Have you had someone knock on your door pitching environmental upgrades you could have through an easy-to-get loan program? For many consumers, the loan that would help them finance energy upgrades like added insulation, double-pane windows, solar panels, artificial turf, sounds good until they discover the real loan terms after a lien is placed on their home. A new California law will help consumers better understand the risks of these loans and protect them from predatory lending.
California Gov. Jerry Brown recently signed a bill backed by the California Association of Realtors that will require Property Assessed Clean Energy (PACE) loans to provide substantially more disclosures, so customers can truly understand the product they are purchasing. Assembly Bill 2693 - Preservation and Consumer Protections Act, which goes into effect on January 1, 2017, puts in place a new disclosure that requires a detailed description of how much more customers will need to pay off the debt from a PACE loan, including hidden risks to the lending program, as well as a three-day right of rescission.
A PACE loan allows a homeowner to borrow money to finance energy and water saving upgrades. The loan is tied to the property, not the homeowner, and is repaid through an assessment added to the homeowner's annual or semi-annual property tax bill. There are no credit requirements for a PACE loan, only that homeowners must have at least 10 percent equity in their home to qualify and they must be current on their mortgage and taxes.
Homeowners purchase environmental upgrades through the contractor doing the work. That contractor then connects the homeowners with one of the PACE providers to finance the work. Many companies providing these loans are unregulated and their financing terms and conditions are not adequately disclosed.
PACE loans are often in the 8-12 percent interest rate range and because the debt runs with the house, many homeowners may think when they sell the home they will sell the debt, as well. Many lenders refuse to allow these loans because they take primary position over the mortgage. If the cost of repaying the PACE loan and any mortgages on the property exceeds the home's purchase price, the seller will be forced to make up the difference.
"Energy efficient updates could lower utility bills but, as Realtors, we feel obligated to make sure homeowners know the risks of these loans," said Karen Trolan, president of the Silicon Valley Association of Realtors. "The new law will require that homeowners seeking a PACE loan be provided with a disclosure document stating they may not be able to sell or refinance their home unless the PACE loan is paid off in its entirety, as well as annual percentage rates, product costs, closing costs, and fees."
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.