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David Kim: Santa Barbara Approved PACE; Here’s What You Need To Know

As a follow-up to a prior article, the Santa Barbara Association of Realtors (SBAOR) wants the public to know about the potential predatory like-lending program coming to the city of Santa Barbara.

Property Assessed Clean Energy (PACE) was created as a tool to achieve climate goals. PACE achieves this by helping homeowners finance energy-efficient and renewable-energy upgrades to their homes.

SBAOR is very much in support of energy efficiency. In fact, the SBAOR building recently was outfitted with solar panels, and our landscaping is recognized by Santa Barbara's WaterWise Program.

However, we cannot support PACE as it currently has far too many flaws and risks to homeowners.

To fund the program, PACE attaches debt to the property rather than the borrower. The debt is an assessment repaid through installments added to the property tax bill. This form of debt poses serious risk for it can strip away the equity of a homeowner.

Another serious risk to the homeowner is that PACE lenders are not regulated by state or federal agencies. They are private-party lenders that lack regulation, transparency and oversight.

PACE loans require little to no underwriting, carry interest rates that are substantially higher than other available financing options, and contain repayment terms typically 15-20 years that often extend beyond the shelf life of the financed upgrades.

Currently, PACE lenders are not subjected to nationwide or statewide mortgage-financing rules, meaning a comprehensive underwriting of a borrower’s income, debt, and credit history is not being conducted when a PACE loan is originated.

Private-party lenders entered into the lucrative energy improvement finance market understanding they could benefit from a priority lien on the county tax bill. This is very troubling.

PACE loans are based on the equity in a property, rather than on the homeowner's ability to qualify or repay the loan.

If you are approached or contacted by a PACE provider, here are some basic precautions to consider:

» Review all the paperwork carefully.

» Be sure to shop around for contractors and energy-efficiency products. Other products available: emPower SBC, Edison, So Cal Gas.

» Review all financial aspects, including fees, interest rates, and possible pre-payment fees.

» Be prepared to pay more money on property taxes ranging from a couple hundred to thousands of dollars.

» Be prepared to pay off the loan should a homeowner wish to refinance or sell the property.

— David Kim is a licensed real estate broker with Village Properties and the 2017 president of the Santa Barbara Association of Realtors. Contact him at [email protected] or 805-296-0662. The opinions expressed are his own.

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