MACo participated in what is likely the final meeting of the House Bill 387 Residential PACE Study Work Group Meeting last Thursday, October 13 in Annapolis. The work group, convened and chaired by the Maryland Clean Energy Center, consults with the Center as it fulfills its obligation to “conduct a study to determine optimal design and implementation strategies for a residential clean energy program in the State” under House Bill 387 (Chapter 593), Clean Energy Loan Program – Residential Property – Study.
What is PACE?
Property Assessed Clean Energy Finance (PACE) is a loan program used to finance property improvements that facilitate clean energy and conservation measures, and counties can collect the repayments for these loans through a surcharge on the property owner’s tax bill. The unpaid surcharge is treated as a lien on the owner’s property and is given first priority for repayment in the same manner as the local property tax. Maryland law has enabled counties to establish PACE programs for commercial properties since 2009, and currently Montgomery County has an active commercial PACE program. Under the above-mentioned Act, enacted last session, The Maryland General Assembly tasked The Maryland Clean Energy Center with investigating the potential for extending this program to residential properties.
Residential PACE Concerns
Many mortgage lenders and the Maryland Bankers Association object to the concept of allowing Residential PACE loans super-priority over a home’s mortgage, meaning that the mortgage lender would recover less in the event of foreclosure because the residential PACE lender would recover first. In fact, the Federal Housing Finance Agency, which regulates Fannie Mae, Freddie Mac and the Federal Home Loan banks, bars Fannie Mae and Freddie Mac from acquiring mortgages on a property with a residential PACE lien. Since Fannie Mae and Freddie Mac purchase, guarantee or securitize such a large percentage of single family mortgages, this severely limits the ability of a property owner to sell or refinance a home carrying a residential PACE lien. For this reason, the Maryland Realtors Association also expressed concerns with the program.
As part of the Obama Administration’s Clean Energy Savings for All Initiative, the U.S. Department of Energy (DOE) released best practice guidelines for Residential PACE programs on July 19, 2016. The guidelines suggest:
In states where non-acceleration of the assessment is standard for other special assessments, it should also be standard for PACE assessments. After a foreclosure, the successor owners are responsible for future assessment payments. Non-acceleration is an important mortgage holder protection because liability for the assessment in foreclosure is limited to any amount in arrears at the time; the total outstanding assessed amount is not due in full. In cases of foreclosure, priority collection of delinquent payments for the PACE assessment may be waived or relinquished.
For Maryland counties, non-acceleration of the assessment may be difficult or wholly infeasible.
The Maryland Clean Energy Center is due to release its report to the Maryland General Assembly on November 15, 2016.