PACE loans, which help home owners finance energy efficient upgrades to their properties, came under scrutiny during the Land Use, Property Rights, and Environment forum at the REALTORS® Conference & Expo in Orlando, Fla. Some attendees complained that the loans, which become a buyer’s responsibility if they purchase a home where the seller has not paid off a PACE loan, have held up many transactions.
Owners who take out PACE loans are borrowing the money from their local government, and the balance is repaid through property tax hikes.
Cases are surfacing, especially in California, where PACE loans are doubling the tax bill on properties for some home owners, and many real estate professionals say a lack of public education is contributing to the growing problem. “I have a client who was paying $1,800 annually in property tax, and then a PACE loan added $1,700 a year to her bill,” said one attendee from California. “Do you think she understood what she was signing up for? Now she can’t sell her house because no buyer wants to pick up that bill.”
Russell Riggs, senior regulatory representative for the National Association of REALTORS®, told attendees NAR is working with lawmakers to address concerns that PACE loans are creating disclosure complications. “Say a home owner takes out a PACE loan and agrees to pay it back over 20 years,” Riggs said. “The practitioner has to explain what this loan is every time they sell the house. You have to tell the buyer that this is a loan they have to repay for an energy efficient improvement, and then you have to explain what that improvement is and why that improvement is worth it to the buyer.”
In many cases, real estate professionals need to gather extra documentation for buyers related to PACE loans, causing delays in closings. PACE loans are also “rife for fraud and abuse,” Riggs said. “There are some unscrupulous contractors trying to sell PACE loans to people who may not fully understand what these loans are,” especially minorities and the elderly.
One attendee from Illinois noted that the Real Estate Standards Organization in June made it possible for MLSs to add listing fields identifying when a property has a PACE loan. “Talk to your MLS executives and find out if they can add those fields,” she said.
Source: “REALTORS® Push Back on Loans for Green Upgrades,” (realtormag, Nov. 3, 2016)