Keeping PACE? Property Assessed Clean Energy (PACE) program at risk

Keeping PACE? Property Assessed Clean Energy (PACE) program at risk

A previous blog entitled "What's a PACE bond? And why do New York homeowners want to know?" addressed New York PACE legislation.  That legislation has been enacted by the governor.

A number of other states have passed PACE laws in recent years.  A key component of a PACE lien is that it is senior to any mortgage on the property, meaning that it must be repaid first if the property goes into default.  On May 5, 2010, Fannie Mae and Freddie Mac issued letters to mortgage lenders, stating that these liens could not take priority over a mortgage financed by either entity, although they did not offer guidance on how to handle properties that currently carry such liens.  The practical result of this is that some mortgage lenders are requiring that these liens be paid off in full before approving any loans in a real estate transaction, putting the entire program at risk.  On July 14, 2010, California Attorney General Jerry Brown filed a lawsuit in federal court against Fannie Mae and Freddie Mac, accusing the entities of misrepresenting the nature of PACE programs and municipal financing in violation of California law by misrepresenting the PACE funding as loans rather than assessments. 

Information about other states' programs and laws is available at

The Fannie and Freddie letters are available at

See California v. Federal Housing Finance Agency, CIO-03084 (N.D. Cal., filed July 14, 2010), available at


J. Cullen Howe is the author of Green Financing: Governmental and Private Programs Concerning Financing of Green Buildings, Ch. 2M, in Real Estate Financing (Lexis treatise), and will be discussing this development in his next update for the treatise.