Property Assessed Clean Energy (PACE) programs offer financing for homeowners who want to purchase roof solar panels, energy-efficient windows or other “green” improvements. However, the programs can make selling your home a more complicated process.
A brief primer: States pass laws that let cities and counties adopt a PACE program at the local level. Homeowners can then apply for financing through a financing program; the one with which I’ve recently had transactional experience is the Home Energy Renovation Opportunity (HERO) loan. The HERO program pays for the energy-efficient upgrades, and then the homeowner repays the HERO assessment through an additional line item on their property tax bill.
What the HERO program doesn’t make terribly obvious is that when the homeowners want to sell their property, they will most likely end up having to pay off any remaining loan balance at close of escrow. PACE loans, like taxes, must be paid off before mortgage collectors get what they’re owed if there’s a foreclosure. As a result, a buyer’s lender will not lend on a property unless that lender will be ahead of a PACE loan if it comes to collecting money. And the PACE program won’t subordinate itself to a new mortgage lender on the property.
So unless you have a cash buyer, you won’t be able to entertain the possibility of not having to pay off the entire PACE lien before you close your home sale. And even then, the new buyer would need to qualify for the loan assumption—as well as be cool with the installment amounts and schedule.
A PACE program may be beneficial for some homeowners, but they should proceed with caution with respect to the amount being financed, the payment schedule and the amount of equity in the property. A homeowner whose property value is not in line with what’s owed could run into a short sale situation if a pricey PACE loan is involved.
And if you’re purchasing a home, make sure to verify through the preliminary title report and other disclosures that there are no unexpected PACE liens against the property.