Kern County Supervisors and Bakersfield City Council members are considering the future of Property Assessed Clean Energy financing. Options in the PACE program include Ygrene and HERO loans, which are ostensibly used to make “energy saving” upgrades to homes.
These programs allow people who generally can’t qualify for traditional financing options to install solar panels, replace windows, add new roofing and even repaint their homes under the guise of saving energy.
On the surface, the program seems like something good for the environment, something that can save the consumer a lot of money. Unfortunately it has a few onerous twists that most people have failed to factor in.
I’d like to put some numbers to a typical PACE project with “energy saving” upgrades that are on the low end of the scale: solar. I spoke with many solar companies and was given an estimate to put solar on my home; the total cost of the system on average was $26,000, but with the tax break (most people don’t qualify to use the tax break) of $6,000 my effective cost was $20,000.
Using PACE financing and interest computed at 10 percent, my payments would only be $193 per month – not bad. Then I learned about the “add-on interest,” which changes the effective interest rate on my loan. This fully amortized interest is immediately applied to the amount of your project. In my case that changed the $20,000 “energy saving” upgrade to a $46,000 upgrade and increased my monthly tax bill by $440. Including my “normal taxes,” I would now owe $690 in taxes every month for 20 years.
It hit me like a semi-truck. If people cannot qualify for a traditional purchase (cash, home equity loan) because of their financial situation, how are they going to pay the $690 monthly tax bill?
Another little detail you probably need to understand: Because these programs are paid through your property tax bill, a failure to pay will result in your home being foreclosed — and you cannot transfer the “energy savings” to another property. You either pay off the additional tax in full upon sale or try to talk the buyer into assuming the added tax burden for items they are already paying for by the appraised value.
Good luck, because unless you have a lot of cash laying around (using this program would suggest that you do not), your “energy saving” solar system will affect both the value and ease of selling your home. It is the reason investors and some mortgage companies are coming up with ideas to put your equity into their hands; their mantra is, “Have we got a deal for you.”
With these programs, not only is the public being misled, our local solar companies are being misled, and the hard-working installers are being misled. The problem isn’t local people, the problem is PACE financing.
I am a former Marine and I volunteer with several military support groups which allow me to work with “real heroes.” Nothing is heroic when it comes to these programs; they simply strip away homeowner equity.
I plead with those of you who fell into this pit: Send a letter to your supervisor and copy me; we will help give you a voice.
Glenn Porter is the broker/owner of Re/Max Golden Empire and has been in the industry for over 35 years. He is also an active member of the Bakersfield Association of Realtors and a Re/Max Hall of Fame Broker. Contact him at firstname.lastname@example.org.