A program enabling homeowners to finance energy efficiency and storm hardening improvements through assessments on their tax bills is ripe for abuse by predatory contractors, several consumer watchdog organizations are warning.
Several programs have been rolling out in South Florida over the past two years offering the ability to finance major improvements for up to 20 years with no money down and no credit checks. Eligible improvements include new air conditioning units, new roofs and insulation, solar panels, solar pool heating, low-flow plumbing units, impact windows, hurricane strapping, awnings and more.
But in a recent news release, the Boston-based National Consumer Law Center called for new enforceable measures to protect homeowners who finance energy efficiency and storm-hardening improvements through the Property Assessed Clean Energy program, known as PACE. Warnings in the release were also attributed to Consumer Federation of America, Americans for Financial Reform, Bet Tzedek Legal Services, Public Law Center, and Elder Law & Advocacy.
The release warned that an absence of federal protections are leading to complaints that elderly and low-income property owners in California, where PACE originated, are being targeted by third-party contractors for expensive improvements and being extended credit they cannot afford to repay.
Although home energy efficiency is important, the release said, “PACE mortgages lack consumer protections, have few checks to ensure that energy savings are real and cost effective, and are inappropriate for homeowners who may be eligible for free or lower cost programs,” said Charlie Harak, senior energy attorney at the National Consumer Law Center, in the news release.
But advocates for PACE programs in Florida said the watchdog agencies took a small number of California examples out of context.
“I think California can be categorized as the bleeding edge,” said Jay Neal, president of advocacy group Florida Association for Insurance Reform as well as a new organization, Clean PACE, formed over the summer to promote best practices by PACE funding agencies. “We’ve not seen evidence of [abuses] happening in Florida.”
Mike Lemyre, senior vice president, market development and governmental affairs of Ygrene Energy Fund, the largest PACE provider in South Florida, said the complaints cited in the release stemmed from “a minority of cases involving contractors in the solar installation industry and not specifically to PACE.”
Yet, contractors targeting elderly and disabled property owners during daytime hours are a major focus of concerns by the National Consumer Law Center and other groups cited in the news release, said Lauren Saunders, associate director at the law center, in an interview.
The contractors “go door to door, saying ‘I can see you have leaks in your roof. Sign here,'” Saunders said. “They’re saying they qualify for solar panel rebates that pay for themselves when they’re not eligible.”
Saunders said the law center is aware of less than 100 complaints. A Wall Street Journal story in November 2015 estimated that more than 50,000 PACE projects had been financed up to that point.
But the relatively small number of complaints doesn’t mean the prospects for abuses are small, she said, adding, “It’s very unusual for us to hear any complaints about a product this new.”
Lemyre countered that abuses aren’t allowed to get out of hand because PACE funding agencies are overseen by boards of directors that include elected officials of local governments that authorized the tax assessments.
Neal acknowledged some abuses took place in California but said Florida PACE agencies learned from those issues and established controls before starting to lend money here.
“I haven’t heard a single complaint out of Florida,” Neal said. Representatives of the state Division of Financial Regulation and the state Department of Agriculture and Consumer Service said they couldn’t find records of any PACE-related complaints.
Purchases by contractors are closely scrutinized by PACE funding agency administrators and flagged for a closer look if costs seem excessive, Neal said.
Borrowers are given project cost estimates, similar to “good faith estimates” in mortgage lending, before they are asked to sign a contract, Neal said.
Also, before contracting, borrowers are called on the phone by an administrator of the PACE funding agency and asked whether they have any questions, he said.
And different from California, property owners can’t get PACE financing if they owe more than their property is worth — known as being “upside down,” Neal said.
Some California homeowners, Saunders said, have been told their improvements are fully tax deductible or won’t cost anything. They don’t find out that repayments are assessed with their property taxes until their tax bills come due. Some have no ability to pay and lose their homes to foreclosure, she said.
Her agency wants the federal government to require PACE agencies to verify a borrower’s ability to repay loans, similar to requirements in place for mortgage lenders, she said.
“At a minimum, PACE loans should have at least as strong of protections as conventional mortgages,” she said.
Over the past two years, PACE financing has become available to property owners throughout the tricounty area, as the program expanded from California to Florida and other states.
In Broward County, the number of property owners with PACE assessments on their tax bills increased from eight during the 2015 budget year to 598 in the 2016 budget year, according to the Broward County Records, Taxes and Treasury Division. Most of those loans were for property improvements in Hollywood, Fort Lauderdale, Margate and Pompano Beach, which were among the first cities to adopt ordinances allowing repayment of the financing through tax assessments.
The average PACE assessment on property tax bills of those 598 owners is $2,314. That means if the average assessment was escrowed and rolled into the mortgage payment, the average property owner would be paying $193 more a month.
The Broward County tax data shows only what PACE borrowers owe for the current tax year. It does not reveal the total amount or term of the loans.
In addition, the tally doesn’t reflect many more projects contracted in recent months. The most active PACE funding agency, Ygrene Energy Fund, has funded 1,660 projects in Broward County, totaling $32.6 million, through Nov. 30, according to Ygrene data provided by spokeswoman Lauren Olivia Burke. Ygrene has also funded 3,006 projects in Miami-Dade County totaling $78.7 million.
Cities in Palm Beach County have only recently begun to authorize PACE assessments. Only two projects were assessed on tax bills during the 2016 tax year, according to a spokeswoman for the Palm Beach County Property Appraiser.
A representative of the second-most active agency in South Florida, Florida PACE Funding Agency, did not respond to an email seeking information for this story. That agency financed 111 of the 598 projects on the Broward County tax rolls.
Among consumer protection measures sought by the National Consumer Law Center would be a requirement for an energy audit to make sure a property owner would benefit in energy cost savings from PACE-funded improvements.
Neal said that’s not necessary for some improvements, such as replacing an old air conditioning unit with a new efficient one.
He also pointed out that unlike in California, 70 percent of PACE loans in Florida are for storm hardening improvements such as hurricane-rated impact windows or new roofs.
“And those absolutely add to the value of the home,” he said.