PACE / HERO loans - Think First

Property Assessed Clean Energy (PACE) is government backed financing for energy efficiency and renewable energy improvements on real property.  The program is designed to pay 100% of the upfront costs of green initiates, energy efficiency upgrades, disaster resiliency improvements, water conservation, and other similar improvements.  The program is not available everywhere in California.

Pace loans are repaid over the selected term between 5 and 25 years via an annual assessment on the property tax assessment (PACE bonds).  While this sounds enticing, PACE loans have fees and costs often not disclosed because the law does not require disclosure.  Pace loans can have an originating fee of over 6% and yearly interest rates that can push double digits.

Caveat Emptor

Because these loans are secured by a tax lien they often do not, believe it or not, surface during a title search.  A purchaser will take subject to the lien whether she know of it or not.  The PACE loans are coming to roost when buyers, well after the sale, discover something extra in her or his property taxes.

               Refinancing

A property tax lien will be senior to other liens and deeds of trust.  The end result is that it will be just about impossible to refinance a property with a pacer bond lien unless the refinance discharges the tax lien.   The same goes for purchase money mortgages unless the lien will be discharge in escrow by the buyer, a lender is less likely to provide a loan secured by a property with a large tax lien than a property unencumbered.