Don't Get Burned by PACE Loans and Finance - Property Assessed Clean Energy or PACE Financing

Posted on April 20, 2023

PACE Loans: What You Need to Know Before Signing Property Assessed Clean Energy or PACE Financing

PACE loans are becoming a popular way for homeowners to finance energy-efficient home upgrades, but they come with significant issues that can create long-term problems. In this blog, we’ll explore the pitfalls of PACE loans, including high costs, limited consumer protection, and challenges when selling your home. We’ll also offer better alternatives for financing sustainable home improvements, helping you make informed decisions.

Key Takeaways

Understanding PACE Loans:	Property Assessed Clean Energy (PACE) loans allow homeowners to finance energy-efficient home improvements through an assessment added to their property tax bill, with repayment tied to the property rather than the homeowner.
Benefits of PACE Loans:	They offer no upfront costs, and the loan transfers with property ownership. Homeowners can finance improvements like solar panels and HVAC upgrades to reduce energy bills.
Drawbacks of PACE Loans:	High-interest rates, long payback periods, and limited consumer protections make these loans costly and risky. Fraudulent contractors or disputes can be difficult to resolve.
Risk of Property Liens:	PACE loans establish priority liens on properties, making it difficult to sell or refinance a home due to the precedence these liens have over mortgages.
Difficulty in Selling or Refinancing:	The priority lien complicates property sales and transfers, as potential buyers may be hesitant to assume responsibility for the loan.

Understanding Property Assessed Clean Energy (PACE) Loans as a Property Owner for Home Improvement

PACE loans are a financing option that allows homeowners to pay for energy efficiency and renewable energy projects through an assessment added to their property tax bill. This can include installing solar panels, upgrading HVAC systems, or adding insulation. The unique aspect of PACE loans is that they are attached to the property itself, not the homeowner, which means they can be transferred when the property is sold.

Definition And Purpose

Property Assessed Clean Energy (PACE) loans are an innovative financing mechanism. Its design helps property owners finance energy efficiency and renewable energy improvements on their private properties.

The primary purpose of PACE financing lies in promoting environmentally sustainable practices among residential and commercial property owners while reducing overall energy consumption.

In turn, this lowers utility bills, decreases carbon footprint, and potentially increases the property value for homeowners. For instance, some projects eligible for PACE financing are installing solar panels or replacing outdated heating and cooling systems with more efficient options.

Risks And Problems With PACE Loans: What you need to know as a Property Owner or Homeowner

PACE loans are not without risks and problems, including high-interest rates and fees, long payback periods, limited consumer protection, potential property liens that take priority over mortgage payments, and difficulty transferring property ownership.

High-Interest Rates And Fees

One of the biggest drawbacks is the high interest rates and fees associated with PACE loans. Homeowners often end up paying significantly more over time compared to traditional financing options, like home equity loans or government-backed loans. The combination of interest and additional fees makes PACE loans an expensive option for many homeowners.

For instance, a homeowner might find that a $15,000 PACE loan ends up costing close to $30,000 by the time of full payment due to compounding interest over the 20-year payback period. In comparison, other types of loans could offer more favorable interest rates and repayment terms.

Long Payback Periods

Another major drawback of PACE loans is the lengthy payback periods, which can extend up to 20 years. While spreading out payments over such a long time may result in lower monthly costs, homeowners end up paying much more in interest. This extended financial commitment can also complicate future financial plans, especially if the homeowner wants to sell or refinance their home.

For example, if a homeowner with a 20-year loan decides to sell the property after 5 years, the outstanding balance on the loan could be a deterrent to potential buyers, as they would have to assume responsibility for the loan.

Limited Consumer Protection

PACE loans lack the regulatory oversight of traditional financing, which can expose homeowners to unethical practices. Many homeowners report misleading contractors who overcharge for services or fail to deliver on certain upgrades. Additionally, unlike mortgage loans, PACE loans have fewer protections in place if something goes wrong during the installation process. This leaves homeowners with limited recourse for addressing disputes or contractor issues.

Potential For Property Liens

One of the major risks associated with property-assessed clean energy (PACE) loans is the potential for property liens. PACE loans are attached to a homeowner’s property as a priority lien, which means that these loans take precedence over other types of liens, including mortgages.

This can create problems when homeowners try to sell or refinance their homes, as they may not be able to pay off the PACE loan before transferring ownership.

For example, Missouri homeowners who used PACE loans found themselves trapped in debt and at risk of losing their homes due to this issue. Additionally, priority liens established by PACE programs can lead to problems for mortgage-backed securities valuations.

Difficulty In Transferring Ownership

One of the most critical risks of PACE loans is that they establish a priority lien on your property, which means that the PACE loan takes precedence over your mortgage. This can cause significant issues when trying to sell or refinance a property, as lenders are often unwilling to issue new loans until the PACE loan is fully paid off.

This priority lien can make it difficult for homeowners to transfer ownership or refinance their mortgage, reducing the property’s marketability.

For example, California homeowners needed help when trying to sell their homes. This was after using PACE financing for energy-efficient upgrades. Some were forced into lengthy negotiations with prospective buyers. Buyers were hesitant to take over payments or risk a tax increase. Banks refused their mortgages due to concerns about added debt if there was any defaulting going forward, causing some to lose out on sales entirely.

Current News About PACE Loan Options for Renewables

Nevada Co-op Receives $80.3 Million PACE Loan for Solar, Storage Systems

The Department of Agriculture’s Powering Affordable Clean Energy (PACE) program awarded an $80.3 million loan to <a href=”https://vea.coop/” target=”_blank” rel=”noopener”>Valley Electric Association in Nevada for two clean energy projects. These include a 35-megawatt energy storage system for Pahrump and a 2-megawatt solar and storage system for Fish Lake Valley. These projects, expected to start in 2025 and finish in 2027, aim to serve around 3,500 homes while improving grid resilience, especially in areas prone to wildfires. The loan covers 80% of the cost, with the rest supported by federal tax incentives and loan forgiveness. The PACE program is part of the Inflation Reduction Act, offering low-interest loans for clean energy projects in rural areas.

The Fish Lake Valley project addresses a critical vulnerability, as the area is serviced by a 55-kilovolt radial line that crosses regions with extreme wildfire risk, increasing the likelihood of public safety power shutoffs. The new solar and energy storage system will enhance grid stability and reduce the potential for outages. Additionally, Valley Electric is expected to benefit from tax credits, including a 30% direct-pay investment tax credit and a 10% bonus incentive for being in an “energy community” impacted by the energy transition. These financial incentives, along with partial loan forgiveness, will significantly reduce the overall cost of the projects.

Conclusion: The Need For Improved Consumer Protection And Finance and Loan Options with PACE Program and PACE Funding

In conclusion, we cannot ignore the risks and problems associated with property-assessed clean energy (PACE) loans. Even though they may seem like an attractive option for homeowners looking to make energy-efficient upgrades to their homes.

PACE programs need improvement due to high-interest rates, limited consumer protection, potential property liens, and difficulty transferring ownership.

Homeowners should consider alternatives. They can choose government financing programs or home equity loans that offer lower costs and more secure options.

Are you considering solar and battery storage installations but worried about financing options like PACE loans? With high-interest rates and potential complications during property sales, PACE loans might not be the best choice for everyone. At DroneQuote, we provide smarter, more transparent financing alternatives to help you achieve energy efficiency without the headaches.

Get started today with a free, no-obligation quote from DroneQuote. Our expert team will guide you through the process, offering affordable solutions tailored to your needs. Click here to explore your options and make the switch to solar—without the risks associated with PACE loans; or click below!

FAQs:

What are Property Assessed Clean Energy (PACE) loans, and why have they become an issue?

<p>PACE loans let homeowners fund energy-efficient home upgrades through their property taxes. However, they have been criticized for high-interest rates, lengthy repayment terms, and transfer of property ownership issues.

<strong> How do PACE loans affect a homeowner’s ability to sell their property?

If a homeowner has an outstanding PACE loan when selling their home, it may complicate or even prevent the sale. Potential buyers could be deterred by the added cost of taking on an existing loan and their mortgage payments.

Are there any alternatives to PACE financing for energy-efficient home improvements?

Lenders offer several financing options for energy-efficient upgrades. This includes traditional personal loans or lines of credit. Also, utilities or municipalities provide government-backed loans such as FHA Title I Loans and local incentive programs.

If homeowners believe they were misled into taking a PACE loan, what steps can they take?

Contact your lending company directly for PACE loan issues. If that fails, filing a complaint with state regulators or seeking legal counsel may be necessary.