Question Can we use 401k loan to pay off solar panel lease during BK13?

[Zombie13]

Hi everyone, hope you are all safe and healthy.
Barbisi and I are making plans for selling the home and relocating post-BK13; our final payment will be the 2nd half of January 2021.
We have a solar panels via a lease which extends until the year 2033.
When we sell the home, the panels will remain on the house.
There are a couple options we are considering.

1) Pay off the solar panels before putting the house on the market. We can only purchase the panels on the lease anniversary date, around October 03. This means, we can only purchase the panels on Oct. 03 2021; Oct. 03 2022, Oct 03, 2023.. and so forth. In this scenario, we have to notify the solar company 30-90 days in advance, of our intent to pay off the solar lease. So, between July 03 and Sept 03 of any year is our window.
In this scenario, the panels become an asset to the home, and therefore, we can add the cost to the home purchase price.

2) Pay off the solar panels during the home sale, once the house goes under contract. In this scenario, we cannot add the cost to the home purchase price. We may incur a loss due to the solar lease payoff. We could increase the initial list price, but that increase would have to be justified somehow. This scenario is not ideal.

3) The solar lease is transferred to the home buyer during the home purchase process. This is the easiest scenario, but we would also need to lower the home price since the buyer would be paying a monthly lease cost as well. Additionally, the house may remain on the market longer since a solar lease may be unappealing to buyers, and the buyer pool is reduced. Also, a potential home buyer must qualify for assuming the solar lease contract.

Option 1 would be very desirable if we could pay off the solar panels before putting the house on the market.
In October 2021, we will still be in the BK13, with 3 or 4 payments remaining in the BK13. We want to sell the house and leave the state ASAP after the BK is over, once we get the discharge in 2022. Would acquiring a 401k loan for the purpose of paying off the solar lease during the BK be considered grounds for dismissal of our BK13 plan? If we paid off the solar lease in October 2021, we would no longer have the monthly solar lease expense, which is included on the I&J forms that we filed. So, paying off the panels in October 2021, while we are still in the BK13, may not be a wise choice.

Alternatively, we could pay off the solar panels in Oct. 2022, since we should get a discharge in early 2022 (i.e. before July 03, 2022, which is the earliest date in 2022 we can notify the solar company of our intent to pay off the solar lease Oct. 03 2022). Then, we could sell the house in early 2023 (spring/summer 2023), since the panels are owned by us outright, we are out of the BK13, and the trustee no longer has jurisdiction over our estate.

Granted, a 401k loan is most often not the best option but, we should be able to sell the house for a higher price, and in a shorter amount of time, if the panels are an asset, vs. a liability.

At this point, we are only asking questions, and gathering information. Not taking any action on 401k, etc. I will be verifying with the 401k company tomorrow, if it is even possible to take out a loan. The website appears to confirm I can, but, I still want to speak with them to be sure.

[justbroke]

First, let me say that I never recommend anyone take a withdrawal from their 401(k). However, I will say that 401(k) loans can be useful in certain circumstances. I will answer based on whether a 401(k) loan is a useful way to buy "attached" property to a homestead.

Hi everyone, hope you are all safe and healthy.
Barbisi and I are making plans for selling the home and relocating post-BK13; our final payment will be the 2nd half of January 2021.

Can you believe it's already 2021? Last year seemed like a decade.

1) Pay off the solar panels before putting the house on the market. We can only purchase the panels on the lease anniversary date, around October 03. This means, we can only purchase the panels on Oct. 03 2021; Oct. 03 2022, Oct 03, 2023.. and so forth. In this scenario, we have to notify the solar company 30-90 days in advance, of our intent to pay off the solar lease. So, between July 03 and Sept 03 of any year is our window.

I don't see the benefit of paying off the panels with a 401(k) loan. I don't see the benefit of paying them off when your intent is to sell the property anyhow.

But, having wrote that, I was involved in a home purchase but the home value was only $400K. I offered $400K but the owners needed to payoff the solar lease (which was separate). There was a balance on the solar panels but they were valued at $25K. I did not go through with the purchase because I didn't think the value would come in properly at $400K. The owners chose to wait to paydown their panels and rented the property instead. I might approach them again in a year to see where they are, but home prices in our area are increasing 5% per year.

Realize that while the panels were indeed an asset to the property, and the reason that I wanted the property, the amount remaining on the lease (or to buyout the lease) was just not in sync. The owners did offer to sell for $400K provided that I assume the lease, but that seemed fraught with closing issues.

2) Pay off the solar panels during the home sale, once the house goes under contract. In this scenario, we cannot add the cost to the home purchase price. We may incur a loss due to the solar lease payoff. We could increase the initial list price, but that increase would have to be justified somehow. This scenario is not ideal.

This was the issue with my attempted purchase of a home with panels still under lease. The owners did include the price of the panels in the sale of the home but their ask was $16K over the value of and balance of the solar lease. We did think about leasing the panels by assuming the lease ($100+/month), but decided that we should close the home under one sale. So, I see the issue, but I don't think that you can't sell a home with the price based on the panels.

3) The solar lease is transferred to the home buyer during the home purchase process. This is the easiest scenario, but we would also need to lower the home price since the buyer would be paying a monthly lease cost as well. Additionally, the house may remain on the market longer since a solar lease may be unappealing to buyers, and the buyer pool is reduced. Also, a potential home buyer must qualify for assuming the solar lease contract.

This is actually what we considered. The main issue was in transferring the lease and what the bank would say about the solar panels (the bank actually asked whether it had panels).

Option 1 would be very desirable if we could pay off the solar panels before putting the house on the market.

I would hate for you to payoff the lease and lose money as a result of the payoff. I think that losing money on the panels is very likely. It would be a sunk (wasted) amount of money. I think that having the lease leaves you in a stronger position. Sell the house for value but transfer the lease. That was a scenario that I was willing to accept and my realtor, the seller's agent, and the seller all agreed with that scenario. That's just my opinion.

In October 2021, we will still be in the BK13, with 3 or 4 payments remaining in the BK13. We want to sell the house and leave the state ASAP after the BK is over, once we get the discharge in 2022. Would acquiring a 401k loan for the purpose of paying off the solar lease during the BK be considered grounds for dismissal of our BK13 plan? If we paid off the solar lease in October 2021, we would no longer have the monthly solar lease expense, which is included on the I&J forms that we filed. So, paying off the panels in October 2021, while we are still in the BK13, may not be a wise choice.

I think you'd have to go back to the Chapter 13 Trustee, technically, to take money out of the 401(k) to payoff a cellular lease. The Trustee could argue that you could pull that money out to pay unsecured creditors, so why allow you to do so for something that is not critical to the maintenance of the Chapter 13 itself. (That's the devil's advocate position.)

Solar panel leases are going to be an issue with many would be home sales. The banks are asking about these panels because they know that they are usually still leased and that could cause valuation issues. If you're far enough into your lease (my seller was about 5 years into a 20 year lease), it could be easier, but if your lease is fresh and new, the value of the panels is worth less than what remains on the lease. That is the real issue... what value do the panels bring if the new owner is still paying $120/month for the lease.

I hope you get more opinions. I understand this issue from a buyer's perspective and I hope you can fashion a remedy that works for both you and the future buyer.

Let me add that I would talk with a real estate agent in your area with specific knowledge of solar-equipped homes and leases. What strategy works in Florida may not work in Colorado or vice versa. Even though both States have high sun index numbers. The market will always drive this. In this new sub-division where I live, a good 20% of the homes are solar. Some of the solar was installed at/during construction, and the others were after-market. I don't know the distribution.

[Zombie13]

Thank you Justbroke, from Barbisi and myself.
The reason we are considering paying off the solar lease during the home sale contract:
1) with no lease, just the house requires financing.
2) there is a higher probability of selling the home faster. If there is a solar lease, many may walk away even before making an offer. If we sell the house faster, we are done faster, and can get on with our life sooner.
3) with a solar lease attached, the house sits on the market and can go stale; then we have to drop the price.
4) with a solar lease, a buyer must qualify for both the home and the solar lease. Before we bought this current house, it was was under contract with another buyer, but that fell through because that buyer could not qualify for the solar lease.

Currently, we owe about 335K on the home, and it is valued at approximately 485K - a delta of (positive) +150K. So, an expense of 10K to sell the house faster, so we can get on with our life sooner (our time is the only resource we can NEVER recover), is worth it to us. It would cost about 10K to pay off the panels. In 2022, we will have to re-evaluate these numbers of course.

If we borrow 10K from the 401K, we pay back that loan in a lump sum. Basically, we view the 401K loan as a means of getting the job done - selling the house. If we need to pay off the panels via a 401K in order to sell the house in a timely fashion and get on with our lives, so be it.

We have 12+ months before we can even consider the loan, home sale, etc. so now, is a very good time to consider all options.

Thanks!

[Barbisi]

Thank you just jb for the detailed and thorough reply!
Another reason to unload this house sooner than later is because at a $2400 mortgage each month (including the $75 monthly solar panel lease),we are paying approximately 40% of our net household income which we simply can't maintain long term. A refi would only mean we have to stay in this house another 5 or more years to just break even and by then the house will need $$$$ of systems repairs and home updates, meaning we are losing valuable years of our lives that could be spent somewhere else with a more desirable climate at sea level, being able to travel for the first time in 12 years and for me to participate in cultural activities and career goals that this BK13 forced me to abandon and which no longer exist here.
There is more to life than living somewhere we don't want to be and paying an ever increasing monthly mortgage we won't be able to sustain - that's why people sell out and relocate!

[justbroke]

Barbisi and Zombie13, I agree with you on all points. If you roll it up into the sale, perhaps you can do something creative. I would say the creative thing is along the lines that you wrote Zombie13; I would offer the value of the remaining lease at closing as a credit, while having the title (settlement) attorney payoff the lease. That would entice me, as a buyer, as it looks like a concession at the sale. I would do it that way because it appears that you have, or should have at the time of the sale, enough equity to cover that cost without any cash-at-closing worries!

(As for the concessions, some lenders are concerned about excessive concessions and may just ask for a reduction in price rather than a credit. These are the real estate agent specific knowledge required to close this type of sale properly using that strategy.)

I don't think the 401(k) loan is a problem except if the Chapter 13 Trustee gets upset with pulling otherwise exempt funds to pay for what they may feel as unnecessary expense. Other than that, paying off the 401(k) loan after closing is smart... just make sure you do it! The other impact of the 401(k) loan, with your expenses already high and a 40% DTI just on the home, is whether you can afford the 401(k) loan payment. The kicker will be what amortization you could get for that type of 401(k) loan since it would not be for the purchase of your primary home.

Unless your 401(k) allows multiple loans and/or is sufficiently funded, I would worry that funding a new home could be problematic unless you're able to do a coordinated closing. I think coordinating across State lines can be problematic but with sufficient resources in a 401(k), you can overcome the lender's concerns by paying down more by using a 401(k) loan as a bridge.

So many tactics. So many things that I have considered, utilized and rejected.

Despite my positive attitude here on BKForum, we have a lot in common. Other than your more serious health issues, mine are no comparison, I empathize because I have been there. While I haven't moved across State lines recently (not within the last 20 years), I can understand the motivation to "get out of dodge" as quickly as possible! I lived in the Northeast and moved to Florida for a host of reasons. At the time I moved one could look up the definition of "unbearable living costs" and there would be a reference to the northeast. I think that definition still holds true as hundreds of thousands of those in the northeast move to Florida each year. Welcome to Heaven's Waiting Room.

[Zombie13]

Thanks again JustBroke.
The Tesla contract states we have three options for unloading the lease:
1) we pay in full, on October 03, of any year.
2) we pay in full, when the house goes under contract.
3) we transfer the lease to the home buyer, when the house goes under contract.

One of three criteria above, must be satisfied in order to finish with the solar panel package.
If we can do any of the options above, while holding the home sale price steady, and present the options you've suggested, that'd be great. That's the realtor's job so yes, it's a good idea to talk with realtors experienced with solar panel homes. We do currently have an experienced pair of realtors; we will also confer with them regarding concessions, etc.

Yes the trustee is looking for any excuse to increase payments. So, we feel more comfortable with waiting until after we get the discharge, to proceed with actions. If we wait to acquire the loan until after the bk is over, then we have $950 or so a month available to absorb a loan payment, until the house is sold. If we get the loan during the bk, then payments would come from the amount we borrowed - not really a good move. It's a 60 month payback... sound familiar? LOL!!!

We do not intend to purchase a new home in a new location immediately. The plan is to rent initially. We do not know if we would want to stay long term. So, the plan is:
1) get bk discharge
2) put house on market
3) enter home sale contract - negotiate on price, solar panel payoff/concessions/lease/etc.
4) acquire $10,000 plus change, for solar panel payoff, and pay off panels; from 401k loan and potentially other sources
5) close on the house; cash is in our bank account, then we drink.

The next steps depend on whether I have a job lined up in a new location yet. If not, we rent locally, til I get a new job elsewhere. If I have a job in a new location already, that's a whole different set of issues