The caller is promoting a program to help homeowners invest in efficiency upgrades. You can get a new furnace, roof or solar panels at no up-front cost, and your house pays off the loan for you! Sounds great, right? Reality: He/she is talking about Property Assessed Clean Energy (PACE) financing, which is executed locally, not federally, so it lacks the oversights of a federal program. PACE financing—available to homeowners in Florida, California and Missouri, and now several other states are contemplating it—might sound enticing. But it’s a terrible idea. Here’s why…

It is a lien. You are agreeing to have a lien placed on your property. The furnace for which you “pay nothing now” costs, say, $10,000 with installation (unscrupulous contractors often inflate prices). The contractor is paid by a PACE financing company authorized by your local government. The financing company gets paid back via your property taxes, often at exorbitant interest rates. The term of the loan and interest rate vary depending on the terms.

Your tax bill goes way up. When you or your escrow account pay your property tax bill, the government (usually the county) cuts a check to the financing company as an installment on your PACE loan. Result: You might end up paying $30,000 over 10 years for a $10,000 furnace. And if you end up not being able to pay the tax bills, you could lose your home. In fact, some homeowners have lost their homes not because of the higher tax bill but because they unknowingly broke their agreement with their mortgage lender by allowing a finance company to put a lien on the property.

PACE salespeople use high-pressure tactics to get people to sign before they understand the details. Requirements for energy audits to ensure that the work is appropriate are seldom met. And this financing method is not covered by the Truth in Lending Act or Real Estate Settlement Procedures Act.

What to listen for: You may never hear the word “PACE” in the sales pitch—but listen for the word “assessment,” which means that you’d finance the improvement through your
tax bill.

Caution: You may have heard that your local government has added consumer protections to PACE—but that doesn’t change its core feature, which is financing via liens and property taxes.

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