In case you haven’t noticed, it’s getting hot outside… As we begin the summer months with its inevitable sunshine, we have been keeping our eyes on one of the hottest—pun intended—topics revolving around the real estate industry in recent months: PACE financing and solar power.
There has been some buzz that PACE (Property Assessed Clean Energy) loans are deceptive to homeowners that take on financing the special loans to help improve the energy efficiency of their properties. Recently, Congress has introduced a new bill that will cause more red tape for processing a PACE loan. While the bill does not affect Commercial PACE (C-PACE), it does tighten the regulations for residential PACE (R-PACE) administrators and borrowers.
While the current bill, Bill 838 also known as the PACE Act of 2017, has been introduced to “protect consumers” from “predatory” PACE loans, there are many within the clean energy and real estate industries that are rushing to the PACE program’s defense.
PACE loans are financed through homeowners’ property taxes, giving it a unique style of repaying those new solar panels added to a roof. The PACE program pays for the cost of those solar panels—or other improvement made to a home for energy efficiency—up front and allows the owner of the property to pay back the total amount within their property tax installments. This structure has helped PACE programs raise over $3.4B by the end of 2016.
With this intense period of growth, the solar energy has boomed in job creation. In 2016, one in 50 jobs created in the United States were in the solar energy. According to an article by the Huffington Post, it was reported that the industry grew seventeen times faster than the overall U.S. economy, with a total 260,077 solar jobs created in 2016. The Solar Foundation states that this is a 25% increase compared to 2015.
Andrea Luecke, President and Executive Director of the Solar Foundation, told the Washington Post: “Jobs have nearly tripled since we first started tracking them in 2010 and this is the fourth consecutive year that the solar industry increased its jobs by twenty percent or more.”
Solar is now the second largest U.S. energy industry, trailing the Oil and Petroleum industry.
If the bill is pushed through as it currently stands, too much red tape and restructuring to make PACE like a mortgage can hurt both lenders and borrowers, as well as the job market. The more regulations in place, the harder it is for a lender to accrue the money to loan out for projects to see them through completion. This would ultimately and theoretically damage the growing solar industry, costing American jobs.
Here’s how the current financing structure works: homeowners pay their PACE bills as part of the property tax installments. If they decide to sell the property, they won’t continue to pay those amounts because the PACE program stays with the property. The new homeowners will now pay for these energy efficient upgrades, while receiving lower utility bills due to the energy efficiency of their new home. The previous owners have no further involvement paying the PACE program back.
Paying property taxes is important not only for the owner, but also their community. We’ve already discussed the good property taxes do for local communities. But there are risks for those who let their property tax bills become delinquent. When a property tax bill isn’t paid, the property’s delinquent amounts can then be sold to a tax certificate buyer. This creates a lien on the property. If the owner doesn’t pay back the amounts to the certificate buyer, the buyer can obtain the deed to the property and become the new owner. When a property with PACE enhancements becomes delinquent, a PACE lien is given the top priority, even over the mortgage.