PACE home improvement loans come with caveats

It sounds almost too good to be true: major high-dollar home improvements, such as hurricane-resistant impact windows, new roofs, solar energy systems, hot water heaters, air conditioning systems and more, financed with no money down and no credit check.

You just need to show that you have equity in your home, a good history of making your mortgage payments, and that you make enough money to make payments on the debt.

Welcome to Property Assessed Clean Energy financing, a program that has funded improvements for thousands of South Florida property owners over the past three years. Many local governments in the region have approved PACE financing assessments on borrowers’ property tax bills as a way to encourage

residents to make their homes more energy-efficient and to strengthen them against the effects of storms and climate change.

The program has been a blessing for many people, providing a means to fund needed upgrades that they couldn’t afford relying solely on savings or creditworthiness.

But some say they didn’t realize what they’d gotten into until it was too late — that a lien would be placed on their home, that they would be expected to repay roughly double the project cost over the life of the loan, and that most banks would require them to pay off the loan in full before they could sell their homes.

“I understand it was very stupid of me not to read that long contract,” wrote Maria Rossello, who lives in a seniors-only condominium with a market value of $37,400, according to the Broward County Property Appraiser’s website.

In October 2016, she signed an agreement to install three impact windows in the Sunrise condo. Repayment, according to Broward County official records, would cost $639 a year over 20 years. That’s on the low side compared with an average PACE loan, but for Rossello, who said she was told she wouldn’t be charged interest, it still presented a hardship.

The experiences of Rossello and others underscore what experts and customers alike say anyone considering a PACE loan must do:

“Make sure you read all the paperwork. Read the fine print and make sure you read every bit of that contract,” said Scott Nathan, a Pompano Beach resident who borrowed $52,000 for a solar energy system, new roof, new water heater, and solar-powered attic fans. Nathan said he scrolled through loan documents online and missed that the sum of all payments over the 20-year loan term would be about $97,000.

He said his contractor told him that savings on his electricity and insurance bills would cover all but $30 a month of the repayment cost. But those savings weren’t nearly that substantial, he said, and now his monthly mortgage payments — which include taxes, insurance and his loan repayment installments — are $2,278, instead of $1,556. Nathan said he’s not sure he’ll be able to keep his home.

A typical PACE loan financed through Ygrene Energy Fund Florida runs about 20 years at an interest rate of about 7 percent. Borrowers can expect to repay twice the project cost over the payback period.

Complaints about disclosure practices prompted California to enact a law requiring all PACE providers to disclose all project costs, fees, interest rates, annual and monthly payback terms in a simplified document patterned after “truth in lending” disclosures required from mortgage lenders in home sales. Another law requires PACE providers to review all terms with borrowers in a live phone call before any financing documents are signed. Ygrene, Renovate America and RenewPACE said they have voluntarily added both practices to their Florida operations. A fourth PACE provider, Florida PACE, did not respond to a request for comment for this story.

Borrowers with excellent credit might save money by taking out a second mortgage or home equity line of credit, Ygrene senior vice president Mike Lemyre said in an interview Friday. But for people with modest income, modest savings and modest credit, PACE loans offer good value, he said.

Ygrene (energy spelled backward) is a Californiabased company that arrived in South Florida ahead of the other companies, getting a head start in obtaining necessary agreements by Miami-Dade, Broward and Palm Beach counties, and most of the region’s cities, to have repayment obligations assessed as part of customers’ property tax bills.

Since 2013, Ygrene has funded about 15,000 projects in the tricounty region, and doubled its business in Broward and Miami-Dade counties between 2016 and 2017, Lemyre said.

The company recruits local contractors and trains them to explain to customers how the Ygrene program works. But while Ygrene and other PACE programs say they constantly review feedback about contractors’ performance with their customers, some residents say contractors told them only what they wanted them to hear.

Consumer complaints alleging predatory practices by PACE contractors were subjects of warnings by several consumer watchdog organizations in late 2016 and a federal suit seeking class action status filed last spring by plaintiffs in California and South Florida.

Manuel Hiraldo, a Fort Lauderdale attorney involved in the lawsuit, said he has been contacted about once a week by unhappy customers seeking to join the suit.

Some contractors charge more for projects they know will be financed through PACE, said Hiraldo said.

However, Lemyre said he has seen no direct evidence that contractors inflate prices for PACE programs, adding that Ygrene encourages homeowners to solicit competitive quotes just as they would if they were funding a project with cash savings.

Would-be borrowers must understand a key part of how PACE financing works, Hiraldo said. “People need to know that a lien will be recorded against their home. That lien can make it difficult, if not impossible, to refinance or sell their home without first paying it off.”

Early promotions for PACE loans — and even material still circulating today — described the financing as an assessment that stays with the house and not the owner. Because it is recorded with the property’s local taxes, the debt theoretically can be transferred with the home to a new owner.

That could work if a buyer can afford to pay cash or can swing a mortgage loan not insured by Fannie Mae or Freddie Mac. But Fannie and Freddie, as well as the Federal Housing Administration and the Department of Veterans Affairs, won’t insure mortgages with PACE liens because those liens go to the front of the line for repayment if a borrower defaults.

Because the federal programs won’t insure mortgages on homes with PACE loans, many traditional lenders won’t either, meaning the transferability advantage primarily benefits sellers in cash-only transactions, or through specialty lenders.

So what happens when a homeowner with a PACE loan wants to sell? Get ready to find a way to pay it off before sitting down at the closing table.

For projects financed before the third quarter of 2017, Ygrene charges a prepayment penalty of 5 percent of the balance of the debt. That penalty was discontinued late last year for new customers only, Lemyre said.

Customers have also complained of being charged $100 just to learn the payoff amount of their loan. Lemyre said the $100 fee was collected by a thirdparty administrator hired to record transactions and get them on local tax rolls. Recently, Ygrene negotiated the fee down to $50 per inquiry, he said.

Markisha Collins, who with her husband, Johnny Collins Jr., used Ygrene to finance installation of impact-resistant windows and doors in 2016, said they weren’t made fully aware that their PACE financing showed up as a lien against their property until getting a phone call from the title company involved in the upcoming sale of their house. It added a major complication to their sale efforts, she said.

She recommends that homeowners use PACE only if they know they plan to stay in their house for the length of the payback period.

“If you’re going to be in your home for a lifetime, do it, by all means,” she said. The new impact windows and doors undoubtedly enhanced the value of the 1,100-square-foot home the couple bought for $60,000 in early 2016 and now plan to sell for well over $100,000.

“But if you are young and thinking about selling your home soon … it could be a hassle.”