August 2010: Real Estate


 If you’re like a lot of homeowners these days, you’d probably love to go green. Energy efficiency retrofits, high-efficiency furnaces and solar panels are home improvements that can save thousands and thousands of dollars in energy bills over the years. But high upfront costs have so far kept many folks from adopting practical energy saving improvements—it costs $25,000 to install a solar panel system on a typical residential property, which is out of reach for most homeowners. 


Helping homeowners make those investments is the main mission behind an effort gaining momentum around the country called Property Assessed Clean Energy, or PACE. Nineteen states (at last count), including Virginia, have passed legislation that would allow municipalities to establish PACE programs. The Obama administration has dedicated more than $100 million in stimulus money to fund them. California’s pilot program, like others, has become quite popular. 

PACE works by allowing people to borrow money from municipalities for energy efficiency upgrades and pay it back over 15 to 20 years through a special assessment added to their property tax bill. What this means: Your property taxes will go up but are offset by lower monthly utility bills. So your property tax bill might increase by $100 or so, but your energy bills may drop by $200-$300. In some instances, like with the installation of solar panels, the utility bill becomes fixed. As conventional energy costs continue to rise, the use of solar panels allows you to pay the same amount for energy for the next 20, 30, or 40 years, which is a huge savings over the course of a lifetime. 

The problem with PACE is that the loan is technically a property tax assessment and is therefore regarded as a lien—it must be paid back before existing mortgage debt. So if the homeowner goes into foreclosure—not all that uncommon these days—the energy loan would have to be repaid before the lender gets any money. 

This is why PACE loans are really only an option for people who have equity in their homes, great credit or no mortgage.

Recently, there has been pushback from mortgage insurers Fannie Mae and Freddie Mac, who—perhaps rightly so—don’t want to be on the hook if green-minded homeowners default on their mortgages. The two lending giants have sent letters to local governments across the country, causing many to suspend their PACE programs.

It’s unclear how this will all play out since Fannie and Freddie are owned by the government, which supports the PACE initiative. For now, the Energy Department released guidelines for pilot PACE financing programs that urge municipalities to conduct energy audits to ensure homeowners will see reduced energy costs as a result of upgrades, and that assessments should be limited to 10 percent of the property value.