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In Brief

Obama Administration Picks up the PACE (Property Assessed Clean Energy)

20 July 2016
Mayer Brown In Brief

On July 19, 2016, the Obama administration announced several measures intended to promote solar energy to cut the energy bills of American households. This follows a similar announcement in August 2015. The primary means to accomplish this initiative is the new cross-government partnership—the Clean Energy Savings For All Initiative between the US departments of Energy (DOE), Housing and Urban Development (HUD), Agriculture (USDA), Health and Human Services (HHS) and Veteran’s Affairs (VA), as well as the Environmental Protection Agency (EPA)—that is charged with the catalytic goal of bringing one gigawatt (GW) of solar power to low- and moderate- income families by 2020 by promoting innovative financing mechanisms, bolstering technical assistance for states and communities, driving innovation, scaling up workforce training to make sure low- and moderate-income Americans can take advantage of the jobs that come with a transition to clean energy, convening stakeholders and working with the private and philanthropic sectors.

Included in the key components of the initiative announced by the Administration are the following measures:

  • HUD and the VA has released new guidance to unlock residential Property-Assessed Clean Energy (PACE) financing by outlining how properties with PACE assessments can be purchased and refinanced with Federal Housing Administration (FHA) mortgage insurance and by welcoming the use of PACE financing for VA-insured mortgages. Importantly, the guidance includes the condition that the underlying property may only become subject to an enforceable claim (i.e., a lien) that is superior to the FHA-insured mortgage for delinquent regularly scheduled PACE special assessment payments. The property shall not be subject to an enforceable claim (i.e., lien) superior to the FHA-insured mortgage for the full outstanding PACE obligation at any time (i.e., through acceleration of the full obligation.)
  • In addition, DOE is releasing for public comment a draft of its updated Best Practices Guidelines for Residential PACE Financing. PACE is a tool that allows American homeowners, including low- and moderate- income households and veterans, to finance solar and energy efficiency improvements at no upfront cost and to pay back the cost over time with charges added to their property tax bill; and
  • HHS and DOE are making it easier to use hundreds of millions of dollars for energy efficiency improvements by providing technical assistance to grantees of the Low Income Housing Energy Assistance Program (LIHEAP) on their ability to access 15–25 percent of their annual LIHEAP funding for low-cost energy efficiency improvements, including renewable energy.

It remains to be seen whether these measures will facilitate PACE financing for solar and other energy efficient improvements as they are intended. In particular, the inability to have a first-lien for accelerated PACE obligations (as opposed to regularly scheduled PACE amounts) and the resulting uncertainty regarding the treatment in a foreclosure of such obligations may still constitute a significant obstacle even though it is expected that a buyer of an affected property from foreclosure would become responsible for the existing non-accelerated, regularly scheduled PACE obligations.

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