A class action lawsuit against HERO/PACE lender Renovate America, Inc., and the San Bernardino Associated Governments (SANBAG) was filed on Nov. 1, alleging “predatory characteristics” and a “pervasive pattern of false, deceptive and otherwise unlawful practices” regarding Home Energy Renovation Opportunity Loans (HERO Loans).
Renovate America, Inc., originates loans for energy efficiency improvements, such as solar panels, under the HERO program. SANBAG is an association of San Bernardino County districts, cities, and other local agencies, which hired Renovate America to market, originate and administer the HERO Loan program in San Bernardino County. Under state law, HERO loans are given a super-priority status as a Property Assessed Clean Energy (PACE) lien. These types of liens typically have priority even over existing first mortgage deeds of trust. Often, the property owner may not be able to refinance or sell without paying off a HERO loan.
Previously, C.A.R. has described HERO loans as unfairly expensive, with interest rates that border on predatory, where even basic lending guidelines for consumers are ignored, and which are often sold by high pressure door-to-door sales people.
The lawsuit is specific to homeowners who were charged administrative fees in excess of 5.7% on HERO loans. It paints a grim picture of loans being made with predatory characteristics, excessive fees and abusive terms, including secretly double-counting accrued interest and administration fees; a secretly charged administration fee on capitalized interest; payments on a HERO Loan which were not applied when made; interest being charged after the loan was paid in full; an inaccurate amortization schedule presented to the borrower; loan payments made directly to contractors; HERO loans approved based almost solely on a borrower’s collateral; and an unlawful waiver of claims against the lender; and the plaintiff was first approached by a door-to-door salesman.
Importantly, the lawsuit affirms that HERO loans may be subject to federal consumer protections under both TILA and HOEPA.
The lawsuit alleges:
- Secret double-counting of accrued interest, with an APR of 10.59%
- Secret double-counting of administration fees which ranged from 4.99% to 6.95%
- Failure to credit payments when made which thereby secretly increase the total amount of interest
- Overcharging of recording fees
- Understatement of estimated APR. When calculated properly, the APR for the plaintiff’s HERO loan was in excess of 12%.
- Violations of TILA’s High Cost Mortgage Rules
- Violations of TILA’s Ability to Repay Rules
- Violations of HOEPA 1) by failing to provide various consumer protection disclosures 2) by charging prepayment fees 3) by imposing excessive late fees and 4) by failing to receive a certification from a counselor approved by HUD that the consumer has received counseling about the advisability of a high-cost mortgage
- Conspiracy to violate TILA and HOEPA
- And as against Renovate America only, violations of the California’s Covered Loan Law and the Unfair Competition Law
Recently C.A.R. successfully sponsored a law (AB 2693) that may help to curb the abuses of HERO loans. This consumer protection law requires delivery of a detailed financial disclosure document to a property owner participating in a Property Assessed Clean Energy (PACE) lien program. (HERO loans rely upon the PACE lien program to ensure priority status).
The disclosure document contains a variety of notices and warnings, including a notice that the property owner may not be able to refinance or sell without paying off the PACE obligation. The property owner also retains a 3-day rescission right detailed in a statutory form.
Statements as to increased value of the property cannot be made unless based on an appraisal, a broker price opinion or an “automated valuation model.”
Source: C.A.R. Realegal® newsletter