Realtors support the introduction of the Protecting Americans from Credit Entanglements Act, or PACE Act, a bill introduced by California Representatives Brad Sherman (D-Calif.) and Ed Royce (R-Calif.). This proposed legislation would regulate Property Assessed Clean Energy (PACE) loans. Senators Tom Cotton (R-Ark.), Marco Rubio (R-Fla.) and John Boozman (R-Ark.) have introduced a companion bill in the Senate.
"The use of Property Assessed Clean Energy (PACE) liens, which lacks industry oversight, has grown more in California than in any other state. Without federal regulatory oversight for these types of loans, unknowing homeowners are unable to compare costs, and terms and conditions, and are vulnerable to rates and fees that are in some cases predatory," said Geoff McIntosh, the state Realtor group president.
McIntosh added that the PACE bill will allow the Consumer Financial Protection Bureau to regulate the companies selling PACE loans and protect consumers from hard sales tactics that often lead to abuse.
PACE programs allow homeowners to finance through an assessment on their property various energy conservation-related improvements, such as energy-rated water heaters, windows, and solar panels. The homeowner's loan for the energy efficient upgrades is tied to the property and repaid through an assessment added to the homeowner's property tax bill. The loans are repaid over time, for as long as 20 years. Since the loan stays with the property, it is transferred to the new property owner upon purchase.
Though PACE loans are a way to finance important energy upgrades, Realtors caution there are hidden risks that should concern homeowners. Paying off a PACE lien will reduce the amount the homeowner can realize should they decide to sell their home in the future. Homeowners with a PACE loan may not be able to refinance their mortgage with a conventional mortgage.
Moreover, home sellers with PACE liens may have a hard time finding potential buyers for their home, since lenders may not allow buyers to purchase the property unless the lien is paid off before the close of escrow. This will limit the home seller's buyer pool.
Denise Welsh, president of the Silicon Valley Association of Realtors, said Realtors are worried consumers can be tempted by the low monthly payments which may be completely offset by energy and water bill savings and overlook the high cost of some PACE financing. "Interest rates and costs of PACE loans are generally higher than mortgage loans. As Realtors, we feel it is our duty to inform our clients and make them aware of our concerns about the program and predatory lenders," said Welsh.
Last year the California Association of Realtors successfully sponsored AB 2693 (Dababneh), which requires Truth in Lending Integrated Disclosure - or TRID-like disclosures - be provided to a property owner participating in a PACE program, a three-day right of rescission, and a notice that the property owner may not be able to refinance or sell without paying off the PACE loan. Gov. Jerry Brown signed the bill into law last fall.
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.