Title Services Trade Group Seeks PACE Clarifications
A national trade group representing title insurance companies and title agents asked the Federal Housing Finance Agency (FHFA) to provide guidance regarding the Property Assessed Clean Energy (PACE) program.
Issues surrounding PACE liens raised recently by the FHFA could cause delays or cancellations of real estate transactions, said American Land Title Association, a Washington, DC-based trade group.
PACE is designed to stimulate the economy and promote energy independence by assisting homeowners and small businesses with financing to make their properties energy efficient. But it ran afoul of the FHFA recently, which issued warning letters not to accept PACE loans or assessments going forward.
At issue is whether repayment of funds obtained through the program have priority over Freddie and Fannie mortgages. The government-sponsored enterprises (GSEs) contend that as written, PACE funds would have a priority lien on a property over the first mortgage.
In California, Attorney Gen. Jerry Brown recently sued the FHFA, Freddie Mac and Fannie Mae, arguing that the FHFA has effectively shut down the program. Brown argues that PACE financing is a tax assessment, not a loan.
The trade group notes that confusion still exists in the title insurance industry on whether PACE financing is considered a loan or a tax assessment.
“We recognize the value in lowering energy costs for consumers, creating jobs for the economy and reducing buildings’ carbon footprint for the environment,” said Kurt Pfotenhauer, chief executive officer of ALTA, in a press statement. “However, guidance is needed in resolving uncertainty surrounding these programs.”
ALTA wants clarification about the process by which a PACE lien is created, and how it is administered and repaid. Without more information, consumers won’t know if they have clear title, and creditors will be unaware of their lien priority, ALTA said.
If it’s considered a loan, repayment is secured by a tax lien against the property. ALTA also wants clarification on whether PACE liens must be recorded in the local public records and how property ownership is determined. A property owner must have title in order to grant a lien against the property, but guidelines for the PACE programs are unclear in how to prove ownership.
“Without establishing standards for determining title … PACE loans run the risk of significant losses due to fraud,” Pfotenhauer said. “In addition to harming PACE participants, it … results in increased costs of underwriting, claims, escrow services and compliance for the land title industry.”
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