A tale of woe comes to us from the Left coast. Trouble has reared its head for Californians who enrolled in a special government program designed to allow them to use taxpayer funds to upgrade their homes with solar panels, wind turbines, unicorn flatulence converters and any number of other green energy improvements. Tens of thousands of Californians signed up for the Property Assessed Clean Energy (PACE) financing program which provided them with funding for installing such energy efficient goodies over the past several years, but now they’re finding their homes stalled on the market when they want to sell them. Apparently buyers aren’t too enthused about picking up the tab for the assessment. (Yahoo News)
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.
This is a program which President Obama has been touting all across the country. (More on that below) But the trouble these homeowners are facing is just the tip of the iceberg. First of all, they knew (or should have known) what they were getting into when they signed up for the program. They received money up front for the improvements, but it had to be repaid somewhere along the line. They had their homes assessed at a higher rate which makes the tax bill a bit higher. With real estate still being something of a buyer’s market across much of the country, who wants to sign on for a new home that’s going to have a built-in take hike on it? It’s hard to have too much sympathy on that score.
But what happens if they can’t sell their homes because of this added financial burden on the buyer and they go into default? Previously, the PACE money was paid back first under any default settlement which at least spared a bit of burden to the taxpayers. But the mortgage companies didn’t like that very much, so in August the President announced a change which would “remove existing barriers” to the program. You know what that means, right?
PACE obligations enjoy first-lien status in most states, making municipalities first in line to be repaid — ahead of the mortgage agencies, in case of default — and mortgage agencies don’t like that.
So today, the White House and the Federal Housing Administration (FHA) established a new PACE guidance aiming to “remove existing barriers and accelerate the use of PACE financing for single-family housing.” (The FHA guidance letter can be found here.)
According to the California Association of Realtors, the FHA guidance will require PACE liens to be subordinate to FHA single-family first-mortgage financing.
Translation: if the homeowners couldn’t figure out what this was going to do to their home’s resale value and wind up going under, the FHA agency will get their money back first and you (as the taxpayer) will get stuck with the bill for the rest of the value lost in the default. But hey… don’t let that bother you. The President knows that you don’t mind taking on a bit more debt as long as you’re helping to save the climate.
Don’t you feel all warm and fuzzy, God Bless America now?