PACE Loans: A Growing Concern for Loan Purchasers and Servicers
Property Assessed Clean Energy (PACE) loans, commonly used to finance solar panel installations, energy-efficient upgrades, or even small wind systems, are becoming a major diligence issue in today’s real estate and secondary-market environment. Although marketed as easy-access financing for homeowners seeking clean-energy improvements, these loans carry structural features that create significant complications at closing, during servicing, and especially in REO transactions.
A key challenge is that PACE loans must typically be paid off when a property changes ownership, including through foreclosure. Because they are collected through property tax assessments, PACE obligations take priority over existing mortgages. This senior lien status means hidden costs can surface when purchasing loans or taking title, unexpected assessments, payoff demands, or accrued charges that were not fully disclosed upfront.
Compounding the problem, there have been reported cases where homeowners obtained PACE financing but the promised solar panels or improvements were never installed. These scenarios have resulted in litigation, lien disputes, and consumer-protection concerns. States such as Minnesota are now evaluating potential TILA violations tied to PACE origination practices. Meanwhile, mortgage originators are rethinking how to include PACE payments in Combined Loan-to-Value (CLTV) calculations to ensure more accurate underwriting.
For seasoned loan purchasers, the presence of a PACE loan should be an immediate red flag to budget for additional expenses when acquiring or taking back a property.
Understanding the payoff mechanics and lien priority is essential to preventing losses.
At ProTitleUSA, we have enhanced our analytics to meet this growing risk. All PACE loans are now flagged across our analytical dashboards and within the One Diligence TPR, including integration of PACE obligations into CLTV calculations. As PACE programs continue to expand, proactive detection and accurate assessment remain critical for protecting portfolio performance.
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Property Assessed Clean Energy (PACE) loans, commonly used to finance solar panel installations, energy-efficient upgrades, or even small wind systems, are becoming a major diligence issue in today’s real estate and secondary-market environment. Although marketed as easy-access financing for homeowners seeking clean-energy improvements, these loans carry structural features that create significant complications at closing, during servicing, and especially in REO transactions.
A key challenge is that PACE loans must typically be paid off when a property changes ownership, including through foreclosure. Because they are collected through property tax assessments, PACE obligations take priority over existing mortgages. This senior lien status means hidden costs can surface when purchasing loans or taking title, unexpected assessments, payoff demands, or accrued charges that were not fully disclosed upfront.
Compounding the problem, there have been reported cases where homeowners obtained PACE financing but the promised solar panels or improvements were never installed. These scenarios have resulted in litigation, lien disputes, and consumer-protection concerns. States such as Minnesota are now evaluating potential TILA violations tied to PACE origination practices. Meanwhile, mortgage originators are rethinking how to include PACE payments in Combined Loan-to-Value (CLTV) calculations to ensure more accurate underwriting.
For seasoned loan purchasers, the presence of a PACE loan should be an immediate red flag to budget for additional expenses when acquiring or taking back a property.
Understanding the payoff mechanics and lien priority is essential to preventing losses.
At ProTitleUSA, we have enhanced our analytics to meet this growing risk. All PACE loans are now flagged across our analytical dashboards and within the One Diligence TPR, including integration of PACE obligations into CLTV calculations. As PACE programs continue to expand, proactive detection and accurate assessment remain critical for protecting portfolio performance.
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