Realtors in San Diego think an increasingly popular tool to finance solar power in homes presents a ticking time bomb.

Property Assessed Clean Energy, or PACE, programs make pricey energy efficiency projects – including  solar panels and drought-friendly landscaping – possible for homeowners with bad credit. But they can also make moving or refinancing a home a lot more complicated.

PACE, which is administered by three companies in San Diego County, lets homeowners repay the cost of going solar through their property tax bills.

That means PACE loans, like taxes, must be paid off before mortgage collectors get what they’re owed if there’s a foreclosure.

That’s a problem for the Federal Housing Finance Agency, which acts as conservator to Fannie Mae and Freddie Mac, the nation’s two largest mortgage lenders. The agency barred Fannie Mae and Freddie Mac from lending to homebuyers or refinancing homes that are still paying off their PACE bills. The reason is simple: They want to be first in line when bills come due.

That’s forced some homeowners in places like western Riverside County, where one popular PACE program is more established, to pay tens of thousands of dollars to unburden themselves of PACE loans so they can sell their homes, and even scuttled some sales.

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Riverside County, where the program’s growing, offers lessons for San Diego.

The Inland Valleys Association of Realtors estimates about one in 12 properties in western Riverside County has relied on PACE for green projects since the program debuted there three years ago.

“It’s muddling the real estate transactions now,” said Mission Viejo-based broker Eileen Oldroyd, who also works in Riverside County. “It’s not exactly operating the way that we’re told it’s going to operate, that it’s easy to transfer the loan to a buyer and it’s easy to refinance. That’s not true.”

Oldroyd said one of her clients was forced to pay off a $20,000 PACE loan in full last year before he could move.

Indeed, HERO, which is operated by Rancho Bernardo-based Renovate America, says the company’s successfully transferred PACE loans to new homeowners about 55 percent of the time and that refinancing efforts have been successful about 85 percent of the time.

Renew Financial, the company that oversees CaliforniaFirst, another PACE program offered in San Diego County, offered similar statistics.

Together, their numbers show about half of PACE borrowers who’ve tried to move have been forced to pay off their loans early or experienced other issues, and 15 to 20 percent have been unable to refinance.

Complaints about these challenges led the Riverside County district attorney’s office to investigate how the program is pitched to customers and whether homeowners understand what they’re signing up for.

Sherry Hodges, government affairs director for the Greater San Diego Association of Realtors, said her organization expects San Diegans who use PACE loans to run into similar roadblocks in a few years unless reforms are made to the programs.

It’s not an issue yet in San Diego because the program hasn’t been around long enough, which also means fewer customers who’ve signed on have eventually tried to sell or refinance. (Several San Diego PACE programs have been approved in the past couple years.)

So far, HERO, the dominant PACE program in San Diego, has funded 3,645 projects worth $81 million since it launched in San Diego County last year. CaliforniaFirst financed 107 projects in that period.

Ari Matusiak, senior vice president at Renovate America, which operates the HERO program, said his company’s trying to improve its record when it comes to transferring PACE loans.

In April, the company introduced a new program that allows homebuyers to pay $350 to subordinate PACE bills, meaning mortgage lenders would get paid before PACE investors following a foreclosure.

The company’s also added a team of real estate experts to help real estate agents, homeowners and buyers work through hiccups.

“As we learn about issues that individual customers have had, of course we take those very seriously and are constantly trying to improve our program,” Matusiak said.

The question is whether those changes will matter to federal regulators.

A Federal Housing Finance Agency official said Monday the agency is evaluating Renovate America’s proposal to subordinate its PACE loans and has yet to change its stance.

FHFA has maintained its opposition to PACE loans despite the state of California’s 2013 move to create a $10 million loss reserve fund to shield mortgage lenders from PACE-related losses.

Companies that contract with HERO have continued to sell the financing option to customers anyway.

One of them is Sullivan Solar Power, one of the region’s biggest solar companies.

David Savarese, the company’s director of project development, estimates that PACE loans finance about 5 percent of their jobs.

But Savarese said Sullivan only recommends PACE loans to customers who don’t see themselves moving or refinancing while they’re paying off the loan.

“Certainly we don’t want them stuck having to pay that off or not being able to get a refinancing done,” Savarese said.

This is part of our quest on whether solar will pay off for San Diego. Check out our previous post, Everything That Can Go Wrong When You Go Solar, here.

    This article relates to: Must Reads, Quest: Solar, Science/Environment

    Written by Lisa Halverstadt

    Lisa writes about San Diego city and county governments. She welcomes story tips and questions. Contact her directly at or 619.325.0528.

    Jade Beddoe
    Jade Beddoe

    Mike: There are plenty of options for those with good credit. PACE financing does not pull a credit report on the borrower. The only things required to borrow tens of thousands against your home is to a.) be current on your property taxes, and b.) owe 85% or less (LTV) on your mortgage. The interest rates are very high...8-10% and terms are 10, 15, or 20 years. The financing will pay for almost anything now...even a conventional roof. Payments are made twice per year with your property taxes (hence property-assessed, the PA in PACE.) The people selling the financing are claiming that all of the payment can be written off on your income tax...not just the interest portion.

    begetzel: I disagree that it's a non-story. PACE financing is growing by leaps and bounds, and is in my opinion the next subprime equivalent bubble. These companies are being run by the same people who destroyed the economy in the subprime bubble. I personally would not buy a house with PACE financing attached to it. I would demand it be paid by the seller....why should I pay for their spending?!

    PACE is a scam. The only way it could have ever passed is by having a LOT of grease applied to the politicians to slide this legislation in.

    Mike subscriber

    I'm confused.  So you can pay for your solar panels outright.  You can lease it from the installer at a fixed cost per month.  You can take out a private loan (or home equity loan) from a bank and pay it back separately.  There seems to be plenty of options.  What is the advantage of PACE?  How many years does it take to pay back?  What is the interest rate?  It's unclear why PACE exists in the first place.

    bgetzel subscriber

    This is a "non-story".  The homeowner signs loan documents that support the solar installation and the mortgage lender (whether Fannie, Freddie, or a local bank) subordinates its first lien position in order for the transaction to record. Everyone goes into this with their eyes opened. If the mortgage lender does not subordinate, the deal does not happen. Borrowers and mortgage  lenders should be smart enough to understand the possible ramifications of the transaction. There is nothing illegal, or even immoral, about these deals.