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
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.
about other states' programs and laws is available at http://pacenow.org/blog/2010/07/pace-programs-by-state.
The Fannie and Freddie letters are available at http://www.freddiemac.com/sell/guide/bulletins/pdf/iltr050510.pdf.
See California v. Federal Housing Finance
Agency, CIO-03084 (N.D. Cal., filed July 14, 2010), available at http://ag.ca.gov/cms_attachments/press/pdfs/n1951_final_pace_complaint_&_exhibits_%28stamped%29.pdf.
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.