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 PACENation for more information about PACE financing and a comprehensive list of all PACE programs across the country.
In August 2016, Massachusetts enacted legislation to implement a statewide commercial PACE financing program, which municipalities may opt into. To view details on this program, click here.
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. Massachusetts has authorized local governments to establish such programs, as described below. (Not all local governments in Massachusetts offer PACE financing; contact your local government to find out if it has established a PACE financing program.)
In July 2010, Massachusetts established PACE financing as part of a larger "Municipal Relief Bill" (H.B. 4877). This law authorizes local governments to establish an "Energy Revolving Loan Fund" to provide financing to private property owners (including condominium owners, as long as the improvements include part of the common areas/facilities) for energy efficiency and renewable energy improvements. The law permits local governments to consult with the Division of Green Communities (part of the Massachusetts Department of Energy Resources) to determine which improvements should be eligible, but in November 2010 the Division of Green Communities announced that it was not providing PACE guidance until the FHFA situation has been resolved.
Local governments interested in establishing an Energy Revolving Loan Fund must first hold a public meeting. Then, the local government must pass an ordinance or by-law to create the program and identify the fund's administrator. Local governments are allowed to enter into agreements with other local governments to create and administer a program. After establishing an Energy Revolving Loan Fund, the administrator is authorized to provide financing to property owners for energy efficiency and renewable energy improvements, provided those property owners have had an energy audit* and meet any additional energy conservation requirements. Property owners that opt in to a local program will enter into a "betterment" agreement and are responsible for repaying the assessment according to the agreement's terms.
* An energy audit must be performed for facilities that have not undertaken such an audit after July 1, 2008.