First launched in 2008, California's Property Assessed Clean Energy (PACE) program was designed to address the need for sustainable energy building construction and energy-efficient retrofits. PACE finances "green energy" upgrades and installations for residential and commercial property owners. These energy upgrades include solar panels, heating and cooling systems, water pumps, LED lighting, insulation and more.
Over 220,000 California homes have been upgraded using PACE financing. In theory, PACE is a win-win situation for homeowners and local governments that establish the program. Property owners get free or low-cost energy upgrades and save on energy bills and the city is repaid through a tax assessment on the improved property.
PACE Energy-Efficiency Program's Primary Problem
The primary problem with PACE is that the energy savings did not offset the PACE lien payment on the property tax bill.
The PACE financing program qualifies homeowners based on home equity and not the ability to repay. This causes an unaffordable tax bill. This was also true for many participating mortgaged homeowners paying their property taxes through escrow, whose monthly fees jumped to cover the PACE tax assessment.
These high property tax lien assessments led to numerous defaults, which increase in 40 California counties from 245 in 2016 to 1,110 in 2017. These property homeowners face tax lien foreclosures, which do not eliminate the PACE lien.
A lender's main issue with the PACE program is their first-lien status. The Federal Housing Administration (FHA), the Department of Veteran Affairs (VA), Fannie Mae and Freddie Mac no longer insure mortgages associated with PACE-participating homes since the lien takes repayment priority in a foreclosure.
This so-called “super lien” has become a headache for real estate agents as well, since it stays with the property and makes it difficult for PACE-participating homeowners to sell.
Some cities have voted to end their PACE programs due to increasing complaints and foreclosures.
Many real property related professions are advising their clients against PACE financing.