Property Assessed Clean Energy (PACE) programs offer financing options for homeowners looking to make energy-efficient upgrades such as installing solar panels, replacing windows, or making other environmentally friendly improvements. But these programs can also complicate the process of selling your home.
Here’s how it works: States pass laws that allow local governments to establish PACE programs, which offer financing to homeowners for energy-efficient improvements. One such program with which I have transactional experience is the Home Energy Renovation Opportunity (HERO) loan. This program finances energy-efficient upgrades, and homeowners then repay the loan through an additional line item on their property tax bill.
What homeowners may not realize is that when it comes time to sell, they will likely have to pay off the remaining balance of the loan at closing. PACE loans, much like property taxes, must be paid in full before the mortgage lender can collect what it’s owed in the event of a foreclosure. This means that a buyer’s lender will not approve a loan on a property unless it’s guaranteed to be paid before the PACE loan is settled, and the PACE program will not subordinate itself to a new mortgage lender.
Unless you’re selling to a cash buyer, you’ll probably need to pay off the entire PACE lien before closing the sale. If the buyer is willing to assume the loan, he or she must also meet the requirements to qualify for the loan assumption and agree to the repayment schedule.
PACE programs can offer valuable benefits, but homeowners should carefully consider the amount they are financing, the repayment terms, and how it affects their home’s equity. If the balance owed on the property is higher than its market value due to a large PACE loan, homeowners could face a short sale situation.
For buyers, it’s important to check the preliminary title report and other disclosures to ensure there are no unexpected PACE liens attached to the property before proceeding with the purchase.