About PACE loans
California has enacted several energy and water efficiency programs known as Property Assessed Clean Energy, or PACE. The system lets homeowners borrow money for upgrades and pay it back bit-by-bit on their property tax bills.
PACE loans have primary or first position lien status, because they are City / County bonds administered by the tax collector similar to Mello-Roos.
That first position lien status is so important that the Federal Housing Finance Agency prohibits Fannie Mae and Freddie Mac from purchasing mortgages or notes with PACE liens at this time.
In the event of a sale of the property, borrowers could be required to payoff PACE loans in full at the time of the sale. This could cause serious problems at closing especially if the seller does not have sufficient equity in the property or the buyer is not prepared to assume the debt.
Another question that arises is how the comparables are determined by the appraiser as they relate to the improvements made using a PACE loan. Original cost versus actual value?
What is the “true” cost? Initial investment + interest + closing costs + County Administrative Fees over the term. Example: Riverside County – immediate payoff amount of $28,675 versus amortized payoff over 20 years is $59,431. Upfront costs: Title, Recording Fees, Administrative fee, Appraisal, Escrow Fee, Site Inspection Fee, etc.
County Administrative fees over a 20 year term for example could be as high as $2,000 / year or $40,000 above the original loan amount + Interest + Fees.
Homeowners and Realtors Should be Aware That:
Taking concrete steps to address mortgage lenders’ concerns, California revived PACE financing programs in March 2014 by establishing the $10 million PACE Loss Reserve Program. Though that hasn’t resolved the issue completely, it was enough to revive PACE financing in California.