Dear state legislator:
On behalf of our organizations and the thousands of citizens we represent in your state, we write to you in opposition to the use of property assessed clean energy (PACE) loans, a complicated financing scheme that hurts homeowners across the country.
Under PACE loans, municipalities create energy assessment districts and issue bonds that allow homeowners and businesses the ability to finance alternative energy and energy efficiency projects. The loans can be issued by third parties, but are secured by a property tax lien and collected through municipal tax bills. Since they use the municipal tax system, PACE loans deserve more scrutiny than other types of private sector financial products.
Borrowers are often not aware of the consequences and risks of PACE loans. Borrows can face tax foreclosure due to non-payment since a lien is placed on the property. Unlike a mortgage, PACE loans do not consider the borrower’s ability to pay. The interest and fees on these loans typically range between 8% to 12% and have a term of anywhere between 5 and 25 years. The high rates and long terms can impact the value of a property when a homeowner tries to sell since PACE loans are attached to the property, not the borrower.
Estimating the value of energy efficiency upgrades is an uncertain and complex task that homeowners may not fully understand. It involves a considerable amount of speculation over what future energy prices will be. If energy prices fall, alternative energy and efficiency upgrades become less valuable. Homeowners still face higher monthly payments regardless of whether the promised energy savings happen.
PACE loans also face complexities involving federal housing regulation and programs. Homeowners may be unaware that PACE loans do not face the same regulatory disclosure requirements (such as Truth in Lending) as do mortgages and other financial products. Additionally, Fannie Mae and Freddie Mac are prohibited from purchasing properties with first-lien PACE loans attached to them, as is often the case. These complexities can make it difficult for a PACE loan borrower to sell their property.
Municipalities have great power to levy taxes and place liens on a property. PACE loans should face additional scrutiny than other types of financial products since they use the municipal tax system. Given the possible harmful impacts PACE loans can impose on homeowners and their inherent complexity, we encourage you to review your state’s existing laws around PACE loans and work to pass legislation that repeals or prevents their use. We thank you for your consideration of this important issue.