PACE Financing

WHAT IS PACE FINANCING? -- PACE, which stands for “Property Assessed Clean Energy,” was created by the California Legislature in 2008 as a way to help property owners install high efficiency improvements and solar projects by overcoming the high “first-cost” barrier. PACE programs allow qualified property owners to obtain long-term financing for energy efficiency, renewable energy, water conservation, and seismic improvements and repay it through their secured property tax bills.

All PACE programs must adhere to California State Law AB-2063.

PACE is different from other options because the financing is an assessment on the property. Eligibility is based primarily on property equity as well as the value of the property, history of timely property tax payments, and other underwriting factors. Approval is also based on a property owner’s ability to pay. The financing is tied to the property instead of the individual borrower and is repaid over the financing term on the real property tax bill.

To date, PACE has been successfully used by hundreds of thousands of residential and commercial property owners to improve their property's energy efficiency, lower utility bills, help protect from natural disasters like fires and earthquakes, and reduce their carbon footprint. By providing private capital for investment in local communities, PACE programs have helped to create thousands of jobs and invest millions into local economies.

Is PACE financing a traditional loan?  -- No, PACE is not a traditional loan such as a personal loan, a home equity line of credit, or a credit card. Unlike traditional financing, PACE financing is affixed to the property and has different underwriting requirements. Depending on the location and type of property, owners may be required to provide additional documentation that demonstrates their ability to afford the annual payments for the PACE assessment that would be added to the property tax bill.

How do individuals repay PACE FInancing? -- After the project is complete, the PACE financing will be added as an assessment to the owner’s property, which will be added as a new line item on their property tax bill. This new tax payment will remain on the bill for the length of the term the owner selected when they completed the financing agreement.  The owner will then, simply pay the property tax bill in the same way they have previously — either when the bill arrives or via impound/escrow account.

Is PACE a discount program or government subsidy? Does it include a discounted rate or free services? -- No, PACE financing is not a government discount, subsidy, or incentive program. PACE does not offer discounts or free services. PACE is a specialized type of financing that can be used to pay for the cost of eligible property improvements.

Before PACE can be offered to commercial and residential property owners, it must first be adopted by the state government and then enabled at the municipal level. Once PACE is available in a particular area, private companies may offer PACE financing products. The upgrades are completed by one of a network of independent contractors who offer PACE as a financing option to their customers.

The cost of the home improvement project is determined by the owner’s selected independent contractor based on what the company charges for such services. The property owner voluntarily chooses to enter into a financing agreement and is solely responsible for complete repayment according to the financing terms.

Does PACE financing result in a tax lien? -- Yes. When a property owner accepts PACE financing, they agree to make the PACE repayments as a part of their annual property taxes.  PACE financing is secured by a continuing, voluntary lien on the property. The lien is only in effect for the term of the financing and will be removed from the property once the PACE financing is repaid in full.

What happens with PACE financing a home is sold or refinanced? -- In some cases, PACE payments may transfer to the new owner. Importantly, PACE is a “first priority lien,” which means that it could be prioritized over a mortgage loan if the property owner were to default on payments.  While property taxes are legally transferable, some mortgage lenders may require full repayment (payoff) of any remaining PACE tax obligation as a condition of a refinance or sale.  Some PACE programs allow property owners to pre-pay down their PACE assessment with no penalty.  Although they will still incur the interest associated with the financing, homeowners can remove the PACE assessment through prepayment or when they sell their home.

Before obtaining PACE financing, individuals should consider the likelihood and timing of a possible sale or refinance (as well as the costs to prepay the tax obligation) to determine if PACE is the right options. 

Can individuals lose their home as a tax payment? -- It is possible for homes to be sold if the property tax payments, which includes the annual PACE assessment, are delinquent. The local tax collector may take legal action to collect if the annual property tax payment is not made after an extended period. 

What PACE Providers are available to SBCCOG communities?