SAR attends the National Association of REALTORS® Midyear Meetings in Washington DC every year, where we visit with our Congressional representatives. There are a few foregone conclusions at these meetings; we will discuss the real estate market in Sacramento, the importance of preserving the mortgage interest deduction, and we will ask about their perspective on the climate in DC.
This year REALTORS® were instructed to talk to their elected representatives about issues surrounding PACE, those "Property Assessed Clean Energy" loans homeowners put on their tax bill. I found this significant, because not only did C.A.R. request we cover this, but NAR did as well. NAR’s involvement shows that problems with these loans have grown beyond California.
While some facets of these loans may be good in theory for encouraging people to upgrade to clean energy, the implementation of these loans has become almost predatory. When this program started, proponents claimed audits would be done to ensure the amount paid over the life of the loan was less than the savings achieved by the new energy efficient measures done to the home. Homeowners had to have a certain loan to value ratio to ensure they would not be underwater and the program claimed certain facets of the loan would be clearly disclosed to the homeowner.
These things are not happening.
Because PACE loans are structured as a property tax assessment, the loan attaches to the property, not the homeowner. This becomes an issue when the owner needs to sell or refinance the property. The loans have "super–priority" on the property, so the PACE lien takes repayment even over the mortgage. And for that reason some loan services will not lend on a property with PACE attached to it. This becomes a problem when the homeowner goes to sell the property, especially considering these loans have an incredibly steep prepayment penalty associated with them. Making this situation even worse, the prices qualified PACE contractors charge for work is significantly higher than what other contractors charge. Additionally, the interest rates for PACE loans are much higher than other loan products and these loans now cover nearly any home improvement project, not just green energy. And finally, what about the audits that were supposed to take place to ensure the energy savings outweighed the cost of the loan? That is not happening.
PACE loans may be ok in theory, but they need substantial reform to ensure they stop preying on innocent homeowners. It was great to see these issues get attention at the NAR level and be shared with our elected representatives in Washington DC.
– Caylyn Wright, SAR Director of Government Affairs