On real estate

California homeowners who apply for a Property Assessed Clean Energy (PACE) loan to cover the cost of installing certain energy-efficient, water conservation and seismic retrofits will benefit from legislation signed last fall by Gov. Brown.

The PACE Preservation and Consumer Protections Act of 2016 (Assembly Bill 2693) took effect Jan. 1 and requires entities that offer PACE financing to provide homeowners with written financial disclosures clearly outlining the terms and conditions of these complex and often confusing loans.

The PACE program was introduced in 2008 and soon became associated with HERO (Home Energy Renovation Opportunity) loans as a way for homeowners to finance the full cost of energy saving improvements.

Costs are written into the property tax bills as an added assessment and payments can stretch out for up to 20 years. As the program expanded, unscrupulous contractors found ways to abuse the system, engaging in predatory sales practices, charging inflated costs for improvements, and making deceptive advertising claims without providing adequate information regarding loan costs and pitfalls.

Many contractors failed to disclose that the HERO loan is recorded on the property as a tax lien in first position with priority over mortgages or home equity loans. Few lenders accept a secondary position so in most cases the HERO assessment has to be paid off to close a home sale or refinance a mortgage.

Loan terms and fees could be excessive. A class action lawsuit filed last November for HERO loans in San Bernardino County claimed double-counting of accrued interest and administrative fees with APR’s in excess of 12 percent.

Homeowners were given inflated projections of increased home values for installing the retrofits, and many were unaware that these types of liens could prevent their ability to refinance or sell the property.

The new law requires delivery of a detailed financial disclosure document to a property owner participating in a PACE or HERO lien program.

As always, make sure you read the fine print and know all the terms of any PACE or HERO loan your contractor may try to sell you as a way to finance improvements on your property.

Adriana Donofrio Podley Properties Glendora (626) 926-9700 • adrianad@podley.com