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 More than 50,000 California households have signed up for Property
Assessed Clean Energy (PACE) financing since state legislators
passed a law in 2008 allowing residents to borrow money for such
things as solar panels and energy-efficient windows. The financing
method, authorized by cities and counties, and funded by venture
capital-backed startups like Renovate America Inc, Renew Financial
LLC and Ygrene Energy Fund Inc, is then paid off through special
assessments on property tax bills.
Because the improvements stay with the home, and subsequent owners
will reap the benefits of them, the assessments are intended to
remain with the property in the event of a sale.
But some homeowners trying to sell their houses have found potential
buyers scared off by the higher tax assessments. And now realtors in
the state are organizing against PACE, saying it makes getting new
mortgages much tougher and can leave sellers stuck in their homes.
 In Riverside County, an inland part of Southern California where
PACE has been particularly popular, Paul Herrera, government affairs
director for two realtor groups, said he gets daily phone calls from
agents reporting difficulties selling homes with PACE assessments.
Sancho Lopez, a Riverside police officer and homeowner in an
adjacent county, experienced the problem first-hand. He and his wife
financed the $40,000 cost of 21 dual-pane, energy efficient windows
and two sliding doors with a PACE loan. When they decided to sell
their house, their realtor warned them it wouldn’t be easy.
The house sat on the market for 10 months, and it is in escrow now,
Lopez said, only because he has agreed to pay off the loan balance -
now $46,000 because of interest and fees.
"I wouldn't ever do it again," Lopez said of the PACE program he
used to pay for the windows.
MORTGAGE HIERARCHY
Banks dislike PACE loans because they take precedent over mortgage
debt in the event of a default, upending a basic tenet of the
market.
“There is a general principle in mortgage banking: first in time,
first in line," said Pete Mills, senior vice president with the
Washington-based Mortgage Bankers Association. "Taxing authorities
are always a risk of jumping ahead, but that's a far different
matter than a private company selling energy improvements being able
to jump ahead."
Both the Federal Housing Administration and the Federal Housing
Finance Agency, while saying they support energy efficiency, have
not supported the program up to now because the first lien position
of mortgages is not assured. In 2010, the Federal Housing Finance
Agency directed mortgage finance giants Fannie Mae and Freddie Mac
not to buy mortgages on properties with PACE liens.
 That has exacerbated the problems in Riverside County, Herrera said,
where most mortgages are backed by Fannie or Freddie or insured by
the FHA.
The federal housing regulators’ reluctance has caught the attention
of President Obama, who has said he wants the program to succeed and
grow because it helps citizens participate in reducing energy
consumption and greenhouse gas emissions.
In August, the White House said it will work with the Federal
Housing Administration to boost adoption of PACE financing
nationwide. Nearly 30 states have passed laws to enable residential
PACE, but states other than California have sat on the sidelines
pending a resolution to the controversy.
JOLT FOR GREEN ECONOMY
The PACE program was created at a time when California's
construction sector had been hit hard by the housing crisis. A new
funding source for green home improvements was seen as a way of both
putting contractors back to work and helping meet climate goals.
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Seven years on, supporters say the program is working. Renovate
America, which has financed 90 percent of the residential PACE deals
in California through its HERO program, said its 47,000 projects
have created more than 8,000 jobs and reduced carbon dioxide
emissions by an amount equal to taking 330,000 sport utility
vehicles off the road for a year.
Wall Street also likes it. Investors have snapped up hundreds of
millions of dollars of bonds backed by PACE projects, which are
regarded as low risk because they enjoy priority over a mortgage.
Renovate America has raised more than $600 million through bond
sales over the last two years.
“PACE is the only financing that allows the seller to transfer the
remaining debt to a new buyer," Renovate America spokeswoman Ellen
Qualls points out, noting that even under current federal policy,
about 45% of home sellers with PACE financing from her company have
been able to pass the assessments on to new buyers.
It's difficult to quantify how many homeowners have had difficulty
selling their homes since real estate agents don't keep data on
deals that don't happen, Herrera said.
Rich Simonin, owner of Westcoe Realtors, a Riverside County real
estate company that sells about 700 homes a year, said PACE
assessments pose challenges in about 5 to 10 percent of his deals.
Renovate America has responded to criticism from realtors and others
by improving disclosures in its contracts and creating a division
focused on resolving issues with home sales.
"I'm not a realtor. I'm a software guy," McNeill said. "When you
create something you tend to not know 100 percent about where you
are going to go until you get feedback."
Renovate has also started allowing homeowners who ask – generally
when trying to refinance or sell - to subordinate their assessments
through a separate contract. But if subordinating PACE liens becomes
the industry norm, providers argue that could hurt the credit
quality of their securities and raise borrowing costs when they
issue bonds.
In the meantime, people continue to be caught in the middle.
Steve Lista used Riverside County's PACE program to pay for a nearly
$27,000 prepaid lease of solar panels for his Eastvale home. The
account manager for an automobile auction company put his 5-bedroom
house on the market in June, but despite receiving at least six
offers couldn't find a buyer willing to take on the $3,000-a-year
assessment.
"No one was comfortable taking over the terms," he said.
Lista, who had hoped to sell his home to pay off some debt, took his
house off the market last week.
(Reporting by Nichola Groom; Additional reporting by Will
Caiger-Smith; Editing by Terry Wade and Sue Horton)
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