5/20/2015

Have You Heard of PACE for Energy/Water Savings?

Keeping Cool
The Property Assessed Clean Energy Program, or PACE, makes it possible for an owner to finance certain improvements and pay for them via an assessment on the owner's property.
There are a wide range of conservation improvements allowed and which vary by program, but most PACE programs include  improvements such as solar panels, energy star rated core plumbing systems, duct replacement, electric vehicle plug-in stations, pool circulating pumps, water heaters, and furnace.  They work in conjunction with a local public agency, and are available for both residential and commercial properties.

To be eligible, the homeowner must be current on property taxes, with no judgment liens or federal or state tax liens, not in bankruptcy, can't be delinquent on any mortgages or late on property taxes (some exceptions), and there are limits based on the mortgage percentage value of the property.


Property tax liens associated with the homes underlying the security, which are meant to fund energy-savings measures, are senior to all other liens - including mortgages on the properties financed by Fannie Mae and Freddie Mac (which currently finance close to 90% of US mortgages).  Read more at Reuters.  Since they don't like not being in first lien position, the Federal Housing Finance Agency (FHFA) ordered Fannie and Freddie to avoid financing mortgages on homes with PACE liens already on them,  Generally, all loans following FHFA guidelines must obtain consent before being allowed to enter into a PACE program, or the lender may declare the loan in default if owner does not pay off the lien. These conditions also affect refinancing as well, especially if the loan was obtained after July, 2010.

Homeowners who may find that PACE works well for them are:
  • Those who have sufficient equity or whose improvements are not that costly and therefore, would not have difficulty paying off the lien if they need to sell or refinance their home
  •  Those who intend to remain in their homes for the duration of the assessment and do not plan to refinance 
  •  Those whose PACE program will offer to subordinate the PACE lien in circumstances beneficial to the homeowner.

HERO

Certain PACE programs, such as the HERO PACE program are now offering to subordinate their liens in certain instances, generally for a fee.  If the PACE lien is subordinated the buyer may be able to enter into a PACE agreement and obtain consent from a conventional lender.  Homeowners in areas with HERO PACE programs should inquire with the entity. Not all cities have approved this program; according to their site, HERO programs are locally available in the cities of Carson, Bellflower, City of Industry, Hawthorne, Lomita, Garden Grove, Huntington Beach, Fountain Valley, Stanton, Westminster, Cypress, to name several.  Long Beach, Los Angeles, or Lakewood are not included at this time. 

California FIRST

This program  appears to cover Long Beach and other areas, but an address must be entered in order to find out. Their criteria and financing terms are available on the site.

FHA

Energy Efficient Mortgages have been around since the 1990s, and may work for the owner with an FHA loan. Contact an FHA lender for more information. 

Secondary Financing

Another alternative is a home equity line of credit, for people with enough home equity, which may provide some tax advantages, including lower interest rates than the PACE programs. This type of loan would automatically be paid off in sale of a home.

Similar to solar panels, any PACE lien must be disclosed to a prospective buyer and will most likely be found in the preliminary title report given to a buyer. The seller may be in the position of having to pay off the lien in order to sell, depending on the circumstances involved.

And, a property owner should always first consult with a tax advisor regarding their own circumstances before accepting any of these loans. Interest paid on PACE liens may not be tax deductible but there may be a capital gains benefit based on the improvements.

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