As PACE financing becomes more common, it is important to understand what a PACE financing lien is, whether seeking this type of financing makes sense for you, and how it could affect you when you are buying or selling property in Florida.
So what is PACE financing? Property Assessed Clean Energy (PACE) financing is an alternative way for property owners to finance qualified energy conservation and efficiency, renewable energy, and wind resistance improvements to their property. Florida passed the PACE enabling legislation in 2010 and is one of the few states to allow PACE financing for improvements to residential properties. PACE financing is repaid as an annual non-ad valorem assessment through the property owner’s real property tax bill. Since the PACE financing loan is added to the owner’s tax bill, the lien has super priority over other liens, including mortgages, and may be assumed by a buyer. The PACE financing program can make energy efficient improvements more affordable by spreading the cost of the improvements over a long period of time with no up-front costs. To qualify for PACE financing, a property owner needs to have a record of paying property taxes on time and have sufficient equity in the property.
Is PACE financing right for you? If a property owner is considering a PACE program to finance the cost of energy efficient improvements to a home, including the installation of insulation, energy-efficient heating and cooling systems, windows, solar energy improvements, or wind resistance improvements, there are some important issues to be aware of. While it may be appealing to be able to fund these improvements with no money down, as is offered through the PACE program, if a homeowner is planning to refinance or sell in the near future, PACE financing may not be suitable. Many institutional lenders, including Fannie Mae/Freddie Mac and FHA, will require that the PACE lien be paid in full prior to closing on the new mortgage loan. This means that the PACE financing will need to be paid off at the time of the refinance or at the time the property is sold, if the buyer will be financing the purchase with a mortgage.
My property is subject to a PACE lien. Now what? If real property is encumbered by a PACE lien, the property owner (and its agent) are required to disclose the existence of the PACE lien to prospective buyers. A Seller’s Property Disclosure asks whether the property is subject to a PACE assessment per Section 163.08, Florida Statutes. A seller is required to acknowledge the existence of the lien and include the written statutory disclosure in the contract or in a separate writing.
Is the PACE lien assumed or paid off at closing? It is up to the buyer and seller to decide whether the PACE lien will be assumed by the buyer or paid off by the seller at the time of the closing. This outstanding obligation of the buyer or seller will need to be addressed in the contract. When making this decision, the parties need to keep in mind that if the buyer is obtaining a new mortgage loan, the mortgage lender will likely require that the PACE lien be paid in full. If the transaction is a cash deal, and the buyer agrees to assume the PACE financing, the purchase price in the contract should be adjusted to account for the remaining balance of the PACE debt that will be paid by the buyer. The buyer would then take over the payments as part of the annual tax bill.
As a relatively new method of financing, it is important to understand what a PACE financing lien is, when it may make sense for financing improvements, and to be aware of the issues that may arise, so that buyers and sellers are informed and protected. Should you have any questions regarding the obligations and responsibilities of buyers or sellers of real property subject to a PACE lien, please do not hesitate to contact your trusted local real estate attorney.
Christa Folkers, Esq.
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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