Local governments use Property Assessed Clean Energy (PACE) programs to help property owners finance renewable energy and energy efficiency improvements on residential and commercial properties. Commercial properties may include multi-family residential, industrial and agricultural properties. The PACE concept began as a pilot project in Berkeley, California, in 2008. Since then, the vast majority of states with legislation authorizing PACE programs have authorized both residential and commercial PACE programs, but a few states authorized only one or the other.
PACE programs enable property owners to avoid high upfront costs related to installing clean energy technology, such as solar panels, or energy-saving retrofits. A local government will generally implement a state-authorized PACE program by designating an improvement district and issuing a bond secured by the real property within the district to raise capital. Property owners within the designated improvement district can choose to opt-in to a PACE financing program, but they are not required to do so. The PACE financing program enables access to low interest, long-term loans. Property owners may also see reduced energy bills. PACE programs allow property owners to pay for these improvements over time through assessments on their property tax bills. Once a property owner opts into a PACE financing program, the property remains subject to the PACE arrangement even if it is sold, transferred or foreclosed upon. The remainder of the assessment is a lien on the property.
The Federal Housing Finance Agency (FHFA) raised concerns in a July 6, 2010, statement regarding the seniority of PACE liens over existing mortgages and called for a pause in PACE program implementation. FHFA also directed Fannie Mae and Freddie Mac not to purchase any mortgage where PACE financing with a priority lien was placed on the underlying property. The State of California, Sonoma and Placer Counties, the City of Palm Desert and others sued the FHFA. On March 19, 2013, the United States Court of Appeals for the Ninth Circuit upheld the FHFA’s directive. Since then, many states have passed new legislation to address amend the status of PACE liens to resolve FHFA concerns.
On July 19, 2016, the Federal Housing Administration (FHA) issued guidance that the FHA would approve, purchase, and refinance mortgage applications in states that do not give PACE obligations priority status over FHA mortgage liens and where the PACE assessment transfers from one property owner to the next, including through foreclosure sale. The Department of Veterans Affairs also issued guidance, clarifying that veterans can take advantage of both PACE programs as well as the VA Home Loan Guaranty benefit.
Last updated March 2019