PACE (Property Assessed Clean Energy) is a new way to finance energy efficiency and water conservation upgrades to buildings. PACE pays for new heating and cooling systems, lighting improvements, solar panels, water pumps, insulation, and more for almost any property – homes, commercial, industrial, non-profit, and agricultural. The idea is great – who doesn’t want more energy efficiency? Lower Energy Bills? Better Environmental Health?
But real estate agents, closers, abstractors and title companies, BEWARE. We may have a problem.
The PACE advertisement reads:
“Property owners across the US are using PACE because it saves them money and makes their buildings more valuable. PACE pays for 100% of a project’s costs and is repaid for up to 20 years with an assessment added to the property’s tax bill. PACE financing stays with the building upon sale…”
While that is a true statement, PACE financing does stay with the building upon sale, it’s not quite that simple. Once PACE is added as an assessment, it becomes part of the real estate taxes. And, as we all know, real estate TAXES are a FIRST LIEN.
So, let’s say Home Owner Holly uses PACE to install $30,000 worth of PACE-energy efficient fixtures (with a 5% interest rate on the 20 year PACE Assessment) and enjoys low energy bills. Two years later, Holly is offered a new job out of town. She lists the home with Realtor Rick. Rick is excited because he is an energy efficiency advocate and lists all of the energy upgrades for this fine home, selling for only $249,900. Bobby Buyer comes along and makes an offer of $240,000. Holly agrees. She is thinking the buyer will just take over the house and taxes.
Bobby Buyer applies for a loan of $192,00. They order title work. The title company and abstractor know that the $28,000 is a first lien along with the taxes. Holly has not thought to use any of the money saved from her lower electric bills to pay the PACE lien. She thought PACE told her the PACE financing would “stay with the building.” She never thought she might have to cough up the money at closing. . Bobby’s lender does not want to be in Second position behind a $28,000 PACE lien, so now the conundrum. Where does that extra $28,000 in PACE money come from at closing?
I’m not saying PACE’s a bad idea, I love energy efficiency! But let’s make sure everyone understands PACE and how it works.