The Tallahassee Democrat published this piece last August, but the concerns with PACE Loans remain. See our Consumer Alert about these loans in our Consumer section.
The Tallahassee Democrat article “Initiative Can Help With Home Repairs” (August 9, 2017) about Property Assessed Clean Energy financed loans from Renovate America shared information about a loan program for financing home repairs to enhance energy efficiency and strengthen against hurricanes. The article paints a rosy picture for homeowners who can access “the lowest interest rates and strongest protections in the PACE industry today.” Leon County, in a public – private partnership with Renovate America, may provide a competitive rate and protections that exceed other PACE loans in the state. However, that is not clear. What is clear is that there remain many reasons for homeowners to be cautious in financing repairs with a PACE loan.
PACE loans are not loans in the traditional sense. These are property tax assessment liens that have a super priority status over the homeowner’s mortgage loan. The “loan” is repaid through the homeowner’s property tax payments, which increase accordingly with a PACE loan. A home with a PACE property tax assessment lien will not be purchased by Fannie Mae or Freddie Mac and may create problems with future refinancing or loan modifications. Therefore, homeowners intending to sell or refinance their home before the PACE loan is paid should consider the repercussions of having a PACE loan.
A PACE loan is usually not a homeowner’s cheapest alternative for financing home improvements. Data on PACE loans in Florida shows an average rate of 8.05% on a 20 year loan. A homeowner generally can receive a home equity line of credit (HELOC) or other mortgage re-financing for much less than the cost of a PACE loan.
PACE loans do not provide the consumer protections mandated for a home mortgage or HELOC. There is no requirement that there be a determination that the homeowner can repay the loan, there are no Truth in Lending disclosures, there is no requirement that the consumer be given a right to rescind the loan and the consumer is not provided the same protection to assert legal claims and defenses.
Concerns around consumer protections that are lacking in these loans have caught the eye of Florida Senator Marco Rubio. He has sponsored, along with others, the PACE Act to ensure that consumers are provided the same protections that are required of traditional lenders. Bipartisan sponsored legislation in the House of Representatives is pending as well. The Florida legislature would also do well to consider measures to protect consumers who may place a PACE lien on their home while being unaware of the consequences.
The policy behind the creation of PACE loans in 2008 is admirable – to provide more financing for energy renewal and effectuate energy savings. This public policy, however, must be balanced with adequate protection for consumers. After all, a home is for most of us the biggest purchase we will make. Before placing what is on average a $25,000 lien on your home with a PACE loan, it is important that homeowners be provided with the information and tools to make sure they are not putting this important asset at risk.