legal-award exceptions exist. Fannie Mae’s cash-out section also requires reserves when the automated case file shows a debt-to-income ratio above 45%.
Here is a worked scenario without dollar figures. Picture a homeowner who bought a home with a PACE-financed system and wants to pull equity for a kitchen. The home has solid equity, but the maximum new loan is 80% of value. The PACE payoff comes off the top, then the old mortgage, then closing costs. What is left is the net cash. If the PACE balance is large, that leftover can shrink toward zero, and the borrower is using up equity just to clear title. Run that arithmetic before applying, not after.
A related trap: a limited cash-out (rate-and-term) refinance that pays off PACE can trip an “ineligible” finding if the borrower appears to receive more than the allowed cash back. The allowance is limited, so it is worth checking the current guideline text before assuming a PACE payoff fits within it.
Clearing the Solar Item: Payoff, Release or Subordination
On a typical file, the sequence runs like this:
1. Pull the title commitment first. It surfaces PACE assessments, recorded solar deeds of trust, fixture filings and UCC-1s. A clean county report is not proof of a clean file, because some filings are made at the state level and may not show in a county search.
2. Identify the ownership structure. Owned, leased, PPA, financed or PACE. Get the contract and the payoff or buyout terms in writing.
3. Contact the solar company or PACE administrator. For leased or third-party systems, start the conversation early. A UCC-1 termination, transfer or subordination takes coordination, and the lender cannot do it for you.
4. Choose the clearing route. Payoff and release for financed systems. A title endorsement where the lender accepts the Freddie Mac approach. A PACE payoff statement from the administrator when proceeds will retire it.
5. Rebuild the net-proceeds math with the actual payoff figure, then confirm the new loan still fits under the leverage cap.
6. Document the release. The lender needs proof in the file that the item is cleared, endorsed or subordinated, not just a promise.
That is why solar files carry extra friction. Every step involves a third party that does not work on your lender’s schedule.
How HOA Litigation Affects Eligibility
HOA litigation is a project-level test. It matters if the home is a condo unit, because the lender reviews the building, not just your loan. Detached homes in a planned unit development are generally outside the condo litigation rules, since Fannie Mae waives project review for PUD units. Check the specific project type, though.
Under Fannie Mae’s ineligible projects rule, a project is ineligible if the association (or the sponsor or developer) is a named party in pending litigation that relates to safety, structural soundness, habitability or functional use of the project. Pre-litigation activity such as arbitration or mediation, when it is reasonably expected to become a lawsuit, triggers the same policies. So “it’s only mediation” is not a safe assumption.
Carve-outs exist. Non-monetary disputes, such as neighbor disagreements, do not trigger the rule. Neither do cases where the insurer is defending and the exposure is covered by insurance. Freddie Mac’s Section 5701.3 lists a condominium project in litigation as ineligible, with a narrower exception that requires a lender statement of the reason for the suit, the insurer’s commitment to defend, and coverage of any judgment or settlement.
A common mistake is assuming the waivers that help rate-and-term or “no cash-out” refinances also help a cash-out. They do not. Freddie Mac’s condo fact sheet says the litigation waiver applies to its own owned no-cash-out loans and its Refi Possible loans, not to a conventional cash-out. Fannie Mae’s project Q&A likewise describes a narrow waiver scope for limited cash-out refinances.
So the lender does real work here. It reviews the HOA minutes, financials, disclosures and legal filings, asks who the parties are, what the suit is about, and whether insurance is defending. If the case is ineligible, the loan cannot be delivered to Fannie Mae or Freddie Mac until the litigation resolves. The borrower can’t fix that. Only the association’s case can.
When Both Issues Show Up in One File
A condo with a PACE assessment or a financed rooftop system is the hard combination. The two problems are independent, so each must clear on its own.
| Issue | Who controls it | Can the borrower fix it? |
|---|---|---|
| PACE or solar lien | Borrower and solar company | Usually, by payoff, release or endorsement |
| Project litigation | Association and the courts | No |
Order of operations matters. Check the project first on a condo. If the building is ineligible for litigation, paying off the solar debt does not help, and the borrower will have spent time and money for nothing. If the project is clean, then work the title item. On a single-family home, skip straight to title.
One more wrinkle: community or association-owned solar. If the HOA owns a shared system, ask whether any filing sits on the project or on your unit. The answer changes who has to release it.
When Conventional Is the Wrong Tool
Some files simply do not fit. Examples include a condo in ineligible litigation, a PACE balance too large to pay within the leverage cap, or equity that the 80% ceiling can’t stretch to cover all the payoffs. Alternatives exist, and none is free of trade-offs. A home equity loan or line sits behind the first mortgage and may face its own solar-filing questions. Some borrowers keep the existing first mortgage and pay off the solar debt another way. Non-agency programs can be more flexible on project eligibility, though they carry their own terms. A broker should lay out those paths without pushing one.
Borrower Checklist
- Title commitment or a recent title report, with any solar or PACE entries flagged.
- The solar contract: lease, PPA, loan note or purchase agreement.
- A payoff statement from the solar lender or PACE administrator.
- Contact details for the solar company’s release or lien-termination department.
- For condos: the HOA’s budget, minutes, insurance certificate and a plain-language statement of any lawsuits.
- Your title-recording date for the original purchase and the existing mortgage’s note date, to confirm seasoning.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Frequently Asked Questions
Can I do a conventional cash-out refinance if I have a leased solar system?
Usually yes, if the lease or PPA is documented and any UCC-1 filing is handled. The lender reviews the agreement, the lease payment may count in your debt-to-income ratio, and leased panels generally add no appraised value. Subject to lender guidelines and full file review.
Does a PACE lien have to be paid off at closing?
Generally, yes. Fannie Mae will not buy a loan on a property with an outstanding PACE obligation unless the lien is not senior to the mortgage, and Freddie Mac’s cash-out guidance requires a payoff in full when proceeds retire it. Payoff comes out of your cash-out proceeds.
Will any HOA lawsuit make my condo ineligible?
No. The agencies focus on suits tied to safety, structure, habitability or function. Non-monetary disputes and insured, defended cases can be carved out. Mediation or arbitration that is expected to become a lawsuit can still trigger the rule.
Do HOA litigation rules apply if I already own the unit?
Yes, for a conventional cash-out refinance on a condo, the project is reviewed again. Waivers that exist for some limited or no-cash-out refinances don’t extend to a standard cash-out. Detached PUD homes are generally outside the condo rules.
How much cash will I actually receive?
Less than the loan-to-value cap suggests. Solar or PACE payoffs and the old mortgage balance come out first. On a one-unit principal residence the cap is 80% of value, so heavy payoffs can leave little or nothing.
For current guidelines and terms, see Lendmire’s conventional loan programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For your own numbers, request a scenario review with Lendmire.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide B2-3-04: Special Property Eligibility Considerations
2. Fannie Mae’s UAD 3.6 policy document
3. Freddie Mac Bulletin 2026-13
4. Fannie Mae Selling Guide B5-3.4-01: PACE Loans
5. Freddie Mac: Refinancing and Energy Retrofit Programs
6. Fannie Mae’s Eligibility Matrix
7. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
8. Fannie Mae Selling Guide B4-2.1-02: Waiver of Project Review
9. Fannie Mae Selling Guide B4-2.1-03: Ineligible Projects
10. Freddie Mac Guide Section 5701.3
11. Freddie Mac Condo Unit Mortgages and Project Reviews fact sheet
12. Fannie Mae Condo/Project Q&A (Aug 2026)
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Conventional Cash-Out Refinance Rules for a Texas Second Home · Conventional Cash-Out Refinance Electronic Verification Rules · Conventional Cash-Out Refinance Rules After Listing Your Home for Sale
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.