UPDATE: What Impact Will a PACE Loan Have on Your Real Estate Closing

We recently discussed the impact a Property Assessed Clean Energy (PACE) loan may have on your real estate closing.  Since we wrote about the FHA has issued additional guidelines regarding those loans.

As we discussed previously, PACE programs assist both residential and commercial property owners to finance certain energy efficient and wind resistant improvements to their property.  These loans are secured by financial agreements and paid by a non-ad valorem assessment through the property owner’s real property tax bill.  Simply stated, the loan is added to your tax bill and becomes part of your property tax obligation and the loan terms are spread out over time.

But the FHA is now concerned about the impact of the PACE liens.

“FHA is concerned about the potential for increased losses to the Mutual Mortgage Insurance Fund due to the priority lien status given to such assessments in the case of default,” FHA said in its letter to mortgagees.

“FHA is also concerned with the lack of consumer protections associated with the origination of the PACE assessment, which are far less comprehensive than that of traditional mortgage financing products,” FHA continued. “FHA’s involvement with accepting properties with PACE assessments may indirectly help to overshadow potential consumer abuses.”

With this announcement, HUD has reversed the Obama administration’s decision on PACE loans.  Therefore, the FHA is no longer insuring mortgages on homes that also carry PACE liens.