In an effort to promote energy efficiency, PACE financing is becoming available in our area. This allows homeowners to finance qualifying improvements falling under energy efficiency. In this newsletter we discuss what items qualify, the disclosure requirements by the seller and how it will affect closing on a property that is participating in this type of financing.
While there is a multitude of information out there, we wanted to streamline this for you to provide you what you need to know and how this could impact your seller or listing.
What is PACE?
Long Term financing mechanism underwritten by government to promote:
- Energy efficiency products
- Renewable energy
PACE financing is available in several cities and counties throughout Florida. In our market area, the following counties have agreed to participate in the PACE program.
What improvements qualify under PACE?
Roofs | Storm shutters | Insulation | A/C systems | Windows | Electric vehicle charging equipment | Solar, hydrogen, geothermal, wind and bio energy | Secondary water barriers | Opening protections | Hot water heaters | Energy-efficient appliances
How does the financing work?
There are 4-5 companies that offer PACE programs in the State of Florida that are funded through banks that provide financing. Repayment is spread out over 5-25 years and is re-paid in the owner’s property tax bill as a non-ad valorem assessment.
Requirement of owner/seller: Seller to give written disclosure of assessment to prospective purchaser at or before execution of the contract Sec. 163.08(14) F.S.
Be on the lookout for a specific addendum disclosing PACE financing from FRBAR very soon.
- No credit check required
- No out-of-pocket costs
- Delayed first payment
- 100% financing
- When a buyer of a property that has PACE financing is taking out a new mortgage, the PACE financing will have to be paid off by the seller at the time of closing.
- Not eligible for FHA-insured mortgage OR refinances — must pay off in full (if it cannot be insured by FHA, lender will not be able to sell loan).
- Fannie Mae and Freddie Mac, the owners of a large portion of all home mortgage, stated they would not purchase home loans where property was encumbered by non-ad valorem assessment.
What you need to know:
- Seller must inform the buyer of the PACE financing prior to or at the time of the execution of the contract
- PACE financing may only be assumed if the buyer is paying cash for the property and is willing to assume the assessment.
- The repayment is billed in annual installments on the tax bill as a non-ad valorem assessment.
- Must be paid off upon the sale of the property (in most cases), unless buyer is paying cash and agrees to assume the balance.
Note any new improvements, such as the ones listed herein, ask the seller how they paid for those improvements. Sellers may not realize that the PACE financing constitutes a lien on their property just like home equity lines of credit.
Until the specific addendum comes out disclosing PACE financing ensure this is disclosed by separate blank addendum. We recommend you use this suggested language:
QUALIFYING IMPROVEMENTS FOR ENERGY EFFICIENCY, RENEWABLE ENERGY, OR WIND RESISTANCE: The property being purchased is located within the jurisdiction of a local government that has placed an assessment on the property pursuant to s. 163.08, Florida Statutes. The assessment is for a qualifying improvement to the property relating to energy efficiency, renewable energy, or wind resistance, and is not based on the value of property. You are encouraged to contact the county property appraiser’s office to learn more about this and other assessments that may be provided by law.