A Los Angeles Times article recently reported how a homeowner is at risk of losing her home after not paying her PACE assessment. PACE which stands for Property-Assessed Clean Energy is a financing tapped by homeowners when they want to improve the energy efficiency of their homes. The Department of Energy has shared a set of best practices for residential PACE loans, including proper disclosures on the consequences of failure to pay these obligations.
What About PACE Loans
A partnership between public bodies — state and local government units — and private entities — lenders and contractors, PACE loans finance eligible projects toward renewable energy, energy efficiency, and energy conservation. PACE financing is known to go easy on consumers with no credit checks, low interest rates, and lengthy loan terms.
Being loans, PACE will be repaid in the form of assessments added to the home’s tax bill. PACE assessments are a debt attached to a property, meaning they remain with the home upon its sale until they are fully paid.
In the LA Times article, Ms. Ossie Hill took out a PACE loan of roughly $50,000 to spruce up her two-bedroom home. Her daughter, Cassina Edwards alleged that the contractor of the home improvement project did not explain how the repayment of the loan works, that missing payments could lead to foreclosure, etc.
They received their first bill on the said PACE loan of $5,500 last year. The assessment remains unpaid and they have filed a lawsuit against the contractor.
Best Practices for PACE
It’s not the first time that PACE loans came across as problematic. Being tax assessments, their payment comes above first-lien mortgages. Last year, FHFA which regulates Fannie Mae and Freddie Mac ordered the agencies to stop buying loans with PACE liens.
FHA, on the other hand, issued a guidance that allows for the purchase and refinance of homes with existing PACE assessments. But the HUD under Secretary Ben Carson’s leadership has signaled revisiting the said guidance.
In its best practices guide, the DOE encouraged PACE programs and contractors to provide proper disclosures to homeowner borrowers. These disclosures complete with access contain relevant information about the PACE obligations, including but not limited to:
- The way PACE financing works, including the nature of this obligation;
- The PACE program fees and their method of repayment;
- The PACE loan’s interest rate, costs, fees, and all other charges;
- A statement disclosing that the property may be subject to foreclosure if the homeowner fails to pay.
It’s also recommended for PACE programs to set out clearly the potential impact the non-payment of PACE obligations has on homes with mortgages.
If you’re interested in saving on energy costs and get a PACE loan, be sure to know all the details. Don’t be afraid to raise questions or doubts. Knowledge is power and in this case, power-saving, too.