According to Fannie Mae, certain energy retrofit lending products — often referred to as Property Assessed Clean Energy (PACE) or Home Energy Renovation Opportunity (HERO) programs — are used to finance residential energy improvements and are generally repaid through a homeowner’s real estate tax bill.

That’s right. If you need artificial turf installed throughout your front yard to conserve water, no problem.

Or perhaps you want to save energy with brand new windows and doors for your home, this program can help get that done. In fact, you can even pursue a geothermal heat pump to create energy for your property, too.

Unfortunately, while the intent of these programs is fantastic, the agreements used to facilitate them are still layered with issues.

Not to mention, over the years, some of the administrators and contractors themselves have made it worse in terms of their questionable business practices surrounding the implementation of the programs.

It’s a shame that the federal government and the mortgage lending industry haven’t yet come together to create generalized guidelines to manage these programs for the sake of proper consumer protection.

As an example, the ongoing controversy with these loans is centered on their lien position on your property.

Since they are effectively wrapped together with your local real estate tax bill, these loans appear to have a priority over any previously recorded mortgages.

This might mean a delinquent $10,000 artificial turf bill assessment payment could end up triggering a foreclosure of your home.

Probably not likely, but a possibility though for sure. Unless there’s clear language in your agreement that states the program doesn’t provide for lien priority, either as a subordinate or unsecured loan, then you must assume worst case.

After reading through some of the various agreements, it’s clear these program administrators are completely pushing the responsibility over to the homeowner to make sure they distance themselves from as much liability as possible.

One agreement says that “the property owner possesses all legal authority necessary to execute the contract.” Well, if there are current mortgages on your property, how could you have complete authority to sign these types of energy retrofit contracts?:

Furthermore, speaking to this same point, another agreement boldly states “a property owner entering into this contract without the consent of an existing lender could constitute an event of default under such existing instruments.”

Sadly, many homeowners don’t read or understand the contract language and there are a few program administrators out there who count on you not doing such.

For instance, the chances of a homeowner asking their existing lender for permission is slim, which has created increased suspect behavior in this sector.

As more program administrators are offering these products, there are installation issues with over-selling and over-installing what’s actually needed in your home. Plus, self-install and easy contractor sign-up procedures are fueling the fraud fires as well.

In the end, please consult with your lender and your attorney on the pros and cons of going down this road.

Chris Salese can be reached at or (707) 363-4439. He is a licensed California mortgage banker (NMLS 254469/1850 CA BRE 01377933/01215943) and equal housing lender.


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