The Greenwashing of Predatory Lending

The Detail

BY CATHY ANTUNES SRQ DAILY SATURDAY PERSPECTIVES EDITION SATURDAY OCT 21, 2017

Sarasota property owners may soon find themselves approached by a cadre of eager sales people, touting the benefits of “green” home improvements. PACE (Property Assessed Clean Energy) lending will soon be at your doorstep. Financing solar panels, energy efficient windows and appliances, new roofs and more may become as easy as signing on a sales rep’s iPad, while a well spoken PACE financing representative explains how you will conveniently repay your loan through your property tax bill. By a narrow 3-2 vote, the County Commission passed the PACE ordinance, which makes Sarasota County government the debt collector for private PACE lenders, securing their loans via property assessments through Sarasota’s Property Appraiser and Tax Collectors offices. 

This unprecedented debt collections arrangement via local government permits Wall Street to secure returns for PACE bond investors. But the locked-in return for Wall Street comes at a huge increased risk for homeowners. If a yearly PACE assessment is not paid, a homeowner can lose their house. When this increased risk of foreclosure was brought up at the County’s Oct. 11 public hearing on the PACE ordinance, PACE lenders and officials were agitated and defensive, repeatedly saying: “We don’t foreclose! We don’t foreclose!” Technically, they’re right. 

It’s the County that “forecloses,” not the PACE lender. The County staff memo regarding PACE loans explains “the (PACE) assessment to be levied on the Property constitutes a lien of equal dignity to County taxes and assessments from the date of recordation.” In other words, this home improvement loan is given the same priority and standing as your property tax bill. Fail to pay and the County can seize your property and sell it via a tax deed sale. 

In a tax deed sale, “the property is usually sold for the back tax amount plus any fees, interest charges, and court costs. Because property taxes are a small percentage of market value, investors purchasing a tax deed can acquire full property rights at a fraction of the market price” (source: forclosure.com). Normally defaulting on a small  home improvement loan ($20,000-$50,000) won’t mean you’ll lose your house. But that’s what can happen with a PACE loan.

It’s likely that those who become PACE borrowers are the ones who are least able to take on this huge additional risk. Well-qualified borrowers have many less expensive and risky financing options for clean energy home improvements. The financially literate and credit worthy are far less likely to be tempted by the “convenience” of PACE financing. Those with less financial savvy, little home equity or lower credit scores are the ones likely to be seduced by the friendly, reassuring enthusiasm of PACE contractors and sales reps.

But energy savings will make a PACE loan worth it, right? Not necessarily. PACE lenders don’t want to be required to document energy savings. The PACE lenders who negotiated with Sarasota County were successful in getting the County to back off of a requirement to provide an estimate of energy savings. The County’s staff memo reveals that PACE lenders claimed such a requirement goes “beyond their standard practices and may subject them to liability.” 

Looks like liability and risk is only meant for the little people of Sarasota, not Wall Street.

Cathy Antunes serves on the boards of the Sarasota County Council of Neighborhood Associations and Sarasota Citizens for Responsible Government.

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