NOTE: In 2010, the Federal Housing Finance Agency (FHFA), which has authority over mortgage underwriters Fannie Mae and Freddie Mac, directed these enterprises against purchasing mortgages of homes with a PACE lien due to its senior status above a mortgage. Most residential PACE activity subsided following this directive; however, some residential PACE programs are now operating with loan loss reserve funds, appropriate disclosures, or other protections meant to address FHFA's concerns. The Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development (HUD), has released initial guidelines for using PACE with FHA-secured single or multifamily properties. This guidance is independent of FHFA policy. Commercial PACE programs were not directly affected by FHFA’s actions, as Fannie Mae and Freddie Mac do not underwrite commercial mortgages. Visit PACENow for more information about PACE financing and a comprehensive list of all PACE programs across the country.
What is a PACE Financing?
Property-Assessed Clean Energy (PACE) financing effectively allows property owners to borrow money to pay for energy improvements. The amount borrowed is typically repaid via a special assessment on the property over a period of years.
In May 2009, Maryland enacted legislation permitting counties and municipal corporations to adopt resolutions or ordinances establishing clean energy loan programs based on the "PACE" model. The legislation includes provisions permitting local governments to issue bonds to fund such financing programs. If adopted by a local governing body, the program allows local property owners to opt in to a renewable energy or eligible energy-efficiency loan program and repay the loan through a surcharge on their property tax bill. The surcharge remains attached to the property upon a change in ownership and is limited to the amount needed to recover costs associated with issuing bonds, financing the loans, and administering the program.
The authorizing legislation describes a series of details that must be included in the local legislation implementing such financing programs, although specific details are largely left at the discretion of the local government. Local governments may generally specify property owner eligibility, eligible improvements or technologies, and loan terms and conditions. The statue provides that the local eligibility requirements for property owners address their ability to repay a loan through a process similar to mortgage loan approval. For a bond issuance, the local government may specify the principal amount, interest rate/variable rate, terms of sale, payment intervals, conditions for redemption before maturity, and other details as necessary. Bonds (serial or term) issued under this provision must mature no later than 40 years after their issue date.
The Federal Housing Financing Agency (FHFA) issued a statement on July 2010 concerning the senior lien status associated with most PACE programs. In response to the FHFA statement, most local residential PACE programs have been suspended until further clarification is provided.
In 2014, the Maryland legislature passed HB 202 (Chapter 473 of the 2014 Law of Maryland) that grants local governments the power to enact a surcharge on a clean energy system owner’s property tax bill to recover the cost associated with financing the loan and administering the loan program. Unpaid surcharges become liens on the property until paid. The bill also gives local authorities greater leeway work with private lenders to make loans to property owners under a local loan program.
Following the changes enabled by H.B. 202, in August 2015, the Maryland Clean Energy Council (MCEC) partnered with PACE Financing Servicing (PFS) to implement commercial PACE program in the state.
PFS has partnered with the Maryland Clean Energy Center to build a statewide administration program for C-PACE at no cost to jurisdictions that choose to participate. This enables more uniformity in PACE programs across different counties.
Maryland Commercial PACE Program Details
County Participation: Check with your local government to confirm participation
Building Eligibility: Maryland’s C-PACE policy allows commercial, industrial, agricultural, hospitality, retail, multifamily and nonprofit properties to access financing secured by a C-PACE assessment. It applies to retrofit and new construction projects.
Project Eligibility: The state law in Maryland requires the local jurisdictions to determine what particular projects are eligible for CPACE financing. Each jurisdiction’s enabling legislation lists eligible measures and can include solar, geothermal, wind energy systems, water conservation, and a broad range of energy efficiency upgrades as eligible.
Financial Eligibility: The state law in Maryland also requires the local jurisdictions to give due regard to a property owner’s ability to repay C-PACE financing. Each jurisdiction’s enabling legislation includes related financial requirements of the property owner.