Residential PACE Market Faces A New Hurdle

Property Assessed Clean Energy (PACE) financings are an alternative financing tool used to finance energy efficiency upgrades or renewable energy projects in residential, commercial and industrial properties. PACE financings allow for the payment of the costs of the energy project over time which is tied to the property, and not to the property owner.  

In a December 7, 2017 letter, the U.S. Department of Housing and Urban Development ("HUD") stated that the Federal Housing Administration ("FHA") would no longer insure mortgages for homes with PACE liens. This reverses a former HUD policy. The effect is that homeowners who financed energy efficiency upgrades through a PACE financing have a reduced transferability option because they cannot sell the PACE-assessed property to a new owner who decides to finance the property through an FHA-insured mortgage. The HUD policy change reflects concerns regarding the priority status of the PACE lien, as well as the lack of