According to the Office of Energy Efficiency & Renewable Energy:
“PACE programs allow a property owner to finance the up-front cost of energy or other eligible improvements on a property and then pay the costs back over time through a voluntary assessment. The unique characteristic of PACE assessments is that the assessment is attached to the property rather than an individual.”
That sounds nice, but what does this actually mean? It means that the total cost of the eligible improvements completed on a property will be added to the homeowner’s annual property tax bill and paid back, with interest, over a certain amount of years. In California, the property tax bills are generated annually, every September and paid in two installments. One installment is due by November 10th, delinquent after December 10th, and the second installment is due by February 10th, the following year, and delinquent after April 10th. The effective date of the tax bill is from July 1st, of the current year, to June 30th, of the following year.
What does this look like for a homeowner? If a homeowner decides to take advantage of a HERO/PACE loan this fall in preparation of the holiday season. The HERO/PACE loan would be recorded with the County in October 2018. However, the homeowner wouldn’t see the impact on their property tax bill until this time next year when the new tax bill is mailed out. They would be enjoying the benefits of the improvements without feeling the true impact of that decision.
How does this effect the mortgage payment? If a homeowner’s property taxes are included in their mortgage payment, they will receive a Payment Increase Notice from their lender. The lender will pay the first half of the annual property taxes by December 10th. After paying the installment, they complete an Annual Escrow Account Review to ensure they are collecting enough money each month for the next installment that’s due by April 10th. If they aren’t, they’ll increase the amount to be paid into the escrow account, and include any shortage. Most homeowners won’t receive this notice until January or February and the new, higher, mortgage payment are typically due within 30 days.
A real life story. I personally know a homeowner whose tax bill went from $6,800 per year ($567 per month), to $11,650 per year after having their HERO/PACE improvements completed on their home. Since their property taxes and insurance were included in their mortgage payment, their payment increased by $400 per month. It would have been fine, if they knew what to expect, but they felt blindsided 10 months after having their improvements completed. They could not afford the monthly increase on their fixed income. They had three options:
- Refinance their current loan to payoff the lien
- Pull money from savings to payoff the lien
- Sell their home
They happen to have the ability to pull money from their savings to pay off the lien. Not all homeowners will have the savings nor help from family to pay off that type of assessment.
If you’ve had energy improvements completed on your home using PACE or HERO and want to see what the impact will be to your property taxes or monthly payment, I can help you. Send me an email with some information about your situation and we can start the conversation to find the best way for you to move forward.