Consumer Protection: PACE Liens C.A.R. sponsored law mandating a paper copy of the PACE disclosure, prohibits prepayment penalties, and prohibits PACE assessments when a reverse mortgage is in place.

PACE disclosure Assembly Bill 1551This law mandates a paper copy of the PACE disclosure be given to potential customers. Also, prohibits prepayment penalties for those who wish to pay off their assessment (commonly done at the time of the transaction) and prohibits PACE assessments when a reverse mortgage is in place.

BACKGROUND:
PACE programs enable home owners to finance energy and water efficient home upgrades such as solar panels, landscaping, new windows, new HVAC systems, new roofs and energy efficient appliances. It also allows for home mprovements that "harden" a home against wildfire danger.

The financing requires no money up front and is repaid through an additional assessment on the property owner's property tax bill. The loan is secured to the property through a super-priority lien that takes rest in line status over all other claims to the property. Despite the low risk for the lender of such financing, PACE financing typically carries rates of 6.5 to 8.5 percent, higher than the average for a home equity loan.

Some PACE administrator companies also have prepayment penalties associated with their products. Although PACE financing must be sanctioned through a local government entity, the financing is conducted entirely through private enterprise. "Homeowners are sometimes told they are not responsible for the assessment if they sell the property and that it will carry over to the new homeowner. While technically accurate, Fannie Mae and Freddie Mac will not purchase a mortgage with a lien that has higher priority than theirs. Thus, in practice the assessment must be paid off in full prior to sale or refinancing of the property.

When the assessment is paid off, any fees or pre-payment penalties must also be paid. This can leave a homeowner who had counted on the equity in his home seriously empty handed after years of diligent mortgage payments. Most times, a homeowner is not choosing to pay off the assessment early. They are forced to pay it off by the subsequent buyer or lender in order for the transaction to be completed.

Residential PACE assessments are among the fastest growing types of property-secured financing in California. As such, it is vital that the Legislature continues its work to strengthen consumer protection and establish a regulatory framework for the previously unregulated PACE industry.

This law creates further safeguards for homeowners who choose to utilize California's residential PACE programs.

This law requires the PACE disclosure to be provided to the property owner as a printed copy in no smaller than 12-point type, unless the homeowner opts out of receiving a paper copy by signing a printed paper
document.

A PACE contract cannot contain a penalty for early repayment. Prohibits PACE assessments when a reverse mortgage is in place.

Assembly Bill 1551 is codied as Financial Code Section 22684 and Streets and Highways Code Sections 5898.17 and 5913.

Effective January 1, 2021.

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