Seth H. Barron
Property Assessed Clean Energy (“PACE”) is a type of financing program that is implemented by a state or local government. This program is designed to increase the usage of expensive clean energy technology and can be applied to either commercial or residential property. This program has been active in California and Florida since 2007 and 2010 respectively. Enabling Legislation, PACENation, http://pacenation.us/pace-in-california/ (Last visited 6/20/2017); Enabling Legislation, PACENation, http://pacenation.us/pace-in-florida/ (Last visited 6/20/2017). When first implemented, it was slowed by lawsuits challenging the way in which the bonds are issued that fund the program. See Gowen v. State of Fla., No. SC14-2269 (Fla. Nov. 19, 2014); Fla. Bankers Ass’n (FBA) v. State of Fla., No. SC14-1603 (Fla. Aug. 15, 2014). Once those lawsuits were dismissed, these programs exploded in popularity. Since then, state legislators have begun introducing legislation to implement residential PACE programs based on the California and Florida models. In implementing these programs, legislators should ensure that PACE legislation contains appropriate consumer protections.
How PACE Programs work
The way these programs operate varies by state, but they all have similar traits. The majority of PACE financing is done through two finance companies, Renovate America and YGRENE (yes, ”energy” backwards), both of which follow a substantially similar business model. Andrew Khouri, These loans were created to help homeowners, but for some they did the opposite, los angeles times, http://www.latimes.com/business/la-fi-pace-loans-20170604-story.html (Sept. 28, 2017).Through partnership agreements, local governments have allowed both companies to impose special tax assesments on property when an owner enters a financing agreement. Andrew Khouri, These loans were created to help homeowners, but for some they did the opposite, los angeles times, http://www.latimes.com/business/la-fi-pace-loans-20170604-story.html (Sept. 28, 2017). Once a consumer has signed up for the PACE program, the contractor submits the loan to the finance company (Renovate America or YGRENE) and then the finance company will contact the local government body to add the special tax assessment. Consumers must pay tax assements when normal property taxes are collected. For example, in San Diego, California, this occurs every April and December. PACE loans do not not have a monthly payment; therefore consumers must properly budget for this new tax liability. This tax assessment is added to the consumer’s property tax bill and collected by the locality. In addition, the tax assessment also takes a super priority over the mortgage of the property. Id. Therefore if the consumer defaults on the PACE loan their home will be foreclosed on. Further, Renovate America and YGRENE use construction companies disguised as door-to-door salesman to sell these loans to consumers.
Consumer Problems
While the goal of making clean energy available to all consumers is noble it has been done in such a way that results in unexepected forclosures and the loss of a consumers life’s work. PACE loans are currently not subject to the Truth in Lending Act, and they are not considered a mortgage, so there is no need for the traditional broker.Id. Without a mortgage broker present, a PACE loan can be finalized without anybody having any legal duty to help you understand the consquences of signing these loans. Id. If PACE loans were subject to the TILA consumers would be better informed about their choices. Unregulated PACE loans (as it currently stands) have left companies to decide how they wish to disclose the financing cost, interest rate, and payment structure to consumers. As there is no duty of disclosure, consumers are given misleading contracts by untrained contractors, not mortgage brokers. Further, the companies that empower these contractors to use their financing programs perform little oversight. Kirsten Grind, Renovate America One of America’s Fastest-Growing Lenders, Didn’t Disclose It Made Payments to Some Borrowers, Wall Street Journal, https://www.wsj.com/articles/americas-fastest-growing-loan-category-has-eerie-echoes-of-subprime-crisis-1484060984 (Mar. 8, 2017).
Renovate America employes roughly 600 people, most of which do not conduct oversight over the 8,000 contracts Renovate America currently holds. Id. Consumers are often unaware of how they are supposed to repay the loans and are confused because they think it is a government program that does not need to be . Id. While many are wary of a government program that allows you to renovate your home on a fixed budget, the elder population, find such a program . The elder community typically will not qualify for a traditional loan because they require a credit check and an inquiry into their personal income. PACE loans avoid all of those protections and are only concerned with whether the applicants house will have sufficient equity to repay the loan when the consumer . Id. These consumers are now beginning to default on their property tax obligations and they are being foreclosed on. See Kristen Grind, More Borrowers Are Defaulting on Their ‘Green’ PACE Loans, Wall Street Journal, https://www.wsj.com/articles/more-borrowers-are-defaulting-on-their-green-pace-loans-1502789401 (Aug. 15, 2017) This problem will only continue to grow as PACE expands into more states.
What Can be Done?
The first step in fixing this problem is quite simple: the Truth In Lending Act should apply to these loans so that consumers are getting clear and concise disclosures about the loans. Further, local governments should make it a priority to include in their agreements with the financing companies that there will be an inquiry into a consumer’s ability to repay the loan. In Massachusetts, there are no current residential PACE programs. However, there is a bill to enable the Massachusetts Department of Energy Resources and Massachusetts Development Finance Agency to implement a PACE program. H.R. 1879, 190th Leg. https://malegislature.gov/Bills/190/S1879 (Mass. 2017). The bill is only 4 lines long and mentions nothing about consumer protections. Id. The bill should at a minimum require clear and concise disclosures for consumers about finance charges, interest rates and payment schedule. States like Massachusetts pride themselves on being consumer friendly, but the need for consumer protections often get forgotten in the excitement of clean energy and fail to protect the consumers until there is a crisis. This bill provides us with an opportunity to make sure that PACE loans do not create the next great recession. We can protect consumers cheaply and easily by mandating disclosures. Interested parties should contact Senator Marc R. Pacheco who is sponsoring this bill. His office telephone is 617-722-1551.