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Is PACE financing raising concerns of foreclosure on your California home?

If you were the victim of misrepresentation about your liability for a PACE energy efficiency home improvement loan and are now worried about your ability to stay current on your mortgage – or if you already got a foreclosure notice, talk to a lawyer immediately to understand your legal options, which may include bankruptcy to stop foreclosure.

A new energy-efficient roof and water heater paid for by a government program? It sounded too good to be true – and it wasn’t. According to one family of modest means, despite being told this, they learned that their name was on a $45,000 loan without their consent after the home upgrades were complete, reports the Los Angeles Times. The couple says their electronic signatures were forged on the loan documents.

Because of the 2020 economic downturn, their income dropped, making the situation even more dire – and raising their fear of losing their house through foreclosure.

What is PACE?

PACE stands for Property Assessed Clean Energy, a nationwide public-private financing program that becomes available to local home and business owners upon state legislative approval for local governments to implement the program. California approved PACE in 2007 as a vehicle for financing energy-efficient improvements and many local funding sources have stepped up throughout the state. Statewide PACE financing programs also exist.

A perfect storm may steer toward foreclosures

Consumer advocates have concerns that the combination of current economic woes and alleged deception about legal liability for high-interest PACE loans will cause a “coming foreclosure wave,” says the Times. Until 2018 in California, PACE loans could get approval based only on home equity without regard for income.

The PACE process and subsequent problems

The way PACE works is to use local contractors to push the program to consumers and then get the contract to perform the work. Then, participating private lenders pay the contractors and place special tax assessments on the property. The home or business owners pay the loans through their property tax bills.

If they pay property taxes through escrow accounts on their mortgages, monthly mortgage payments might increase significantly to sufficiently fund the escrow. If the borrower cannot keep up and falls behind, the mortgage lender could potentially pay the PACE assessment and turn around to foreclose on the property. And, if the homeowner or business owner pays property taxes directly to the local government, those payments may become prohibitively high.

Senior citizens, people for whom English is not their first language, borrows of color and low-income borrowers are uniquely subject to victimization through these abusive PACE lending practices, according to the National Consumer Law Center.

Seek legal guidance

An attorney can assess whether it is a good idea to use bankruptcy to stop a foreclosure already in motion or if a client is sliding in that direction, as well as whether there are other legal remedies for fraud-induced PACE financing. Or, the borrower may have a solid legal defense in the foreclosure action.

In addition, some California PACE lenders are considering repayment plan programs to get people through the economic crisis, although there may be technical issues because of the loans having been rolled into property tax bills. Mortgage forbearance (lender agreement to allow payments to stop for a period of time) may be another option.

At the San Francisco Bankruptcy Center of John D. Raymond, we help homeowners in the Bay Area to avoid or fight foreclosure through bankruptcy and other remedies.