Beware of Green Improvement Loans – You Might End Up Regretting Them
Many homeowners are jumping on the bandwagon and using PACE (Property Assessed Clean Energy) loans to help them purchase energy saving items such as new energy-efficient windows, solar panels, and updated climate control systems in the Pasadena area. What many of these homeowners may not realize is that these loans may be putting them at financial risk.
The Super Priority Lien
PACE loans being taken out by homeowners in California ranges from as low as $5,000 to as high as $40,000 or more. The loans are used to finance a wide range of energy saving improvements, including heat pumps, solar water heaters, solar power systems, and double or triple pane windows. Under the current program, the government funds these improvements for both commercial and residential properties and then be paid back over a specified period of time.
What most of those who take out one of the PACE loans may not realize, according to a number of credit union executives, is that they come with a purposely built-in problem. These loans come with a “super-priority lien” as part of the deal. This particular type of lien supersedes any existing lien on the property, including the loan used to purchase the property. In other words, the PACE loan establishes itself in the “First Position” in the list of liens on any property.
What Does All of This Mean?
Essentially what this is saying, is that while a PACE loan might look and act much like any other type of loan, since the government is funding it, the PACE loan is in all reality just like a tax lien on your property. Thus if you are planning to try and refinance your home, try to modify your loan, or sell it, you will first have to pay off the PACE loan in full.
According to Kevin Pendergraft, CEO of Pacific Community Credit Union,” If a consumer runs into financial problems, they will never be able to avail themselves of bankruptcy protection from this obligation. This is not stated up front by the people who are selling these loans.” Meaning that as long as you have a PACE loan, you may have no way out of your mortgage short of defaulting on your PACE loan and letting the government take your home, leaving you thousands of dollars in debt.
Worse yet is that you can’t go into foreclosure or bankrupt out of the remaining debt as you will no longer own the house, it will belong to the U.S. Government. There is some concern among lenders and realtors that PACE could begin to have a negative impact on the housing market in Pasadena and California in general
The reason for this is that Freddie Mac and Fannie Mae, both government sponsored housing loan programs are not permitted to purchase mortgages from any financial institution that are encumbered with a PACE loan.
A Final Note from the Credit Unions
Local credit unions are afraid their options to help their members will become severely limited once they have this type of lien attached to their property, especially if the area suffers another recession. According to Courtney Jensen, a legislative advocate with the California Credit Union League,” We’re starting to see problems with our credit members.” Jensen also noted that California has the largest percentage of these loans in the country with over 56,000 California homeowners currently enrolled in the PACE program.