BILL ANALYSIS Ó
AB 2693
Page 1
Date of Hearing: April 25, 2016
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 2693
(Dababneh) - As Amended April 11, 2016
SUBJECT: Contractual assessments: financing requirements:
property improvements
SUMMARY: Makes changes to California's Property Assessed Clean
Energy (PACE) Program. Specifically, this bill:
1)Prohibits a public agency from permitting a property owner to
participate in PACE unless the property owner has been
provided with a federal Truth in Lending Act-Real Estate
Settlement Procedures Act Integrated Mortgage Disclosure
(TRID) for the obligation being incurred that is required by
the federal Consumer Financial Protection Bureau (CFPB).
2)Prohibits the public agency from permitting the total
mortgage-related debt and contractual assessment-related debt
on the property from exceeding the fair market value of the
property at the time of the agreement.
3)Provides that failure to comply with #1 or #2 above voids the
contractual obligations of the property owner.
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4)Provides that an assessment shall have the force, effect, and
priority of a judgement lien as established by its date of
recordation rather than a senior lien.
5)Provides that above referenced changes do not apply to
nonresidential private property or residential private
property with 5 or more units.
EXISTING LAW:
1)Defines "Property Assessed Clean Energy bond" or "PACE bond"
as a bond that is secured by any of the following:
a) A voluntary contractual assessment on property
authorized pursuant to paragraph (2) of subdivision (a) of
Section 5898.20 of the Streets and Highways Code;
b) A voluntary contractual assessment or a voluntary
special tax on property to finance the installation of
distributed generation renewable energy sources, electric
vehicle charging infrastructure, or energy or water
efficiency improvements that is levied pursuant to a
chartered city's constitutional authority under Section 5
of Article XI of the California Constitution; or,
c) A special tax on property authorized pursuant to
subdivision (b) of Section 53328.1 of the Government Code.
[Public Resources Code, Section 26054]
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2)Authorizes cities, counties, and other local public agencies
and utility districts to provide up-front financing to
property owners to install renewable energy-generating
devices, make specified water or energy efficiency
improvements, or install electric vehicle charging
infrastructure on their properties through a system of
voluntary contractual assessments which is repaid, with
interest, through property tax assessments. The programs are
commonly referred to as the PACE programs. [Streets & Highways
Code, Section 5898.10 et seq.]
3)Requires the California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) to develop and
administer a PACE Reserve program to reduce overall costs to
the property owners of PACE bonds issued by an applicant by
providing a reserve of no more than 10 percent of the initial
principal amount of the PACE bond. Requires the CAEATFA to
develop and administer a PACE risk mitigation program for PACE
financing to increase its acceptance in the marketplace and
protect against the risk of default and foreclosure. [Public
Resources Code, Section 26060]
4)Allows a community facilities district to finance and
refinance the acquisition, installation, and improvement of
energy efficiency, water conservation, and renewable energy
improvements that are affixed, as specified in Section 660 of
the Civil Code, to or on real property and in buildings,
whether the real property or buildings are privately or
publicly owned. Energy efficiency, water conservation, and
renewable energy improvements financed by a district may only
be installed on a privately owned building and on privately
owned real property with the prior written consent of the
owner or owners of the building or real property. This chapter
shall not be used to finance installation of energy
efficiency, water conservation, and renewable energy
improvements on a privately owned building or on privately
owned real property in connection with the initial
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construction of a residential building unless the initial
construction is undertaken by the intended owner or occupant.
[Government Code, Section 53313.5]
FISCAL EFFECT: None.
COMMENTS:
AB 2693 addresses two issues that have been raised since the
creation of the PACE program. The measure provides enhanced
consumer protections including increased disclosures regarding
the financing product being provided and second, reversing the
lien status of the PACE lien from a super-priority lien to a
judgement lien.
Background:
In 2008, California enacted the first statewide PACE program
through AB 811. Since 2008, at least 31 other states have
created their own programs with variations. Not all PACE
programs carry super-lien status. PACE is an innovative
financing tool that residential or commercial property owners
can use to pay for renewable energy upgrades, energy, or water
efficiency, or electric vehicle charging stations for their
homes or buildings. Local agencies create PACE assessment
districts in their jurisdictions via a resolution of their
legislative body, allowing the local agency to issue bonds to
finance the up-front costs of improvements. In turn, property
owners enter into a voluntary contractual assessment agreement
with the local agency to re-pay the bonds via an assessment on
their property tax bill. The assessment remains with the
property even if it is sold or transferred, and the improvements
must be permanently fixed to the property.
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PACE programs typically are more attractive to borrowers and
lenders because they can offer a longer pay-back period (up to
20 years) with smaller payments than other types of loans, and
they are securitized by the property assessment rather than the
borrower.
Federal Housing Finance Agency (FHFA)
On July 6, 2010, Fannie Mae and Freddie Mac stated that they
would no longer purchase mortgage loans secured by properties
with outstanding PACE loans. The FHFA announcement states,
"First liens established by PACE loans are unlike routine tax
assessments and pose unusual and difficult risk management
challenges for lenders, servicers and mortgage securities
investors. The size and duration of PACE loans exceed typical
local tax programs and do not have the traditional community
benefits associated with taxing initiatives.
FHFA urged state and local governments to reconsider these
programs and continues to call for a pause in such programs so
concerns can be addressed. First liens for such loans represent
a key alteration of traditional mortgage lending practice. They
present significant risk to lenders and secondary market
entities, may alter valuations for mortgage-backed securities
and are not essential for successful programs to spur energy
conservation."
The FHFA announcement can be found here:
http://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Statement-on-C
ertain-Energy-Retrofit-Loan-Programs.aspx
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The State of California and several other parties sued FHFA for
not conducting a formal rulemaking before its decision; however,
the 9th Circuit Court of Appeals ruled in FHFA's favor in March
of 2013. (County of Sonoma, et al. v. Federal Housing Finance
Agency, 710 F.3d 987 (2013)).
On December 22, 2014, the FHFA once again alerted homeowners,
financial institutions, and state authorities of FHFAs concerns
with state-level that threaten the first-lien status of
single-family loans owned or guaranteed by Fannie Mae and
Freddie Mac. FHFA stated,
"The existence of these super-priority liens increases the
risk of losses to taxpayers. Fannie Mae and Freddie Mac,
while operating in conservatorship, currently support the
housing finance market by purchasing, guaranteeing, and
securitizing single-family mortgages. One of the bedrock
principles in this process is that the mortgages supported
by Fannie Mae and Freddie Mac must remain in first-lien
position, meaning that they have first priority in receiving
the proceeds from selling a house in foreclosure. As a
result, any lien from a loan added after origination should
not be able to jump in line ahead of a Fannie Mae or Freddie
Mac mortgage to collect the proceeds of the sale of a
foreclosed property. Localities offering these PACE loans
threaten to move existing Fannie Mae and Freddie Mac
mortgages to a second lien position and increase the risk of
loss to the Enterprises and, by extension, to taxpayers.
In issuing this statement, FHFA wants to make clear to
homeowners, lenders, other financial institutions, state
officials, and the public that Fannie Mae and Freddie Macs
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policies prohibit the purchase of a mortgage where the
property has a first-lien PACE loan attached to it. This
restriction has two potential implications for borrowers.
First, a homeowner with a first-lien PACE loan cannot
refinance their existing mortgage with a Fannie Mae or
Freddie Mac mortgage. Second, anyone wanting to buy a home
that already has a first-lien PACE loan cannot use a Fannie
Mae or Freddie Mac loan for the purchase. These
restrictions may reduce the marketability of the house or
require the homeowner to pay off the PACE loan before
selling the house."
California PACE Loss Reserve Program (LRP)
In 2013, Senate Bill 96, directed CAEATFA to develop the PACE
LRP to mitigate the potential risk to mortgage lenders
associated with residential PACE financing. The $10 million Loss
Reserve makes the first mortgage lenders whole for any losses in
a foreclosure or a forced sale that are attributable to a PACE
lien covered under the LRP. The goal of the LRP is to put first
mortgage lenders in the same position they would be in without a
PACE lien.
PACE administrators can participate in the LRP by applying to
CAEATFA and demonstrating that they meet the LRP's minimum
underwriting criteria. Once a PACE program is enrolled, the Loss
Reserve will cover assessments issued by that program for their
full terms, or until funds are exhausted. Enrolled PACE programs
report their financing activity to CAEATFA semi-annually. To
date, no claims have been made on the LRP.
In May of 2014, FHFA responded to California's PACE LRP by
stating, "FHFA has carefully reviewed the Reserve Fund created
by the State of California and while, I appreciate that it is
intended to mitigate these increased losses, it fails to offer
full loss protection to the Enterprises. The Reserve Fund is
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not an adequate substitute for Enterprise mortgages maintaining
a first lien position and FHFA also has concerns about the
Reserve Fund's ongoing sustainability."
Department of Housing and Urban Development- Federal Housing
Administration (FHA)
In August, 2015, FHA announced the development of Single Family
PACE guidance. The Single Family FHA guidance will address the
impact of PACE assessments on purchases, refinances and loan
modification options available to borrowers experiencing
distress and will require subordination of PACE financing to the
first lien FHA mortgage. FHA stated the guidance at a minimum
will include the following:
Lien position: only PACE liens that preserve payment priority
for first lien mortgages through subordination;
PACE payment, structure, and term: PACE financing must be
fixed rate, fully amortizing loan;
Eligible properties: PACE assessments must be attached to
single family properties, as defined by FHA, which are 1 to
4-unit dwellings, including detached, semi-detached and
townhome properties;
Equity requirements: PACE liens that preserve payment priority
for first lien mortgages will be eligible for financing that
does not exceed FHA's maximum combined loan-to-value ratio;
Record keeping: PACE liens must be formally recorded and be
identifiable to a mortgage lender through a title search;
Additional consumer protections: PACE programs must comply
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with applicable federal and state consumer laws and should
include disclosures to and training for homeowners
participating in the program.
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Concerns with PACE:
Refinancing: A person with a traditional PACE lien which has
super priority status will not be able to obtain refinancing
with a loan which conforms to current Fannie Mae or Freddie Mac
guidelines, which represents the vast majority of conventional
refinancing. Fannie Mae and Freddie Mac policies prohibit them
from purchasing a mortgage with a PACE lien on it (discussed
further below). This greatly limits, if not eliminates, the
ability of a borrower to refinance the property if there is a
PACE super priority lien. Certain programs have advertised that
many homeowners have been able to refinance their property with
PACE liens, but it is likely most of those were done prior to
July 6, 2010 or the homeowners are using non-conventional
financing which may carry higher interest rates.
However, a number of PACE programs are offering to subordinate
the liens at the request of a homeowner. While the FHFA has not
yet taken a stance on the subordination agreements being offered
by these PACE programs it is possible that if the PACE lien is
subordinated the homeowner may be able to then refinance their
homes with conventional financing.
Selling: A homeowner with a PACE lien will have difficulty
selling his or her property to buyers with conventional loans.
Fannie Mae and Freddie Mac are prohibited from purchasing a
mortgage with a PACE lien on it. Therefore a buyer who is using
conventional financing will likely be unable to purchase a home
with the lien, as most conventional mortgages will conform to
Fannie Mae and Freddie Mac guidelines.
Sellers would be limited to those persons who are cash buyers,
or buyers who have loans from lenders who make loans which do
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not conform to Fannie Mae or Freddie Mac guidelines and only
where such loans omit provisions restricting the ability to
borrow with the super priority lien.
Lack of consumer protections: The current PACE program lacks
disclosure requirements in statute. Borrowers should fully
understand these restrictions prior to taking out a first-lien
PACE loan. PACE loan underwriting conducted by public agencies
or private entities lacks basic standards with federal lending
laws. Potential borrowers are not evaluated for their ability
to repay, there are insufficient parameters for debt-to-income
or loan-to-value ratios, and consumer disclosures are inadequate
failing to clearly identify the terms and conditions of the loan
and the subsequent impact such loans have on existing mortgages
and the consumer's ability to sell or refinance their home.
Number of PACE Loans: It is also unclear how many PACE loans
can be made on a single parcel. A single property may therefore
have a super-priority lien established for a loan made for solar
efficiency, a separate loan for water efficiency and a third
loan for seismic strengthening improvements. The potential
stacking of these PACE loans further complicates title and the
rights of other prior lienholders.
AB 2693 will provide much needed consumer protections by
requiring specified disclosure requirements about the PACE loan.
Additionally, the measure addresses FHFAs announcement which
prohibited Freddie Mac and Fannie Mae from purchasing any
mortgages with a PACE lien on the property by changing the PACE
super-priority lien to a judgment lien.
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PACE:
Generally, PACE programs begin with a local public agency (such
as a city, county or municipal utility district) adopting a
resolution to create a Joint Power Authority (JPA) to authorize
the creation of a PACE loan program. The JPA administers the
program directly or may contract with a private entity to
administer it. The JPA may authorize either local governments or
third parties to make loans to homeowners for the conservation
improvements.
When created, it was presumed that public agencies would run the
PACE program themselves; instead the majority of cities or
counties have contracted out the services to new unregulated
private entities to administer the PACE program. Only two
programs run their own PACE program internally: Sonoma County
and Placer County.
The programs are funded by either private or public sources, or
a combination of both. For example, Sonoma County has generally
used public funds for their residential PACE program. The
residential PACE program in Sonoma County, Sonoma County Energy
Independence Program, borrows money from the County, which is
then paid back with interest as the lien is paid off by the
homeowner. In other areas, it is primarily private funding. In
PACE programs administered by private entities the bonds are
typically issued to private investors to pay the cost of the of
the conservation improvements.
How does PACE work? Although details vary between the programs,
generally a homeowner who is interested in adding a conservation
improvement to his or her home is first advised and sometimes
required to have an energy audit conducted on the property to
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identify areas of potential conservation improvements. After
that, a homeowner contacts a contractor, who typically has to be
approved or certified by the PACE program to be eligible to work
on the project. The contractor provides an estimate of the costs
of the conservation improvement(s) the homeowner wishes to add.
The homeowner then applies to the program for approval.
Typically there are costs associated with the application. Only
once the improvement application is approved, will the work
begin.
If the project is approved, the entity administering the program
will enter into an agreement with the property owner where the
entity agrees to pay the cost of the improvement. An assessment
lien is placed on the property for the amount owed plus
interest. After the work is performed, the PACE program entity
pays the contractor. The property owner repays the entity for
the improvements as a special tax assessment on the property tax
bill, generally over a 5 to 20 year period. The property owner
pays the lien in the same manner as he or she would pay property
taxes.
Who uses PACE?-PACE financing is available to property owners in
certain cities or counties that have adopted a program. In
California, over 400 cities and counties participate in PACE.
To qualify, homeowners need to have equity in their home. The
homeowner must have no judgment liens or federal or state tax
liens. The homeowner cannot be in bankruptcy. The property
cannot be subject to a bankruptcy proceeding. The homeowner
must not be delinquent on any mortgages.
According to Ygrene Energy Fund, "PACE is most powerful for
people with income. It heavily favors those with household
incomes over $70,000. In fact, the higher the income of the
property owner, the higher the tax savings and lower the
tax-adjusted interest rate. For many income earners, the
tax-adjusted interest rate may be negative, putting cash back
into the property owners' pocket."
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PACE Financing:
PACE was created as a financing alternative for homeowners in
hopes of encouraging energy efficiency across the state.
Homeowners can use PACE for various energy efficiency
improvements such as solar panels, irrigation components,
windows, HVAC systems, etc. PACE allows a homeowner to apply
for PACE financing, if approved the money financed runs with the
property rather than the homeowner for up to 20 years. PACE
providers encourage homeowners to participate by telling them
PACE is:
Easy and simple to qualify
Financing is not based on the owner's annual income
Assessments do not appear on your credit report - personal
credit score has no impact on funding eligibility or interest
rate
Assessments are paid semi-annually along with your property
taxes
Assessments may be passed to subsequent property owners
0% down- 100% financing- no payment until December 2017
Terms and tax advantages deliver the lowest monthly payments -
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saving you 50% or more over traditional financing.
Prepayment penalties: According to the Sonoma County program:
initial bond financing for improvements is held by the Sonoma
County Treasury, and there is no penalty while the County
Treasury holds the note. However, in order to continue to
provide funding for Program growth, this investment will at some
point be converted to long-term bonds. Bond purchasers generally
require an early payment penalty/premium of up to 3%, based on
current conditions. Please note that while a homeowner can pay
off the assessment completely, the County of Sonoma cannot
accept partial prepayments. Because PACE Financing is through
the sale of bonds, any early payoff would need to include
interest due until the next semi-annual bond payment date, which
under state law is either March 2 or September 2.
Interest rates: Interest rates vary depending on the program,
but tend to be higher than they would be for home equity loans.
A review of various programs showed rates in a range from 6.95
to 9.25% which varied on a number of factors including the
amount borrowed, and the duration of the assessment.
In the News:
Mark Chacon: Energy-efficiency loans could cause homeowner
headaches
Even if you can afford to pay off the liens before the sale
closes, that reduces the amount you can realize from the sale.
And even if you find an all-cash buyer, because the assessment
will transfer with the property, that's an added cost many
prospective buyers won't want to deal with.
Steve Lista found that out the hard way. He put his five-bedroom
home in Riverside County on the market in June but couldn't find
a buyer willing to take on the $3,000-a-year assessment for his
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$27,000 solar panel system.
( http://www.vcstar.com/opinion/columnists/mark-chacon-energy-effi
ciency-loans-could-cause-homeowner-headaches-2f20c692-4bb8-17c7-e
053-0100007f-375102471.html )
Energy improvement program can hobble home sales
When Patti Smith sought a refinance last year for her senior
community home in San Diego County, she had to pay off a $14,774
HERO loan she previously took out for an air-conditioning unit,
tankless water heater and replacement ductwork.
"I was flabbergasted when our mortgage company told us we had a
lien," said Smith, 62. "The contractor who pushed the HERO
program never mentioned the word 'lien.' If he would have we
would have never done it."
Smith said she also had to pay a penalty of $1,734.14 to HERO
for paying off the loan early. The HERO program has since waived
the penalty fee for homeowners.
( http://www.sacbee.com/news/business/real-estate-news/article2752
8559.html#storylink=cpy )
A Growing Green Debt?
Last September, Erin Stumpf of Dunnigan Realtors met with a
homeowner in Sacramento's Tallac Village neighborhood. The owner
wanted to sell, and she'd replaced her yard with artificial
turf, taking out a $7,000 PACE loan to do it. "Oh, but don't
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worry," the homeowner told Stumpf. "The PACE loan will be
transferred to the new owner."
Stumpf had to explain that wasn't true. The prospective buyer
likely wouldn't be able to get a mortgage because of the PACE
loan - Fannie Mae and Freddie Mac, which guarantee 90 percent
of the country's home loans, won't do so for properties with a
PACE lien. The seller fortunately had enough home equity and
used it to pay off her turf at the time of the sale.
Because she cleared her loan early, she was also hit with a
prepayment penalty of at least $800, Stumpf says. "The way this
was sold to my client and the way that it's sold to the public
in general is really misleading," Stumpf says.
( http://www.comstocksmag.com/article/growing-green-debt )
Clean Energy Loans Make Sales Messy- Wall Street Journal-
11/7/2015
Lori Laine's foray into a California clean-energy program made
it tough for her to sell her house and ended up costing her
hundreds of dollars and months of aggravation.
The culprit: a nearly $8,000 loan she took out last year to pay
for a new air-conditioning unit to replace her broken one, part
of a statewide push to promote clean energy with low-interest
loans.
"I would never do this again," Ms. Laine said.
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Ms. Laine said her air-conditioning contractor told her the
financing would transfer to a new owner if she sold the home,
though she admits the documents she signed from San Diego-based
lender Renovate America Inc. stated there could be difficulties.
When she tried to sell her Highland, Calif., home last October,
the buyer said Ms. Laine would need to pay off the balance in
full before the buyer could get a mortgage.
Ms. Laine took the home off the market in hopes the rules would
change, but earlier this year, she gave in and paid it off in
order to sell the house.
Arguments in Support:
According to the California Association of Realtors, the
California Bankers Association, the California Credit Union
League, the California Escrow Association, the California
Mortgage Association, the United Trustees Association and the
California Mortgage Bankers Association, AB 2693 will require
that consumers receive the same Truth in Lending Disclosures
about the PACE loan as they are entitled to receive in
connection with any other home equity loan. There should be no
confusion in the mind of either the Committee Members or
homeowners- these encumbrances might be labeled "assessments,"
but they are really loans and they come at the expense of the
homeowner's equity in the property. The federal Consumer
Financial Protection Bureau has recently released a universal
Truth in Lending Disclosure that applies to every consumer loan,
and consumers and homeowners should receive it in PACE loans
too. Unfortunately for homeowners, if they don't receive a
Truth in Lending Disclosure they cannot effectively shop for
financing of energy conservation improvements, and cannot make
an "apples to apple" comparison of the loans to finance the home
improvement.
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The super priority of PACE liens has caused the secondary market
(Fannie Mae and Freddie Mac; and soon FHA as well) to refuse to
finance or re-finance a property with a PACE lien remaining
attached, consequently affecting the liquidity of the lending
market in CA. In a statement issued in December 2014, the FHFA
wanted to "make it clear to homeowners, lenders, other financial
institutions, state officials, and the public that Fannie Mae
and Freddie Mac's policies prohibit the purchase of a mortgage
where the property has first-lien PACE loan attached to it. The
statement by the FHFA has two implications for borrowers:
first, a homeowner with a first lien PACE loan cannot refinance
their existing mortgage with a Fannie Mae or Freddie Mac
mortgage. Second, anyone wanting to buy a home that already has
a first-lien PACE loan cannot use a Fannie Mae or Freddie Mac
loan for the purchase.
Arguments in Opposition:
According to the California State Association of Counties and
the League of California Cities, "eliminating the senior lien
status of PACE assessments would essentially prohibit the use of
property tax assessments to secure the financing, the major
attractant of the program. AB 2693 creates a financing
structure that would make PACE unaffordable, unsustainable and
unavailable. Not only does that structure attack the very
foundation of PACE, it does so without regard to options already
available in the marketplace enabling PACE contractual
assessments to be limitedly subordinated to a first deed of
trust."
According to Renovate America, "If passed, AB 2693 would strike
a devastating blow to PACE by removing the very features of the
program which motivate consumer behavior by converting the lien
from an assessment lien to a judgment lien. A judgment lien, by
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its legal character, is unable to have 20-year financing terms,
like PACE currently allows, or transfer from owner to owner,
like PACE currently allows. It would eliminate the ability of
homeowners to finance products over their entire useful life,
forcing them to elect higher monthly payments or making PACE
financing altogether unaffordable. Further, a judgment lien is
extinguishable by foreclosure, jeopardizing the security and
credit rating of the bonds issued by local government and,
therefore, the end price to the consumer. Converting the PACE
lien to a judgment lien would gut the structure of PACE, making
it an uncompetitive form of lender financing that raises costs
to consumers and reinstates the very market failure PACE was
created to address."
Previous Legislation:
AB 2597 (Ting, Chapter 614, Statutes of 2014) revised the
CAEATFA underwriting standard for the PACE program by increasing
the maximum amount of an assessment from 10 percent to 15
percent of the property value and specifies that PACE financing
is an "assessment" or "financing" (as appropriate) and not a
"loan."
AB 1883 (Skinner, Chapter 599, Statutes of 2014) allowed a
public agency to transfer voluntary contractual assessments, if
bonds have not been issued, as specified.
SB 96 (Committee on Budget and Fiscal Review, Chapter 356,
Statutes of 2013) required the California Alternative Energy and
Advanced Transportation Financing Authority to develop and
administer a risk mitigation program for PACE loans.
SB 555 (Hancock, Chapter 493, Statutes of 2011) added the
acquisition, installation, and improvement of energy efficiency,
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water conservation, and renewable energy improvements that are
affixed to the types of facilities that a community facilities
district (CFD) may finance, or refinance, regardless of whether
the buildings or property are privately or publicly owned.
SB 1340 (Kehoe, Chapter 649, Statutes of 2010) expanded the use
of voluntary contractual assessments to finance electric vehicle
charging infrastructure and correspondingly expanded the PACE
bond reserve program.
SB 77 (Pavley, Chapter 15, Statutes of 2010) authorized CAEATFA
to develop and administer a state PACE bond reserve program to
pay bondholders in the event a PACE program had insufficient
funds, which would reduce risk to bondholders and facilitate
smaller interest rates. CAEATFA has suspended development of
this program pending resolution of FHFA's concerns described
above.
AB 44 (Blakeslee, Chapter 564, Statutes of 2010) expanded the
use of voluntary contractual assessments to include financing of
power purchase agreements, and prohibited contractual
assessments if the total amount of the assessments and taxes on
the property exceeds 5% of the property's market value.
AB 474 (Blumenfield, Chapter 444, Statutes of 2009) expanded
local agencies' PACE authorization to include water efficiency
projects.
AB 811 (Levine, Chapter 159, Statutes of 2008) authorized all
cities and counties in California to designate areas within
which city officials and willing property owners may enter into
contractual assessments to finance the installation of
distributed generation renewable energy sources and energy
efficiency improvements.
Double-referral:
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This measure is double referred to the Assembly Local Government
Committee.
Recommended Amendments:
The suggested amendments attempt to address the issues raised by
the opposition. The amends will delete the disclosure
provisions in the bill referencing TRID and instead codify
disclosure requirements in statute so all entities using the
PACE program will have to provide the same disclosures to
borrowers. Additionally, the amends address the concerns around
changing the super lien priority by stating that in the event of
a foreclosure by the purchase money (or refinanced purchase
money) lender, the delinquency on a PACE encumbrance is junior
to the purchase money, but the encumbrance itself survives. The
amendments also clarify that the measure is prospective.
On page 9, delete lines 1-29 and insert:
Streets and Highway Code- 5898.15.
(a) A public agency shall not permit a property owner to
participate in any program established pursuant to this
chapter if:
(1) The owner's participation would result in the total
amount of any annual property taxes and assessments
exceeding 5 percent of the property's fair market value, as
determined at the time of approval of the owner's
contractual assessment; or
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(2) The total mortgage-related debt and contractual
assessment-related debt on the underlying property would
exceed the fair market value of the property, as determined
at the time of the owner's contractual assessment; or
(3) The mortgage-related debt on the property is equal to
90% or greater of the property's fair market value, as
determined at the time of approval of the owner's
contractual assessment; or
(4) The property owner is unable to meet all of the
following criteria:
a. The property owner must certify that property
tax for the subject property are current and that
there is no more than one late payment during the
previous three years or the period of time during
which the property owner has owned the subject
property, whichever is less.
b. The property owner must certify that he or she
is not currently in default on any debt secured by the
subject property, and that there is no more than one
late payment (30 days maximum) during the 12-month
period preceding the time of the owner's contractual
assessment.
c. No homeowner applicant has had any active
bankruptcies within the last 7 years; provided
however, that this criterion can be met if a
homeowner's bankruptcy was discharged between two and
seven years before the application date, and the
homeowner(s) have had no payments (mortgage or
non-mortgage) past due for more than 60 days in the
most recent 24 months; and
d. The property owner(s) have no involuntary
lien(s) recorded against the Property in excess of
$1,000.
(b) A public agency shall not permit a property owner to
participate in a program pursuant to this chapter unless the
property owner has been provided with a completed Financing
Estimate set out in Section 5898.15.5, or a substantially
equivalent document that displays the same information in a
substantially similar format
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(c) Failure to comply with the requirements of either subsection
(a) or (b) renders the contractual obligations of a property
owner for a contractual assessment entered into pursuant to this
chapter void.
(d) Except as provided in subdivision (b), nothing in this
chapter shall be construed to void or otherwise release a
property owner from the contractual obligations incurred by a
contractual assessment on a property.
1)Add Streets and Highway code Section 5898.15.5 and insert the
following language:
5898.15.5. The disclosure set out below shall be completed and
delivered to a homeowner as soon as practicable before, and in
no event later than when, a homeowner becomes obligated on an
agreement to a voluntary assessment described in Section 26054
of the Public Resources Code, Chapter __, commencing with Sec.
5898 of this code, or Section 53328.1 of the Government Code.
P.A.C.E. Financing Estimate and Disclosure
Notice to Homeowners: The financing arrangement described below
will result in an assessment against you property which will be
collected along with your property taxes. The assessment may
jeopardize your ability to sell or refinance your property
unless you repay the underlying debt.
There may be cheaper alternative financing arrangements
available from conventional lenders. You should read and review
the terms carefully, and if necessary, consult with a tax
professional or attorney.
Products and Costs
Product costs (including Description
labor/installation) $___________1.
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2.
3.
Financing Costs
Application fees and costs$___________
Prepaid Interest $___________
Other Costs $___________
Total Amount Financed $ ___________
Annual Percentage Rate (APR) _______%
Simple Interest Rate _______%
Total Annual Principal, Interest and
Administrative Fees $__________Note: If your property
taxes
are paid through an impounds
account, your lender may
apportion the amount and add
it to your monthly payment.
See "Other considerations", below
Total Amount you will have paid
over the life of the loan $__________
Other Costs
Appraisal fees $___________
Bond related costs $___________
Annual Administrative fees$___________
Estimated closing costs$___________
Credit Reporting Fees $___________
Recording Fees $___________
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Total Financing Costs and Closing Costs $ ___________
Estimated cash (out of pocket)
to close $___________
Other Terms
Prepayment fee /_/ No/_/ Yes _________
Assumable by new owner /_/ No/_/ Yes
Additional Information About This Financing
Comparisons [Use this information to compare to other financing
options]
------------------------ $___________ Principal you
will have paid off.
$___________ Amount of interest paid.
In 10 years $___________ Amount of financing and other
costs you will have paid.
$___________ Total you will have paid.
------------------------
Annual Percentage Rate (APR)___________%
------------------------
Total Interest Paid (as a percentage
of all the payments you have made)___________%
Other Important Considerations
Assumption by New Buyer/_/ Yes - Allowed on original terms
/_/ No - Not allowed on original terms
I understand that if I refinance my
home, my
mortgage company may require me to pay
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off the
full remaining balance of this
obligation.
If I sell my home, the buyer or their
mortgage
company may require me to pay off the
full
remaining balance of this obligation.
_______________
[Borrower initials]
Monthly Mortgage PaymentsYour payments will be added to your
property tax
bill. Whether you pay your property taxes
through
your
mortgage payment, using an impound account, or if
you pay them directly to the Tax
Collector, you will need to save an estimated
$_______ for your first tax installment. After
your
first
payment, if you pay your taxes through an impound
account your monthly mortgage payment should be adjusted by
your lender to cover your
increased property tax bill.
_______________
[Borrower initials]
Tax Benefits Consult your tax advisor regarding tax
credits, [credits and deductions] tax deductibility, and
other tax benefits available. Making an
appropriate application for the benefit is your
responsibility.
_______________
[Borrower initials]
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Confirmation of Receipt
This confirms the receipt of the information in this form. You
do not have to accept this financing just because you
acknowledge that you have received or signed this form, and it
is NOT a contract.
________________________________________________________
[Property Owner Signature - Date][Property Owner Signature -
Date]
2)On page 11, delete lines 4-5 and insert:
"subject to (3) below, retain the sole right to enforce its
senior lien status.
(3) When a holder of a note secured by a deed of trust for
purchase money, or a refinanced purchase money obligation
institutes a foreclosure; or when the public agency institutes a
foreclosure, the interest of the purchase money note holder
shall be treated as an encumbrance that is senior to any
delinquency of a voluntary assessment described in Section 26054
of the Public Resources Code, commencing with Sec. 5898 of this
code, or Section 53328.1 of the Government Code. The seniority
of the purchase money obligation shall be retained regardless of
whether the delinquency occurred before or after the purchase
money obligation was recorded against the property. In enacting
this Section, the Legislature recognizes that the voluntary
special assessments authorized by this Chapter are unique, and
require unique treatment of their secured priority. This Act
shall not be interpreted or applied to affect the status or
priority of any municipal or county lien other than a lien
addressed in this Section, nor shall it create any implied
precedent for the interpretation of any other remedy or
collection mechanism available to a governmental entity. The
change in priority effected by this Act shall apply to
assessments agreed to after January 1, 2017.
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REGISTERED SUPPORT / OPPOSITION:
Support
California Association of Realtors (Sponsor)
California Bankers Association (Sponsor)
California Credit Union League (Sponsor)
California Escrow Association (Sponsor)
California Mortgage Association (Sponsor)
California Mortgage Bankers Association (Sponsor)
United Trustees Association (Sponsor)
California Community Banking Network (CCBN)
Community West Bank
Valley Republic Bank
Oppose unless Amended
California Association of County Treasurers and Tax Collectors
(CACTTC)
Opposition
Applied Building Science (ABS)
Brower Mechanical, Inc.
California Chapters of the National Electrical Contractors
Association (NECA)
California Energy Efficiency Industry Council
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California League of Conservation Voters (CLCV)
California Legislative Council of the Plumbing, Heating and
Piping Industry (CLC)
California State Association of Counties (CSAC)
Center for Climate Protection
Clarke & Rush
Climate Action Plan
Community Action Agency of Butte County
Eco Performance Builders
Efficiency First California
Energy Masters
Energy Resolutions, Inc.
Environmental Defense Fund (EDF)
J R Construction - SOL SOLUTIONS
JR Putman Inc.
League of California Cities (LCC)
McClelland Air Conditioning
PACE Equity
PACE Funding Group
PACENation
Placer County Contractors Association (PCCA)
Placer County Treasurer-Tax Collector
PROgressive Insulation & Windows
PROS360
Renew Financial
ReNewAll
Renovate America
Sonoma County Board of Supervisors
Sonoma County Water Agency (SCWA)
South Bay Cities Council of Governments (SBCCOG)
Syntrol
Vote Solar
Western Riverside Council of Governments
Ygrene Energy Fund
12 individuals
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Analysis Prepared by:Kathleen O'Malley / B. & F. / (916)
319-3081