BILL ANALYSIS Ó
AB 2693
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Date of Hearing: May 4, 2016
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Susan Talamantes Eggman, Chair
AB 2693
(Dababneh) - As Amended April 28, 2016
SUBJECT: Contractual assessments: financing requirements:
property improvements.
SUMMARY: Makes changes to the statutes which govern
contractual voluntary assessments and Mello-Roos special taxes
which provide the financing authorization for Property Assessed
Clean Energy (PACE) programs. Specifically, this bill:
1)Prohibits a public agency from permitting a property owner to
participate in any voluntary contractual assessment program if
any of the following apply:
a) 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;
b) The total mortgage-related debt on the property alone 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; and,
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c) The property owner is unable to meet all of the
following criteria:
i) The property owner certifies that the property taxes
are current and that there is no more than one late
payment, as specified;
ii) The property owner certifies that he or she is not
currently in default on any debt secured by the property
and that there is no more than one late payment, as
specified;
iii) If the property owner is a homeowner applicant, the
property owner has not had any active bankruptcies within
the last seven years. This criteria can be met if the
bankruptcy was discharged between two and seven years
before the application date and there are no mortgage or
nonmortgage payments past due, as specified; and,
iv) The property owner does not have an involuntary lien
recorded against the property in excess of $1,000.
2)Prohibits a public agency from permitting a homeowner from
participating in any voluntary assessment program, unless the
property owner has been provided with a completed financing
estimate document, described in 7), below, or a substantially
equivalent document that displays the same information in a
substantially similar format.
3)Provides failure to comply with the requirements of 1), and
2), above renders the contractual obligation of a property
owner for a voluntary contractual assessment void.
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4)Specifies that the 5% cap on any annual property taxes and
assessments, as determined at the time of the approval of the
owner's voluntary contractual assessment, is on the property
fair market value.
5)Deletes exiting law which provides that nothing in the
statutes which govern contractual assessments shall be
construed to void or otherwise release a property owner from
the contractual obligations incurred by a contractual
assessment, particularly in the event that the total amount of
annual property taxes and assessments exceeds 5% of a
property's market value after the property owner has entered
into a contractual assessment. Instead provides, except as
stated in 1), and 2), above, nothing in the statutes which
govern contractual assessments shall be construed to void or
otherwise release a property owner from the contractual
obligations incurred by a contractual assessment on a
property.
6)Requires specified disclosure to be completed and delivered to
a homeowner, as soon as practicable before, and in no event
later than when a homeowner becomes obligated to a voluntary
assessment, pursuant to existing law which governs voluntary
contractual assessments, Mello-Roos special taxes, and the
definition of a PACE bond under the California Alternative
Energy and Advanced Transportation Financing Authority's
(CAEATFA) Act.
7)Specifies the contents and format of the "Financing Estimate
and Disclosure" which must also include a Notice to Homeowners
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that reads "The financing arrangement described below will
result in an assessment against your 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."
8)Changes, in existing law for residential private property
units that the number is five not four, to distinguish
commercial and nonresidential property from residential
dwelling units.
9)Requires, in a foreclosure initiated by the noteholder secured
by a deed of trust for purchase money or refinanced purchase
money obligation or the local government, the purchase money
or refinance purchase money holder to be treated as an
encumbrance that is senior to any delinquency of a contractual
voluntary assessment.
10)Requires the seniority of the purchase money obligation to be
retained, regardless of whether the delinquency occurred
before or after the purchase money obligation was recorded
against the property.
11)Provides that the Legislature recognizes that the voluntary
special assessments, as specified, are unique, and require
unique treatment of this secured priority.
12)Prohibits this bill from being interpreted or applied to
affect the status or priority of any municipal or county lien
other than a lien addressed in this section, and prohibits it
from creating any implied precedent for the interpretation of
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any other remedy or collection mechanism available to a
governmental entity.
13)States the change in priority affected by this bill applies
to assessments agreed to on or after January 1, 2017.
14)Requires an assessment levied or a delinquency collected,
pursuant to the Mello Roos Community Facilities Act, to
finance specified energy improvements be collected using the
procedures set out in statutes which govern voluntary
contractual assessments.
15)Removes a Mello Roos special tax, a voluntary special tax, or
authorization granted, pursuant to a chartered city's
constitutional authority, under Section 5 of Article XI of the
California Constitution, from the types of revenues used to
secure a "Property Assessed Clean Energy bond" or "PACE bond"
in the definition provided in the PACE and Cleaner Energy
Financing Program under the CAEATFA Act.
16)Removes the authorization in existing law for a local
agency's legislative body to authorize another procedure for
the imposition and collection of voluntary contractual
assessments, including, but not limited to, lien priority, the
timing of collection, and any penalties and remedies in the
event of delinquency and default.
17)Provides that any voluntary assessment has the force, effect,
and priority of a judgment lien, as established by the date of
its recordation.
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FISCAL EFFECT: None
COMMENTS:
1)Property Assessed Clean Energy (PACE) Programs. Utilizing the
authority to create a financing district as a charter city,
the City of Berkeley, in 2007, established a citywide
voluntary program to allow residential and commercial property
owners to install solar systems and make energy efficiency
improvements to their buildings and to repay the cost over 20
years via an assessment on the property tax bill. Since the
inception of PACE as a financing tool in Berkeley, the
Legislature has granted the authority to local governments to
provide up-front financing to property owners to install
renewable energy sources or energy efficiency improvements
that are permanently fixed to their properties, which is
repaid through the property tax system.
Most PACE programs are implemented and administered under two
statutory frameworks: AB 811 (Levine), Chapter 159, Statutes
of 2008, amended the Improvement Act of 1911 to allow for
voluntary contractual assessments to finance PACE projects,
and SB 555 (Hancock), Chapter 493, Statutes of 2011, amended
the Mello-Roos Community Facilities District Act to allow for
Mello-Roos special taxes (parcel taxes) to finance PACE
projects.
The Legislature has expanded PACE for residential and
commercial property owners to pay for renewable energy
upgrades, energy or water efficiency retrofits, seismic
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improvements, and other specified improvements for their homes
or buildings. Local agencies create PACE assessment districts
under AB 811 or establish a CFD under SB 555, 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 or
agree to annex their property into a CFD to re-pay the bonds
via an assessment or special tax (parcel tax), secured by a
priority lien, on their property tax bill. The intent of the
program is that the assessment or parcel tax remains with the
property even if it is sold or transferred, and the
improvements must be permanently fixed to the property.
In California, there are several models available to local
governments in administering a PACE program. Only the
counties of Sonoma and Placer administer their own PACE
programs. The majority of local governments contract with a
private third-party or join a Joint Powers Authority (JPA),
which contracts with a private third-party to carry out their
PACE programs. The cost of third-party administration is not
borne by the local agency, but is built into PACE loan
financing. Some of these programs focus on residential
projects, others target commercial projects, and some handle
both residential and commercial portfolios.
2)Federal Housing Finance Agency. In 2010, the Federal Housing
Finance Agency (FHFA), which oversees the nation's largest
mortgage finance companies, Fannie Mae and Freddie Mac, raised
concerns that residential PACE financing could pose a risk for
federal mortgage enterprises (Fannie Mae and Freddie Mac),
because PACE loans are a first-priority lien in the case of
foreclosure and outstanding PACE assessments would be paid
before mortgage costs. FHFA specifically pointed to the
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underwriting for PACE programs which result in
collateral-based lending rather than lending based upon
ability to pay. Statements also pointed to the absence of
Truth In Lending Act and other consumer protections. In
August of 2010, Fannie Mae and Freddie Mac announced they
would not purchase mortgages for homes with first lien
priority PACE obligations. The FHFA's action triggered many
local governments to suspend their residential PACE programs.
SB 96 (Committee on Budget and Fiscal Review), Chapter 356,
Statutes of 2013, sought to address FHFA's decision, and
tasked CAEATFA with administering a PACE loss reserve program
of $10 million to keep mortgage interests whole during a
foreclosure or a forced sale. CAEATFA established
regulations, and the majority of PACE administrators
participate in the program. The PACE Loss Reserve Program
will compensate first mortgage lenders for losses resulting
from the existence of a PACE lien in a foreclosure or forced
sale. The program will cover PACE payments made during
foreclosure, if a mortgage lender forecloses on a home that
has a PACE lien, and any losses to a first mortgage lender up
to the amount of outstanding PACE payment, if a county
conducts a forced sale on a home for unpaid taxes. The intent
of the Program is to put the first mortgage lender in the same
position it would be in without a PACE lien.
The FHFA issued clarity to their position following the
creation of the PACE Loss Reserve Program, in a letter to the
Governor dated May 1, 2014, which reads, "I am writing to
inform you that FHFA is not prepared to change its position on
California's first-lien PACE program and will continue to
prohibit the Enterprises from purchasing or refinancing
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mortgages that are encumbered with first-lien PACE loans?In
making this determination, 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 not an adequate substitute
for Enterprise mortgages maintaining a first lien position and
FHFA also has concerns about the Reserve Fund's ongoing
sustainability. "
3)Federal Housing Administration. In August 2015, the Federal
Housing Administration (FHA) announced the development of
Single Family FHA PACE guidance. "The Single Family FHA
guidance will address the impact of PACE assessment on
purchases, refinances and loan modification options available
to borrowers experiencing distress and will require the
subordination of PACE financing to the first lien FHA
mortgage. The guidance will address the eligible methods of
subordination of existing PACE liens." The FHFA has not
issued anything further following the announcement from FHA
regarding the development of guidelines.
4)Liens. PACE financing provides creditors security that they
would be repaid because property tax liens are super priority
liens that are senior to mortgage debt. If a house is sold in
a foreclosure or tax sale, the PACE lien holder will be paid
before other lienholders, like mortgage lenders. In response
to FHFA's decision not to purchase mortgages with PACE liens,
some third party PACE providers have started offering an
option to homeowners who are unable to refinance or sell their
homes called "Limited Subordination" or "Contractual
Subordination". These contractual lien subordinations are an
agreement between the PACE lien holder (third party PACE
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program administrator/local government) and a mortgage lender
(noteholder of the first deed of trust), where the PACE lien
holder "subordinates" their right to foreclose on a home for
non-payment of PACE assessments, and to the proceeds from
foreclosure, until the mortgage lender has been paid in full
for amounts due under its mortgage.
This practice is relatively new within the industry, and not
all PACE providers offer contractual lien subordination. The
concept of subordinated PACE liens and subordinated PACE bonds
is still relatively new to the capital markets. According to
Renovate America,
a third party PACE administrator, since last spring they have
approved 100% of applications from homeowners seeking to enter
into contractual lien subordination agreements and have
completed over 400 subordination contracts. Additionally, the
consequences of contractual subordination agreements is
untested when it comes to the issues presented to a local
government's county tax collector to comply with existing law
which governs delinquent assessments, when they are removed
from the tax roll, interest penalties, and property sales.
5)Bill Summary. This bill makes a number of changes to the
statutes governing voluntary contractual assessments and
Mello-Roos special taxes which are used to repay "PACE bonds"
which finance energy improvements on private property in PACE
programs that utilize the AB 811 or SB 555 statutory
framework. This bill is co-sponsored by the California
Association of Realtors, California Bankers Association,
California Credit Union League, California Escrow Association,
California Mortgage Association, California Mortgage Bankers
Association, and the United Trustees Association.
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Parameters on a Property Owner's Participation in PACE. This
bill establishes uniform criteria that a property owner must
meet in order to participate in a voluntary contractual
assessment program. Existing law prohibits a property owner
from participating in a voluntary contractual assessment
program, if participation would result in the total amount of
annual property taxes and assessments exceeding 5% of the
property's market value, as determined at the time of approval
of the owner's contractual assessment. This bill specifies
that the 5% cap is based on the property's fair market value.
This bill also places parameters on a property owner's
participation based on the property's total mortgage-related
debt and in combination with debt related to the contractual
assessments. This bill also places constraints on a property
owner's participation based on financial history relating to
late payments on property tax and other related debt secured
by the property.
If the property owner is a homeowner, this bill places
parameters on participation due to recent bankruptcy and
requires that homeowners are provided with a completed
financing estimate document. This bill states that failure to
comply with any of these requirements renders the contractual
obligation of a property owner for a voluntary contractual
assessment void.
Disclosure to Homeowners. This bill establishes uniform
disclosures that must be provided to each homeowner prior to
participating in a PACE program (established pursuant to
AB 811 or SB 555). Existing law places requirements on a
local agency upon passage of a resolution to use voluntary
contractual assessments, including a report which must contain
specified information regarding the program and underwriting
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standards used. Under this bill, each homeowner must receive
a completed financing estimate document, which contains
products and costs, financing costs, other terms, and
notification to the homeowner about making payments via the
property tax bill, and the potential requirement to pay the
remaining balance of the assessment upon sale or refinance.
Lien Status. This bill requires, in a foreclosure initiated
by the purchase money or refinanced purchase money holder or
local government, the delinquency of a contractual voluntary
assessment to be junior to the purchase money. This bill
provides that the seniority of the purchase money obligation
remains, regardless of whether the delinquency occurred before
or after the purchase money obligation was recorded against
the property. This bill states the changes in priority
affected by this bill applies to assessments agreed to on or
after January 1, 2017.
Unlike the current practice of contractual lien subordination,
which is an agreement entered into on a case-by-case basis,
when a homeowner tries to refinance or sell their home, this
bill changes the lien priority in the event of foreclosure for
delinquent PACE assessments to any voluntary contractual
assessment agreed to on or after January 1, 2017. This bill
seeks to provide more security to a mortgage lender (note
holder of trust deed of trust for purchase or refinance money)
by granting their claim to the proceeds in the event of a
foreclosure as senior to the claims of a PACE lien holder
(third party administrator or local governments)
of any delinquent contractual assessment.
6)Author's Statement. According to the author, "Homeowners are
at risk from two deficiencies in the law governing so-called
PACE financing: (1) A PACE encumbrance jeopardizes
conventional mortgage financing for the home; and, (2) PACE
financing extends credit secured by the home without providing
Truth in Lending disclosures and without the underwriting
safeguards applicable to other loans.
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"PACE loans present several challenges for consumers in that
they negatively affect future financial transactions, there is
a lack of true underwriting relative to the borrower's ability
to repay the debt, and the terms and conditions are not
adequately disclosed. These methods of finance have received
attention by FHFA, the regulator for the government-sponsored
entities (GSEs) known as Fannie Mae and Freddie Mac. The
FHFA's concerns are rooted in longstanding lending and
underwriting principles. The GSEs exist as a secondary market
providing liquidity, stability and affordability to the
mortgage market. The GSEs buy mortgages from lenders and the
cash raised from selling loans allows those lenders to engage
in further lending. This process provides a stable supply of
funds available for mortgage loans and makes those loans more
affordable for consumers.
"Since the federal government is responsible for backing the
overwhelming majority of all new mortgage originations, the
GSEs' unwillingness to purchase mortgages will have a chilling
effect on the availability of credit and the opportunity for
consumers to purchase or refinance homes. One of the GSEs has
recently announced that it will allow a "cash out" refinance
to include funds to pay off the balance of a pace encumbrance,
but the solution is at best a bandaid on a broken situation -
homeowners must then demonstrate that they have additional
equity to secure the extra debt, they will have to pay
increased downpayment and costs, and must qualify to pay the
increased mortgage payments.
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"These consequences are substantial and may preclude a
borrower from completing a necessary transaction. Ultimately,
a borrower needing to refinance or sell their property will be
forced to pay the entirety of the PACE loan balance. Concerns
have also been expressed that such PACE-like financing
mechanisms may reduce the marketability of houses so
encumbered. Prospective purchasers may be reluctant to enter
transactions where a PACE loan exists, or find that
conventional financing is unavailable.
"The level of underwriting conducted by public agencies or
their agents when extending PACE loans is deficient. In fact,
PACE loans currently technically trigger a "term default"
under uniform deeds of trust wherein they violate clauses
prohibiting the borrower from allowing a super-priority lien
to attach to the real property. This is exacerbated by the
failure to ask lienholders for consent prior to entering into
a voluntary contractual assessment.
"AB 2693 makes two important consumer protection changes to
PACE loan agreements. First, the measure requires that
borrowers receive a model, statutory disclosure designed to
inform them about the financial terms and conditions
associated with a PACE loan. Adopting this standardized
disclosure is intended to reflect an effort to achieve
compromise in that it is less burdensome than the Truth in
Lending/Real Estate Settlement Procedures Act Integrated
Disclosure (TRID) that lenders must provide when making
real-estate secured loans. Second, the measure requires PACE
loans to be subordinated to purchase money mortgage debt
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consistent with what has been described as the PACE industry
general business practice. This is a fair compromise giving
PACE providers better lien priority compared to other
creditors. Other creditors are granted judgment lien status
wherein their priority is based upon recordation date.
"In furtherance of our effort to achieve compromise, recent
amendments make it clear that the bill applies only to
single-family residential PACE liens, and not commercial or
non-residential loans. In addition, language has been added
applying these new provisions prospectively to PACE
encumbrances agreed to on or after January 1, 2017."
7)April 28th Amendments. Upon passage in the Banking and
Finance Committee, the author significantly amended this bill.
The committee amendments sought to remove language in the
bill regarding judgment liens and instead add language
regarding limited lien subordination. These amendments did
not, however, strike out the judgment lien language. The
Committee may wish to note the bill summary and comments of
this analysis focus on the author's intent which does not
reference the judgment lien language.
8)CAEATFA. As part of the 2015-16 Budget, the Legislature
tasked CAEATFA, in consultation with the California Public
Utilities Commission, to create a working group with
stakeholders to develop criteria for the comparative
assessment of energy efficiency financing programs in
California, including PACE financing. CAEATFA has created a
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public process to ensure stakeholder participation and draft
criteria for the comparative assessment of energy efficiency
financing programs for public comment. The draft criteria
includes energy saving attributable to program financing,
cost-effectiveness, and customer experience, which includes
customer satisfaction and customer protections.
9)Policy Considerations. The Committee may wish to consider the
following:
a) The Evolution of PACE and Lien Subordination. The
Committee may wish to consider if it is the best approach
to legislate based on the current practice of contractual
lien subordination offered by some third party PACE
providers.
At the inception of the PACE program, the presence of third
party administrators and the accompanying complex financing
structures were not contemplated by the Legislature. Very
few local governments administer their own PACE programs,
and instead, contract out to third party providers. As
PACE continues to evolve and the realities are very
different than those imagined at the outset of Legislative
authorization, the Legislature has continued to attempt to
catch up not only with the advances in energy efficiency
technology, but to the evolving methods of financing
utilized by these companies in this vastly growing and
thriving industry. The Committee may wish to consider the
impact of this bill on PACE programs implemented by local
governments that do not offer contractual lien
subordination and who argue that the risk to local
governments placed in a less secure position behind
mortgage lenders in the case of foreclose would prevent
them from continuing their PACE program in a responsible
manner.
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Additionally, the Committee may wish to obtain a fuller
picture of the use of contractual lien subordination by
third party providers before concluding that there would be
no consequences to the viability of PACE programs. The
Committee may wish to consider the implications of
subordination to any degree either statutorily or
contractually not only because the security is provided by
assessments or special taxes collected on the property tax
roll, but because the rules governing tax collection,
default, and property sale do not address the types of
unique PACE financing structures. Further, the Committee
may wish to consider the implications on the market of more
frequently used contractual subordination and legislatively
mandated subordination.
b) Disclosures. The Committee may wish to note the
consensus from stakeholders around the increased
disclosures provided by this bill and contemplate whether
disclosures may address some of the potential issues of
homeowners becoming delinquent on their assessment payments
and help to avoid foreclosure. The Committee may wish to
ask the author to expand these efforts by requiring PACE
providers to offer a three-day right of rescission.
c) Broader Oversight. Beyond the scope of this individual
bill, the Committee may wish to consider a few other
elements in consideration of PACE programs. A number of
articles provided by the author point to aggressive
contracting techniques, misinformation and misunderstanding
on the part of the homeowner, a lack of savings due to high
interest rates, and challenges for homeowners seeking to
refinance or sell their properties. The Committee may wish
to more closely examine the oversight that is being
provided by local governments, including JPAs, on the
practices of contractors, the relationship between third
party providers and contractors, the outcomes of CAEATFA's
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working group, and the use contractual lien subordination
and effects on local governments in the event of a default,
foreclosure, and property sale.
d) Local Government Requirements. Current law establishes
a number of requirements for a local agency upon passage of
a resolution to use voluntary contractual assessments. One
of these requirements is a report which must include
specified information regarding the contractual assessment
program. For example, the report must include a brief
description of criteria for determining the underwriting
requirements and safeguards that will be used to ensure
that the total annual property tax and assessments on the
property will not exceed 5% of the property's market value,
and a plan for raising a capital amount required to pay for
work performed pursuant to contractual assessments.
As the statutes to expand flexibility to financing
structures utilized by PACE have been amended, the
requirements of what should be included in a local
governments resolution has not. For example, local
agencies that transfer all rights to any voluntary
contractual assessments, if bonds have not been issued, to
a third party capital provider are not required to include
these types of agreements in their report on a contractual
assessment program. Similarly this bill does not require
any of the criteria, disclosure, or information regarding
the lien status to be included in the report. The
Committee may wish to consider if this information should
be provided to homeowners on an individual basis if there
should also be increased disclosure provided in the report
produced by local governments.
e) Clarity and Consistency. The Committee may wish to
encourage the author to further clarify which provisions of
the bill impact residential versus commercial property
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owners. The author may also wish to clarify the amendments
to the definition of a PACE bond under CAEATFA's Act and
the Mello-Roos Act to ensure that special taxes collected
for PACE programs are correctly referenced to ensure the
bill's provisions apply to PACE programs administered
utilizing both the AB 811 and SB 555 statutes. Further,
because local agencies utilize voluntary contractual
assessments to pay for other improvements besides PACE, the
author may wish to clarify that the disclosure and
limitations on participation apply to other programs
established under existing law which authorizes voluntary
contractual assessments.
10)Committee Amendments. In order to address issues raised in
the Policy Considerations under (a), (b), and (c) above, the
Committee amendments would do the following:
a) Remove the language contained in Section 6 of the bill
regarding liens and the priority
of the encumbrance of a note holder of a deed of trust over a
PACE lien holder of a delinquent assessment.
b) Retain all disclosure requirements and parameters for
participation in PACE programs and add a three day right to
rescission that must be provided to homeowners.
c) Remove the judgment lien language in Section 7 of the
bill that was inadvertently kept in the April 28th
amendments.
11)Arguments in Support. Co-sponsors of the bill argue, "AB
2693 requires that borrower receive a model, statutory
disclosure designed to inform them about the financial terms
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and conditions associated with a PACE loan. There should be
no confusion in the mind of 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. Unfortunately for
homeowner, if they don't receive a disclosure that adequately
describes the terms and conditions of the underlying agreement
they are entering, they cannot effectively shop for financing
of energy conservation improvements, cannot make a thoughtful
comparison of the loan to finance the home improvement, and
may not have the opportunity to consider the effect of placing
a lien on their home for that purpose.
"Existing law treats PACE liens as an opt-in tax assessment.
This is a huge difference from most financing. As a tax
assessment, they have 'super-priority' over other liens, like
mortgages, in part because they are collected by county tax
assessors. If there is a delinquency, it jumps ahead of other
obligations (like a mortgage or mechanic's lien) secured by
the property. This jumping ahead in line means the PACE
obligation is paid first, even if it was attached to the
property long after the mortgage or other lien, and even if it
was done without the consent of the senior lenders.
"The super-priority of PACE liens has caused the secondary
mortgage market (Fannie Mae and Freddie Mac; and soon FHA as
well) to refuse to finance or re-finance a property with a
PACE lien. The rejection by the secondary mortgage market
will dramatically impair the California real estate market.
"As, amended, AB 2693 will now make a delinquency in the PACE
assessment junior to a purchase money mortgage in priority.
However, the underlying assessment will be preserved, and only
the delinquent payment will be affected by a mortgage
foreclosure. In addition, recent amendments make it clear
that the bill applies only to single-family residential PACE
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liens, and not commercial or non-residential loans. Finally,
language has been added making it clear that these new
provisions will apply prospectively to encumbrances agreed to
after January 1, 2017."
12)Arguments in Opposition. The League of California Cities and
California State Association of Counties argues, "To date,
over 400 local government in California have voted to enable
PACE programs to operate in their communities, and at their
discretion. Sonoma County's Energy Independence Program, a
pioneer of the PACE movement, to date, funded thousands of
projects, totaling $73 million in energy and water efficiency
improvements, which equates to a reduction of 10,505 metric
tons of CO2 equivalent per year. AB 2693 would seriously
undermine this progress. Eliminating the senior lien status
of PACE assessment 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
assessment to be limitedly subordinated to a first deed of
trust. As California continues to work with FHFA to develop
resolution on the property lien status issue, we strongly
believe that this bill would impair this process and
potentially undermine the effort."
The California Association of County Treasurers and Tax
Collectors argues, "The reality is that oftentimes, taxpayers
don't understand that repayment of these assessments are
collected on the annual property tax bill and that they should
contract their lender to increase their monthly impound, or
set aside additional funds to pay for their higher tax bill.
In the continued absence of strict regulation in this area by
a state agency tasked with consumer protection, there will
undoubtedly be untold more angry consumers contacting
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treasurer tax collector... We believe the bill should also
be amended to place private party PACE lenders under the
jurisdiction of an agency with regulatory authority such as
the Department of Business Oversight to eliminate further
disclosure - related and other consumer problems. We would
recommend that industry standards for disclosure, training,
and ethics be required, and standardized disclosure forms be
developed and required for future PACE transactions.
"At the outset of the legislation authorizing PACE liens,
these types of third party lenders were not contemplated. In
fact, County Treasurer Tax Collectors initiated some programs,
notably in Placer and Sonoma, which exist to this day and
which do not report the same kind of angry taxpayer calls,
disclosure, and other consumer problems. As public agencies,
we have the responsibility to operate prudent and responsible
programs not only for those who participate, but for all of
our constituents. Third party providers do not have the same
incentive.
"Contractual subordination does not belong in the
statute?those amendments were crafted with no input from the
very government body tasked with making those collections, and
they pose an incredible threat to the import and integrity of
the tax collection system. It is our sincere hope that your
committee, charged with crafting and considering legislation
that will directly impact local government, will reject this
preposterous language."
Renovate America argues, "The contractual subordination model
has proven successful for Renovate America, but ensconcing it
in statute at this point and typing the hands of local
governments who operate PACE programs without private capital
is not necessary so long as clear and transparent disclosures
are in place. The existence of a - yet untapped - $10 million
fund to compensate first mortgage lenders for any losses in a
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foreclosure for forced sale due to the PACE lien, and the
market response by actors such as Renovate America in
assigning their rights to initiate a foreclosure and to
collect proceeds from a foreclosure further underscore this
point."
13)Double Referral. This bill was heard by the Banking and
Finance Committee on April 25, 2016, where it passed with an
11-1 vote.
REGISTERED SUPPORT / OPPOSITION:
Support
California Association of Realtors [CO-SPONSOR]
California Bankers Association [CO-SPONSOR]
California Credit Union League [CO-SPONSOR]
California Escrow Association [CO-SPONSOR]
California Mortgage Association [CO-SPONSOR]
California Mortgage Bankers Association [CO-SPONSOR]
United Trustees Association [CO-SPONSOR]
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California Community Banking Network
Central Valley Community Bank
Community West Bank
Valley Republic Bank
Concerns
California Municipal Finance Authority
Opposition
California Association of County Treasurers and Tax Collectors
(unless amended)
California Solar Energy Industries Association
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California State Association of Counties (unless amended)
CleanFund Commercial PACE Capital, Inc.
Ecosystem Integrity Fund
Placer County Treasurer-Tax Collector Jenine Windeshausen
(unless amended)
League of California Cities (unless amended)
PACE Equity
PACE Funding
Placer County Board of Supervisors (unless amended)
Renew Financial
Renovate America
Sonoma County Board of Supervisors
Sonoma County Water Agency
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Urban Counties of California
Western Riverside Council of Governments
Opposition to the previous version of the bill:
ABS Applied Building Science
Apperson Energy Management
Brower Mechanical, Inc.
California Energy Efficiency Industry Council
California League of Conservation Voters (unless amended)
City of San Diego
Clarke & Rush
Climate Action Plan
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Community Action Agency of Butte County, Inc.
Eco Performance Builders
Efficiency First California
Energy Masters
Energy Resolutions, Inc.
Environmental Defense Fund (unless amended)
Gary Dobson Construction
JR Construction - SOL Solutions, Inc.
JR Putman, Inc.
Kevel Home Performance
McClelland Air Conditioning
PACENation
Placer County Contractors' Association (unless amended)
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Progressive Insulation & Windows
Pros360
RBB Architects, Inc.
ReNewAll
Rising Design & Construction
Seagate Properties, Inc.
South Bay Cities Council of Governments
Opposition to previous version of the bill (continued)
Syntrol
Ultimate Home Performance
Vote Solar
Ygrene
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Individual letters (5)
Analysis Prepared by:Misa Lennox / L. GOV. / (916) 319-3958