The Quick Read: A lawsuit against your condo association and a lien from solar panels are two separate checks, and either one can slow or block a cash-out refinance. The lawsuit is judged by what it is about. The solar lien is judged by who owns the panels and what sits on your title. The cash you can take is capped at 80% of your home’s appraised value, with every lien on the property counted against that cap.
Why Do a Lawsuit and a Solar Lien Matter to a Cash-Out?
Because an FHA cash-out is a new loan on your home, and the lender has to be comfortable with everything attached to the property. That includes the building you live in and anything recorded against your title.
Here is the basic shape of the loan. Across the wholesale programs Lendmire places FHA files with, a cash-out reaches 80% loan-to-value (LTV, the loan balance as a share of the home’s value). The home has to be your primary residence. You also need to have owned and lived in it for 12 months before the case number is assigned. Lenders look at your payment history on the current loan too, and program figures are subject to lender guidelines and full file review.
Most homeowners think the story ends there. It doesn’t. If you own a condo, the whole project gets reviewed, not just your unit. If you have solar, the lender needs to know whether the panels are yours, leased, or tied to a lien.
The FHA cash-out refinance program page covers the loan itself. This article covers the two complications that most often surprise owners in expensive coastal markets: association lawsuits and solar financing.
Do “High-Cost States” Change the Rules?
Not directly. There is no separate FHA rulebook for expensive states. The same cash-out cap, the same condo review, and the same solar and PACE conditions apply wherever you live.
What changes with location is smaller but real:
- County loan limits. FHA limits are set county by county and change every year. In high-priced counties they run higher, so a larger balance can still fit. Check your county’s current limit with a lender rather than relying on a number you read online.
- Solar and PACE use. These show up more often where homes are expensive and electric bills are high. That means you are more likely to see a panel lien on title.
- State PACE law. Whether a PACE assessment can jump ahead of a mortgage depends on the state’s statute.
- Condo density. Markets with a lot of older condo stock tend to have more association disputes, which raises the odds that your building is mid-lawsuit.
So the useful framing is “where prices and solar use are high,” not “a different set of rules.” Texas borrowers face a separate question about cost limits, which Lendmire covers in its piece Texas FHA Cash-Out Fee Cap Rules for High-Cost Closing States.
How the Loan Is Reviewed, Step by Step
Here is the sequence a file moves through. Each step can surface one of the two issues.
1. Eligibility check. The lender confirms the home is your primary residence, that you meet the 12-month ownership and occupancy test, and that your payment history is clean.
2. Appraisal. The appraiser sets the value that the 80% cap is measured against. Every lien on the property counts toward the combined LTV, including a second mortgage.
3. Title search. This is where a recorded assessment, a solar lender’s filing, or a deed of trust tied to panels shows up.
4. Condo project review (condo units only). The lender checks whether the project is FHA-approved, or whether your unit can qualify on its own. Litigation questions get answered here.
5. Underwriting decision. The lender weighs the lawsuit, any recent financial trouble in the project, the solar ownership structure, and any PACE assessment, along with your credit and debt ratios.
On ratios, the base pair is 31/43. That means housing costs of 31% of income and total debt of 43%. Documented compensating factors can stretch that to 40/50 at the top tier, and the automated underwriting finding governs most files. A solar loan payment that stays with you is weighed in those ratios like any other debt.
Notice the order. Your credit and income often look fine at step one. The file stalls at step three or four, and that is often a surprise to borrowers.
What Does FHA Do With HOA Litigation?
FHA reviews the condo project, not only your unit, so an association lawsuit is the association’s problem that becomes your problem. This applies to condo units. A detached single-family home outside a condo project doesn’t face this check.
HUD’s glossary defines “litigation” as a current or pending lawsuit, arbitration or mediation involving the condo project or association. It also reaches back: matters concluded within 12 months of the application date still count. The same definition carves out two things. Foreclosure actions and efforts to collect past-due assessments, where the association is the plaintiff, are not counted as litigation.
That carve-out busts a common myth. An association suing a delinquent owner for unpaid dues does not, by itself, make the project ineligible.
HUD also says an eligible project must meet its requirements on insurance, financial condition, title, and the existence of any pending legal action. In practice, the project paperwork includes a questionnaire that asks whether the suit involves safety, structural soundness, habitability or functional use. It also asks whether the project had a “financial distress event” in the past 36 months. That means bankruptcy, receivership, foreclosure or seizure by creditors, or a deed-in-lieu.
The lender usually asks for a litigation package too. It is a signed explanation from the association, management company or attorney. It covers why the suit was filed, the risks, the expected settlement, and the effect on the project’s finances. It includes the complaint when there is one.
HUD’s published sources don’t spell out which suit types are acceptable and which are not. So treat the outcome as a judgment call that depends on the lender’s read of the risk, and ask your lender early.
Likely Fine vs. Likely to Draw Hard Questions
| Type of situation | How lenders tend to read it |
|---|---|
| Association suing owners for unpaid dues | Excluded from the definition |
| Association foreclosing on a delinquent unit | Excluded from the definition |
| Routine, insured claim with limited exposure | Reviewed on risk; often manageable |
| Suit over structural, safety or habitability issues | Draws the hardest scrutiny |
| Suit that could drain the project’s reserves | Reviewed for effect on solvency |
| Suit settled within the past 12 months | Still counts as litigation |
This table is a practical read, not a promise. Each lender applies the rules to the full file.
What Makes a Cash-Out Different From a Purchase?
Two things: the equity cap and the fact that you’re already inside the building.
With a purchase, a lender can walk away from a problem project and the buyer picks another one. With a cash-out, you already live there. If the project can’t clear review, you can’t simply switch buildings. You choose between keeping your current loan, waiting for the problem to resolve, or looking at a different loan type.
The equity cap matters just as much. HUD’s Mortgagee Letter 2019-11 lowered the maximum LTV and combined LTV on FHA cash-outs to 80%, down from 85%. The cap is measured on adjusted value from the appraisal, so a low appraisal shrinks your cash. An existing second lien does too, because it counts against the same 80%.
Mortgage insurance applies as well. FHA charges an upfront premium of 1.75% of the base loan, which can be financed. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. These are program mechanics, not a price quote.
Solar: Owned, Leased or Financed?
Ownership decides almost everything. A system you own outright is the simplest. A leased or power-purchase system is the one that creates the most friction on a refinance.
HUD’s FHA solar flyer says a new PV system financed into an FHA loan must be owned by the borrower, not leased. That rule is about financing new panels. HUD’s sources don’t say how an existing leased system affects a refinance, so don’t assume. Ask the lender directly.
Here is how the common arrangements tend to show up. Treat the “title” column as what you might see, since filings vary by provider and state.
| Arrangement | What may show on title | What to ask the lender |
|---|---|---|
| Owned outright | Usually nothing | Whether any paperwork is needed |
| Leased panels | A fixture filing may appear | Whether a payoff or buyout is required |
| Power-purchase agreement | A fixture filing may appear | Whether a payoff or buyout is required |
| Solar loan | A filing or deed of trust may appear | Whether payoff or subordination is needed |
| PACE assessment | Tax-bill assessment on the property | Whether it meets FHA’s conditions |
Is a Solar Filing a “Lien on the House”?
People argue about this online. The title search settles it for your property. A filing that covers only the equipment is different from one recorded as a fixture against the real estate. Your title company can tell you which one you have. The lender cares about the second kind, because it affects the lender’s position on the home.
When a filing is a problem, the usual fixes are three. The solar company can subordinate (agree to sit behind the new loan). You can pay it off and have it terminated. Or the filing can be amended to cover only the panels. Which one works depends on the solar provider and the lender.
Why Is PACE the Hard One?
PACE stands for Property Assessed Clean Energy. It is a way to pay for solar or efficiency upgrades through your property tax bill. Because it rides on the tax bill, it behaves like a tax, not like a regular loan.
That is the problem. The assessment stays with the property, so it complicates a refinance or a sale. In many places it can rank ahead of a mortgage, including mortgages recorded earlier.
FHA doesn’t ban PACE. HUD’s Mortgagee Letter 2016-11 says a property with an outstanding PACE obligation may be eligible if the lender confirms certain conditions. Two of them: state law must collect and secure the PACE obligation like a special assessment, and the property may become subject to a superior lien only for delinquent regularly scheduled PACE payments. The letter has more conditions than that, so let the lender walk you through the full list for your state.
PACE also raises your annual property tax bill, which can show up in your debt ratios. Most owners forget this part when they sign up.
Where the General Rule Breaks
A few edge cases are worth knowing before you apply.
- Association as plaintiff. A collection or foreclosure action brought by the association is excluded from the litigation definition.
- Recently concluded suits. A lawsuit that ended within 12 months still counts.
- Unapproved project. A unit in a project that isn’t FHA-approved may still qualify through Single-Unit Approval. That path has its own document list, including a litigation line item.
- Leased solar on an existing home. Treatment of leased solar can vary by lender, so get the lender’s answer in writing.
- Hawaiian Homelands. A law-firm summary of the 80% change says it doesn’t apply to Section 247 Hawaiian Homelands loans.
- Streamline refinances. An FHA Streamline is a different product with different rules. It refinances an existing FHA loan without an appraisal, and it pays no cash out. If you only want a better loan, not cash, it may sidestep some of this.
A Worked Scenario
Picture a condo owner who bought the unit three years ago and has lived there the whole time. She wants cash for a kitchen remodel. Her payment history is clean, and her score clears the 580 decision score the wholesale programs start at.
Her lender finds two things. First, the association is in a lawsuit over a building defect. Second, her unit has leased panels with a recorded filing.
The lender takes them in order. For the lawsuit, it asks the association for the litigation package and a project questionnaire. The suit involves structural soundness, so the lender reads it closely for risk to the project’s finances. For the panels, the lender asks the solar company for payoff or subordination paperwork.
Now the equity math. Her appraisal sets the value, and 80% of that value is the ceiling for all liens combined. Her current balance eats part of that, and a small second lien eats more. What is left is the cash available.
Three outcomes are possible. The project clears and the file proceeds. The project doesn’t clear, and she waits for the suit to resolve. Or she looks at a loan outside FHA. None of these is certain, and each depends on the lender’s review.
What Does Your Decision Look Like?
Your choice comes down to a few questions. Answer them in this order.
1. Do you live in a condo? If not, skip the litigation review and focus on solar and PACE.
2. What is the lawsuit about? Dues collection is excluded. Structural or safety claims are the hard ones.
3. Did the project have a financial distress event in the past 36 months? That alone can sink a project.
4. Who owns the panels? Owned, leased, financed, or PACE. Each leads to a different request list.
5. How much equity is left under the 80% cap? Subtract every existing lien.
Then gather your paperwork in a useful order. Ask the association for a status letter on any pending suit. Ask whether the suit is insured. Ask the solar provider for the contract and any recorded filings. Ask a title company for a preliminary report. Then give it all to the lender at once.
If the project is ineligible, you have options. You can wait until the suit resolves or passes the 12-month lookback. You can ask whether Single-Unit Approval applies. You can consider a conventional loan, which uses different condo litigation exceptions. Or you can keep your current loan.
Key Terms Defined
Adjusted value: The property value the lender uses after the appraisal, which the 80% cap is measured against.
Combined LTV (CLTV): All loans on the home added together, divided by its value.
Litigation (FHA condo meaning): A current or pending lawsuit, arbitration or mediation involving the project or association, including matters concluded within 12 months.
Financial distress event: A bankruptcy, receivership, foreclosure or seizure by creditors, or deed-in-lieu involving the project, looked at over the past 36 months.
Single-Unit Approval: A path that lets one unit in a non-approved condo project qualify for FHA financing.
Fixture filing: A public record that claims an interest in equipment attached to the home, such as solar panels.
Subordination: An agreement where one lender moves behind another in priority.
PACE: A clean-energy financing method repaid through the property tax bill.
What to Do Next
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. Bring your appraisal estimate, your current balance, and any solar or association paperwork. That lets the comparison start with the facts that decide the file.
Frequently Asked Questions
Does an HOA lawsuit automatically block an FHA cash-out?
No. A suit the association brings to collect dues or foreclose on a delinquent owner is excluded from FHA’s litigation definition. Other suits are reviewed on their nature and risk to the project’s finances. Structural, safety or habitability claims draw the closest look.
Can I do a cash-out if my panels are leased?
It depends on the lender and your title. HUD’s guidance covers only new systems financed into the loan, which must be borrower-owned. For an existing lease, ask whether a payoff or buyout is required before closing, and get the answer in writing.
Can PACE stop my cash-out?
It can. A PACE obligation may be eligible if the lender confirms the conditions HUD sets, including how state law secures the assessment. Because PACE rides on your tax bill and can outrank a mortgage in many places, expect extra scrutiny and possibly a payoff request.
How much cash can I actually take out?
Up to 80% of the appraised value across all liens, subject to lender guidelines. Your current balance and any second lien come off that number first. A low appraisal shrinks the cash, and county loan limits apply to the loan amount.
Do high-cost states have different FHA rules?
No separate rules exist for them. County loan limits are higher where homes cost more, and state PACE laws vary. The litigation and solar checks work the same way everywhere.
For your own numbers, request a scenario review with Lendmire.
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 the program’s current guidelines, see FHA loan programs.
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References
1. HUD glossary: litigation and financial distress event
3. HUD Mortgagee Letter 2019-11
4. HUD Mortgagee Letter 2016-11 (PACE)
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: FHA Cash-Out Rules for a First Mortgage With a Prepayment Penalty · How to Get an FHA Cash-Out After a Quitclaim From a Parent · FHA Cash-Out Appraisal Rules for a Condo Unit
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.