Common Questions Asked by Lenders
Why would a bank consent to PACE?
No acceleration: like any other assessment, the entire amount of the financing is not “senior” – can’t be accelerated.
Limited risk: Only annually levied property tax payments, if unpaid, would be considered “senior” to a mortgage in a foreclosure situation.
Relationships: Bankers care about helping borrowers maximize the value of their property investment and meet their financial goals.
How do Banks Benefits from PACE?
- Stays with the Property
- No payoff upon mortgage payoff
- Long-term, fixed rate
- Lower cost of funds than preferred equity/mezzanine
How do Lenders Benefit from PACE?
- Avoided cost of capital/replacement cost for needed repairs
- Increase in property value – solar appraisal (?)
- Help attract/retain high quality tenants
- Pass-through to tenants under NNN lease
- Keeps available cash on hand for debt service
As a Lender, what does CleanFund need from me?
If the loan is currently being underwritten, CleanFund can review your existing loan documentation to provide language to permit the assessment financing. If your loan has already been approved, CleanFund seeks a simple, one-page acknowledgment of the financing.
The loan I’m underwriting has a PACE assessment in place. What happens?
Because PACE assessments are flat rate, fixed amount assessments, they can be easily incorporated into your T&I escrow process. PACE assessments are always recorded, so they are easily identified in title reports (e.g., CoreLogic).
How does this affect my remedies under my Loan Documents?
PACE does not affect any existing remedies under loan documents. Lenders are free to exercise any and all remedies provided for them in their existing loan documents. Additionally, most loan documents contain provisions which allow them to advance property taxes, if unpaid, and to capitalize them to the unpaid principal balance.
What types of lenders have permitted PACE Financing?
Commercial Banks, Credit Unions, Agency (Freddie Mac & Fannie Mae) Retained assets, Life Insurance Companies, CMBS, Secured Federal and State Historic Tax Credit Lenders, and Private Lenders.
Is PACE a loan?
No, PACE is not a loan. PACE is a type of financing called assessment financing which has historically been used nationwide to fund voter-approved measures, including street upgrades, school bonds, public safety improvements, and various other public infrastructure upgrades. PACE provides property owners with the ability to use the same mechanism to voluntarily upgrade their individual property.
What differentiates PACE from a loan?
PACE is non-accelerating, meaning the PACE capital provider can never call the unpaid balance due and payable. The property’s obligation is the current year’s assessment. PACE is non-recourse, with the ability to pay evaluated based on cash flow generated by a property. PACE provides for automatic transferability upon sale, with no additional due diligence or payoff required during a transfer of title. The assessment can also be prepaid at any time.
Is PACE debt or equity?
Neither. PACE is an assessment. Assessment payments are known in advance, and recorded on real property records with a predetermined amortization schedule. The assessment is only an obligation in a particular given year, and can never be accelerated or called, based on any factor, including transfer of ownership or refinance of mortgage debt.
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