Critical Information on Property Assessed Clean Energy (PACE) Programs

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At a recent West End Real Estate Professionals event, Ryan Orr and Rhonda Keliipio of Team Title Guy were in attendance to learn the good, the bad, and the ugly of PACE (Property Assessed Clean Energy) Programs.  Paul Herrera, the Government Affairs Director for IVAR and the Legislative Director of CAR was there to discuss the ins and outs of the program.

The PACE program was birthed out of a genuine need to reduce the carbon footprint in housing through energy efficient home upgrades.  The HERO Program was designed and essentially gives people a credit line through their tax bill – things like windows, roofs, heating/cooling – anything that needs to be replaced (home upgrades that have to do with energy efficiency), don’t have to be paid for out of pocket and up front by the homeowner.

The cost of the upgrades then turns into a bond, amortized over 20 years, and this basically creates a self-imposed tax to the homeowner, paid on your tax bill.  The problem is that in California this bond is showing as a lien on the property.  Now, if a homeowner wants to do a refinance and record a new loan, the HERO becomes first position.

No first lenders want to make their first loans second position, and there is no current way to refinance and record a new loan, without the HERO taking first position, thus making it impossible to refinance without first paying off the bond in full, plus the interest, and early payment fees.

For many refinance transactions, this is essentially squashing them.  We are here to help identify the challenges of this program. Generally speaking, they are as follows: 1) the ability to pay off the loan in one lump sum is nearly impossible for most homeowners, 2) there’s about an 11% APR, and 3) the cost of the repair of the items is 60% to 100% more through these programs, than if the homeowner were to go out and source the project themselves.  It is creating havoc.

People representing the HERO program, explain that Governor Brown is endorsing them; but HERO is NOT a government program, it is simply an agreement with the state.  HERO is the #1 program like this across the US, and in its earliest and most honest stages the 20-year-bond would, in theory, be ‘okay’, however, the average homeowner in California does not stay in their home for 20 years.

As a simple example: a 16k heating and cooling system is installed on a property. The buyer of the property is okay with the extra payments against the home, but the lender wouldn’t pay off the loan in a new real estate transaction.  The payoff comes back as a bond with interest and fees, and ends up costing an exorbitant amount and thus crushes the real estate transaction.

To be concise: the program may have started with the best intentions, but it is now wreaking havoc on many common real estate transactions.

If you are involved in a real estate transaction and you are running into challenges because of this, contact Paul Herrera at pherrera@ivaor.com or call him directly at 951-500-1222.  Your voice is critical in order for him to gather the data needed to continue to lobby to help disclose the risks of these programs!

 

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