Client Alert: From the Scheer Law Group: PACE Financing: May not be as Sunny as Predicted for Lenders or Borrowers

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To All SLG Clients and Affiliates.
From: Spencer Scheer
Date:  March21, 2017
Client Alert: From the Scheer Law Group:

Subject: PACE Financing: May not be as Sunny as Predicted for Lenders or Borrowers.

Going green” costs money. Previously, developers could offer a “green home” as a purchase incentive. The problem is that the cost was “baked” into the purchase price via a long term loan secured by a lien on the purchased property. Many purchasers would realize this after the fact, when they sought to sell or refinance their property, in some instances “tanking” the sale or refinance.

AB 2693 (Gov. Code 533228.1), Effective 1.1.17, seeks to address some of the problems resulting from the imposition of PACE liens on covered properties.  The new law mandates disclosure of the lien and ramifications of the financing as well as a 3 Day Right of Recession.  

The following are key provisions:

• Not permitting a property owner to participate if the owner’s participation would result in the total amount of any annual property taxes including PACE assessments exceeding 5% of the property’s market value, as determined at the time of approval of the owner’s contract.
• The PACE financing must be for less than 15% of the value of the property, up to the first $700,000 of the value of the property, and must be for less than 10% of the remaining value of the property above $700,000.
• Requiring a disclosure in substantially the same form as provided in the law shall be completed and delivered to a property owner before the property owner consummates a voluntary contractual assessment.
• Mandates that the property owner shall receive the right to cancel document in substantially the same form as provided in the law, providing a 3 business day right to cancel.

Lenders financing purchase of properties in PACE districts should consider:

• Review of lending programs to identify PACE districts.
• Review of Title to determine if PACE liens applicable upon sale or refi.
• Mandate that right of rescission period re PACE lien pass before escrow close or obtain endorsement.
• Require that Appraisers note the inclusion of PACE lien and impact in appraisal reports.

Please call me if you would like to discuss

Spencer Scheer