Hot Topic: Florida encourages homeowners to go green with PACE financing.
Environmental concerns are relevant to some and disregarded by others. Florida seems to want to help those who want to make environmentally friendly home improvements, but may not be able to afford the cost of the improvement. Florida’s solution is the PACE program.
What is the PACE program? Property Assessed Clean Energy (PACE) is a financing program that is used widely in California and other states. The program allows homeowners to pay for improvement costs in installments that can span over a 20 year period. In 2010, Florida enacted a law permitting PACE financing to homeowners. The program encourages homeowners to invest in renewable energy and better measures of home protection from natural disasters. There are many financeable home improvement measures including solar panels, impact windows, impact doors,solar water heater, wind turbine, cool roof, insulation and upgraded air-conditioning. There are some counties that also allow financing to businesses for such property improvements.
How is the PACE program administered? Information about the administration of the program can be found on the county’s website where the property is located. However, generally, the county or district has approved PACE providers and the city or municipality votes to opt-in to the program. The homeowner must complete an application for financing and submit the application to the PACE provider. PACE providers are required to monitor contractor pricing to ensure that it conforms to market norms and must make clear disclosures to the homeowners regarding the costs they are incurring. Once qualified, the homeowner receives upfront financing for the energy-related home improvement and selects a PACE approved vendor to complete the project. Upon completion and inspection of the home improvement project, the city or municipality then pays the contractor directly. The homeowner repays the amount through a non-ad valorem special assessment added to the property tax bill which can span over a period up to 20 years at an interest rate of approximately 7 percent per year.
How does PACE impact the property? The PACE program is a fairly new venture with new municipalities still joining the program and determining how they will administer the program. There is no evidence that the PACE program will be treated any differently than any other non-ad valorem assessment. In other words, it would run with the land to the next property owner and failure to pay would most likely result in a tax deed sale once the tax deed sale requirements are met. Nevertheless, depending on how the program is administered in the relevant district, there is also a chance that failure to pay the PACE assessment could trigger foreclosure and property loss even if the property owner is current on other mortgage lien(s). HUD has already created guidelines for the PACE program. However, it is still unclear how title insurance companies will react to the PACE program. They may require payoffs or full payment of the PACE obligation prior to issuing a title policy. In addition, the homeowner must provide notice of the assessment to a potential buyer prior to sale of the property.
In summary, the program is win for those concerned about the environment and its sustainability. The risk to homeowners and lenders is minimal because the PACE obligation runs with the land and becomes a part of the property taxes. As long as the property taxes are paid, there should be no issue.