PACE (Property Assessed Clean Energy) Loans allow homeowners to finance 100% of energy efficient, renewable energy and water conservation upgrades to just about any property – homes, commercial, industrial, non-profit, and agricultural. Many of these upgrades are not only costly but require a substantial amount of upfront funds. Families have found PACE Loans to be very attractive in their efforts to upgrade their property and save monthly on their utility bills because there is no upfront cost and income requirements which makes for fast approvals. While PACE Loans may have been intended to be an answered prayer for this specific market, I’m positive that it is putting homeowners at risk of losing their home and this will contribute to both mortgage and tax defaults and increase our current housing unaffordability crisis. In short PACE Loans will be The Next Big Short.
PACE Loans are putting homeowners at risk of losing their home because loans are primarily based on a homeowner’s property equity and not their ability to repay the loan. The loans are repaid through a voluntary added Annual Property Tax Assessment on top of their existing Property Tax Bill. Like any other property taxes it is a Super Lien and holds the first position even to homeowners existing mortgage. Most homeowners enter the program in an effort to save money on their utility bill but the cost to save money on their utility bill is considerably more than the utility bill itself when you count up the cost of the assessment, interest, fees and term of financing. I have seen property taxes increase over 539% taking someone’s property taxes from $1,215 annually to $6,523 without a change in their utility bills. This drastic increase has put a financial strain on a Retired Widow Inglewood Resident on a fixed income.
Homeowners traditionally pay their property taxes either directly to the tax collector or through their mortgage payment by way of an impound/escrow account. Failure to have the money to pay the increased property tax bill whether it is on a monthly basis through their mortgage payment or semiannual when their property tax bill becomes due will result in increased mortgage and or property tax defaults putting homeowners at risk of foreclosure.
PACE Loans are offered to homeowners by aggressive contractors and sales representatives that engage in door-to-door sales and telemarketing. Some of these companies provide lucrative compensation and referral fees that put homeowners at risk of being sold and over charged for products and services that may have little to no beneficial interest to them. The other problem with contractors and sales representatives offering PACE Loans they are unqualified, unlicensed and unregistered individuals engaging homeowners in mortgage and finance related activities which is flat out negligent and a recipe for disaster. Many of these individuals will tell a homeowner any and everything to obtain the sell to include concealing the true nature of the obligation. Unfortunately, homeowners have been told by contractors and sales representatives that the program is a grant, it is free, it will only cost a few hundred dollars a month only for a homeowner to discover months down the line all those claims were completely untrue but by then the damage has already been done.
Homeowners have very few options once they sign up for the assessment and they later want to get rid of this obligation that they initially thought was going to save them money and pay for itself:
1. They can continue to pay the assessment through their property tax bill
2. Pay down the assessment to reduce their monthly obligation
3. Payoff the assessment in full to remove the assessment from the property taxes
In the event a homeowner cannot exercise the above 3 options to keep their home, are unable to refinance their home through traditional financing to reduce their monthly mortgage payment and property taxes they will be forced to sell their home or be foreclosed upon.
Both mortgage and tax defaults consequently will have a negative effect on housing affordability and increase homelessness. You have been warned that PACE Loans may have started out as a great idea but has more negative implications than positive outcomes as a result of their existing guidelines. I don’t say proceed with caution I say don’t proceed at all!
For more mortgage and real estate information you may contact:
Lacy Robertson “The Hardest Working Woman in Mortgage and Real Estate Nationwide” directly at 714-914-7254, Lacy@LacyRobertsonRealty.com or http://www.LacyRobertsonRealty.com | BRE 01915380 | NMLS 949374