Ed Morton, a Visalia Realtor and president of the Tulare County Association of Realtors, said Friday that the county board of supervisors should be wary of adopting the PACE program. Photo by David Castellon
Written by David Castellon
A program intended to help owners of homes and businesses pay for energy upgrades — from solar panel installations to putting in new windows — has been adopted by counties and cities across California over the past couple of years.
But officials with the Tulare County Association of Realtors said they don’t want Tulare County to be one of them, and the group plans to speak to the Board of Supervisors on Tuesday to try to convince its members not to vote against authorizing the Property Assessed Clean Energy financing program.
“We’re not against any kind of clean energy. We just want to see [PACE] fine-tuned,” Ed Morton, a Visalia Realtor and president of the association, said Friday
He said the association is taking action to raise consumer awareness about problems with the program and claims of unethical behavior by some contractors selling and installing equipment for the energy upgrades.
PACE is a national program that started in California as a way for property owners to pay for energy-related improvements without having to shell out high up-front costs, which has deterred many people from going forward with these sorts of improvements.
Under the program, private lenders provide that up-front money, but instead of paying back the loans by standard means, they’re rolled into property taxes – in much the same way home insurance payments can be – and collected by county tax collectors.
Before that can happen, a state needs to authorize the program, and then it needs to be authorized by individual city councils, as well as county supervisors for properties in unincorporated areas.
PACE was introduced in 2007. Since that time, the program has become available in most Central Valley communities, Morton said.
In fact, it has been authorized in seven of the incorporated cities in Tulare County, with county supervisors set to consider it Tuesday during their regular weekly meeting.
As for why the Realtors want to stop such an authorization, Morton said that from the start Realtors didn’t like the PACE loans being tied to homes and businesses property tax liens, which essentially guarantee the loans would have to be paid off, either as part of sales or — if the properties are seized for failure to pay property taxes — at auction.
The loans also can be transferred to whoever buys the properties, with the new owners continuing to make payments when they pay their property taxes.
Because PACE is such a young program, some of its problems are just beginning to surface, among them — unlike home loans, no review of a property owner’s finances is done to ensure the person can afford the energy-improvement loan, some of which can be for tens of thousands of dollars for home energy upgrades.
“The program is essentially very similar to the 2005 real estate debacle, where you were able to qualify for these loans without any income verification, as long as you have equity in your home,” said Brett Taylor, CEO of the association.
And while the lenders are guaranteed to get their money back – unlike during the housing crash, when many property owners defaulted on their mortgages, ushering in the recent Great Recession – many people are at risk of defaulting on PACE loans that they can’t afford, and they wouldn’t have qualified for them if the lenders had to assess every applicant’s ability to pay and had mandatory guidelines on when to turn down loans, Taylor noted.
Morton said his organization only is concerned with such loans for homeowners, as business owners are getting leans on their businesses and usually are more knowledgeable about financing and what they can afford to pay.
Taylor added that that there is state and federal legislation in the works looking to compel lenders to assess clients’ finances before granting PACE loans, but there are other problems.
He and Morton said they have heard stories locally of lenders granting loans to people who didn’t have sufficient equity in their homes — as required under the PACE rules — and charging extremely high interest rates on loans, as much as 10 percent.
In comparison Morton said, car loans currently average about 3.99 percent, mortgage loans generally top at 5 percent and home equity lines of credit range at about 5-6 percent.
In addition, Taylor said he has heard of contractors over-charging people, including the case of somebody charged $23,000 for a new home air conditioner and installation, something that normally costs no more than $8,000.
Morton said some property owners are spending more than they need to, as some contractors are taking them in with sales pitches touting that the energy savings will “pay for itself.”
And while the Valley’s real estate market has been strong enough that few people with PACE loans that they can’t afford default, many have lost so much equity that they walk away with little or no money after a sale, he said.
Another twist is coming from mortgage lenders, some of which are refusing to authorize home sales unless the PACE loans are first paid off, Morton said.
“I think it was a well-intentioned program that had the consequence of government involvement, and now that we’ve been in it a few years, we’re seeing the bad actors.”
Read more in this week’s print edition of The Business Journal.