Written by Christian Fisher, as originally published in The Reverse Review.

 

What is a PACE/HERO lien? As we know from HUD’s Mortgagee Letter 2016-11, which was released in July, “Properties with PACE obligations are not eligible for an FHA-insured HECM.” PACE stands for Property Assessed Clean Energy and is a community loan program that enables financing of energy-efficient and water-saving home upgrades. It is typically paid back over time through property tax bills.

Related to PACE is the HERO program, which stands for Home Energy Renovation Opportunity. We see PACE/HERO liens most commonly in California, but have also seen them in Florida and they exist in other states as well.

How do they show on a title report?

When these liens are created, documents such as “Notice of Assessment” and/or “Payment of Contractual Assessment Required” usually get recorded by the county recorder for the county where the property is located (sometimes as separate documents or sometimes combined into one document). The title report will show an exception for the PACE or HERO lien when we find them in a title search.

How do you pay them off?

The recorded notice should give contact information that you can use to confirm the process for requesting a payoff demand to pay the obligation in full. Processes and turnaround times vary depending on the entity, but we’ve typically seen turnaround times of about 72 hours. Also, some entities charge upfront fees to provide a payoff demand.

What else should you keep in mind when it comes to PACE/HERO leins?

We recommend asking your borrowers early on about whether they have made any home improvements and how they paid for them. Specifically, ask them whether they used a PACE/HERO program (and please share those answers with title when you open an order). The dollar amounts due on these can be higher than you might think, and could make the difference in whether any contemplated loan might come to fruition. Also, depending on how recent the lien was created, the existing property tax bill for the current year may already reflect portions for the current year installment due. Depending on the circumstances, this could have an affect on LESA calculations. Check with your lender for specifics for any particular situations.

You can find more information at heroprogram.com and energy.gov.