Lisa stared at the stranger standing on her doorstep, suspicious.
“Good morning, ma’am,” the man said politely. “I noticed you’re in need of a new roof. If that’s not in your budget, I’d like to tell you about an important government program that will loan you the money. And they don’t even run a credit check. If you have some equity in your home, approval is virtually guaranteed.”
Lisa’s eyes narrowed. “That sounds like some sort of scam. No one lends money without a credit check.”
The man chuckled. “Hey, the government wants to help seniors stay in their homes or “age in place,” so they’re willing to put their money where their mouth is. You have to pay the money back, of course. But it’s tacked onto your annual tax bill and payments can be spread out over several years. Easy peasy.”
Lisa snorted. “Nothing’s easy where the government’s concerned.”
“Are you with the government, then?”
“Actually, I’m with a local roofing company. The government has authorized us to offer the loans to consumers. It’s more efficient that way. Takes out the middleman or woman. Once your loan is approved, we will make sure your roof is fixed quickly. We’ll be in and out lickedty split!”
Lisa frowned. “Well, I do need a new roof. I guess I’ll take a look at this brochure.”
The man nodded. “Good. I’ll come back tomorrow to answer any of your questions. We can fill out the application then.”
“Okay. Thanks.” Lisa closed the door. She read through the brochure. Everything was just as the man said. On her limited income, qualifying for a bank loan would be iffy. Maybe a PACE loan was the answer. What did she have to lose?
Remember the old adage, “If it seems too good to be true, it probably is?” For some homeowners that could apply to the Property Assessed Clean Energy (PACE) program. PACE offers financing for “green” or energy-efficient home improvements, such as upgrades to an HVAC system, windows, solar panels, and roofs repairs. Home improvement contractors and their agents are authorized to sell PACE loans through direct contact with homeowners.
Typically, if a homeowner receives a PACE loan, their residential property serves as collateral. Loan payments are added annually to the homeowner’s property tax bill. Therein lies the problem. Senior advocates say the program presents some unique problems for older homeowners:
- The PACE program has little governmental oversight. Contractors may engage in predatory tactics to secure borrowers with little or no penalty. They can promise anything without having to deliver. For example, a Truth-in-Lending disclosure is not required for borrowers. There is no requirement that the terms or the cost of the loan be revealed to the borrower. In addition, “PACE solicitors” may freely misrepresent the terms of the loan, inflate the actual cost of the project, or pressure homeowners into prematurely signing completion certificates so they can take the money and run, again without penalty. Their concern is not the well-being of the homeowner, but in getting paid.
- Decisions to lend funds are not based on the ability of the borrower to pay, but on the value of their collateral. That means a low-income or fixed-income borrower could easily wind up with an annual payment they can’t afford. If they default, they could lose their home. The state of California now requires PACE administrators to determine whether homeowners will be able to repay a loan, but senior advocates say the rules are lax and leave a lot of room for abuse.
- PACE borrowers have little recourse for shoddy or incomplete work. PACE transactions tend to move quickly. Advocates report some homeowners have been billed and paid loan installments before problems with home improvements were discovered, and then had difficulty getting them corrected.
- PACE loans can be expensive. A homeowner who is in need of energy-related improvements should fully investigate other options before agreeing to a PACE loan. Alternative financial resources may offer better terms and a better interest rate for home improvements. In most cases, senior advocates recommend that a PACE loan be considered only if no other options are available.
While PACE loans offer an opportunity to make energy improvements on a home, it is important to understand that contractors have a financial motive for promoting them. It is an easy guarantee that they will be paid for their work. When a homeowner is not eligible for traditional financing, it is a quick fix that could benefit them and them alone.
That’s why it’s important that buyer beware. Before signing the bottom line, make sure a PACE loan is the best option for you!
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