By Bob Hunt
But with no regulatory body overseeing those who are selling these loans, if a loan purveyor does not comply with the new law, “Who you gonna call?”
Much has been written—and rightly so—about the plight of home owners who have made energy-conserving improvements to their homes using financing provided through a PACE (Property Assessed Clean Energy) program. Frequently, the loans are not understood by the borrowers, and they may represent a loan burden for which the borrower would not traditionally qualify.
What has been needed is adequate disclosure requirements in the PACE loan programs. As hard as it is to imagine, in what many might consider to be an over-regulated universe, PACE loans—loans based on home equity and secured by senior liens—have had no regulatory body overseeing their originations and no disclosure requirements explaining how they worked.
As a result of Assembly Bill 2693 (Dababneh), which Governor Jerry Brown signed into law on September 25, 2016, and which became effective on January 1, 2017, California should see some significant changes in this regard.
First of all, AB 2693 imposes specific disclosure requirements on the purveyors of PACE loans. Added to California Streets and Highway Code (don’t ask me why it is there) is section 5898.17. It contains a form for disclosure that covers almost two full pages. It includes the following:
- Costs of the products obtained, including labor and installation.
- Financing costs, including application fees, prepaid interest, and other costs totaled as Amount Financed.
- Annual percentage rate, simple interest rate, total amount of principal, interest, and administrative fees.
- Total amount you will have paid over the life of the financing.
- Other costs, such as appraisal fees, bond-related costs, annual administrative fees, estimated closing costs, credit reporting fees, and recording fees.
- Total financing costs and closing costs, and cash estimated to close.
- For purposes of comparison with any other financing: the total the borrower will have paid in principal, interest, and financing costs.
To be sure, the legislation does not require that the exact disclosure format, as spelled out in the Code, be used. It allows that “a substantially equivalent document that displays the same information in a substantially similar form” may be used. Who will want to develop their own form?
Also included in the legislation is a buyer’s right to cancel. It is spelled out that the property owner shall receive the following document (or one substantially similar):
“You are entering into a contractual assessment with [loan provider] for financing that will result in a lien on the property at [address]. You may cancel the transaction, without cost, on or before midnight on the third business day after whichever of the following events occurs last:
- The date on which you signed the contractual assessment.
- The date you received your Financing Estimate and Disclosure.
- The date you received this notice of your right to cancel.”
It goes on to explain that, if the loan provider has already recorded the debt, he must within twenty days “take the steps necessary to reflect the fact that, if recorded, the lien on your property has been discharged and removed from the tax rolls...” There is, then, yet another form for providing notice of cancellation to the lender.
So, there you have it. With these new regulations in place, there shouldn’t be any more problem with consumer misunderstanding of PACE loans, right? Well, maybe.
We note that there is still no regulatory body overseeing those who are selling these loans; and we wonder how much training the loan agents are receiving. Remember, there is nothing going on here like obtaining an MLO (mortgage loan originator) license endorsement. There is no licensing, no certification, nor any oversight by an entity like the Bureau of Real Estate. Suppose, for example, that the right to cancel is not explained to the consumer. “Who you gonna call?”
Bob Hunt is a director of the California Association of REALTORS® and is the author of Real Estate the Ethical Way. His email address is firstname.lastname@example.org.