PACE Loans...the Good, the Bad and the Ugly
The PACE Program (Property Assessed Clean Energy) was first developed in Berkeley, California in 2008. It's intent was to help Berkeley achieve the Bay Area's climate goals. Since 2008, 30 states and the District of Columbia have passed laws to allow for PACE financing programs.
The program hit a substantial roadblock when Federal Housing Finance Agency along with Fannie Mae and Freddie Mac declined to back mortgages with PACE liens on them. The reasoning was that these types of loans become senior liens over any other liens on the property.
The intent of these types of loans is admirable. They have been created to finance energy savings improvements in homes without the significant outlay of money by a homeowner. They could have insulation installed, solar panels installed, dual pane windows and more and have it billed through their annual tax bills over longer length of time (typically around 20 years).
The issue is when a property transfers, how are these loans disclosed? Depending on the timing, these new tax liens may or may not show up on the assessors records that the title companies rely on. If the property was purchased as a "flip" and the contractor takes out this type of loan for improvements, the property could turn so quickly that the bill for the tax period that would show the lien hasn't occurred yet. The only way to ensure that this type of lien is or is not on the tax bill is to ask the seller.
Another issue is when a "flip" occurs, the contractor get an increase in value due to the improvements made. If the lien is not paid off at the time of transfer, the contractors gets the full benefit of the increased equity by the buyer paying for the value of the improvements...then the buyer pays for it again in the tax bills.
This will be an interesting issue to follow in the coming years. I understand that it is being done successfully in many areas of the country...and I would like to ask how they are overcoming these significant issues.
- See more at: http://activerain.com/blogsview/4240370/pace-programs-getting-a-fooothold-in-california-buyers-beware#sthash.9dc08cF7.dpuf
The program hit a substantial roadblock when Federal Housing Finance Agency along with Fannie Mae and Freddie Mac declined to back mortgages with PACE liens on them. The reasoning was that these types of loans become senior liens over any other liens on the property.
The intent of these types of loans is admirable. They have been created to finance energy savings improvements in homes without the significant outlay of money by a homeowner. They could have insulation installed, solar panels installed, dual pane windows and more and have it billed through their annual tax bills over longer length of time (typically around 20 years).
The issue is when a property transfers, how are these loans disclosed? Depending on the timing, these new tax liens may or may not show up on the assessors records that the title companies rely on. If the property was purchased as a "flip" and the contractor takes out this type of loan for improvements, the property could turn so quickly that the bill for the tax period that would show the lien hasn't occurred yet. The only way to ensure that this type of lien is or is not on the tax bill is to ask the seller.
Another issue is when a "flip" occurs, the contractor get an increase in value due to the improvements made. If the lien is not paid off at the time of transfer, the contractors gets the full benefit of the increased equity by the buyer paying for the value of the improvements...then the buyer pays for it again in the tax bills.
This will be an interesting issue to follow in the coming years. I understand that it is being done successfully in many areas of the country...and I would like to ask how they are overcoming these significant issues.
- See more at: http://activerain.com/blogsview/4240370/pace-programs-getting-a-fooothold-in-california-buyers-beware#sthash.9dc08cF7.dpuf
posted by Paula Swayne at
1:59 PM
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