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Considering a HERO or PACE Lien? Make sure you know this!

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Image for Warning on HERO : Pace Liens by Ventura Real Estate Agent Kevin Paffrath Broker Meet Kevin

Quick Preface; What is the PACE/HERO Program?

There are various PACE/HERO liens in Ventura County, but they all generally do the same thing: They allow homeowners to finance energy-related upgrades to their homes by borrowing up to 15% against the value of their property. This debt is then repaid through the owner’s property-tax bill at (2017) rates between 7-9%.

There are some fun benefits to this: No credit check, easy payments (often automatic if one already has a mortgage escrow account — the monthly payment simply goes up), and one gets to make improvements to their house.

The Big Bad Problem; Resale.

Websites such as CaliforniaFirst and HEROProgram will consider a feature of this loan its transferability to future buyers. Therein lies the problem: This does not happen!

Picture of California First Advertisement on Transferring Balance to New Real Estate Buyer

See highlight on “selling point.”

Buyers will not inherit a seller’s debt. Buyers will simply expect the debt be paid prior to the close of escrow.

Why Not:

  • Buyers are purchasing the home with the upgrades already made. Comparable sales often have these improvements as well with no debt to pass along to the buyer.
  • Passing along this debt would be like giving a buyer a new car loan on a car someone’s driven for 2 years; energy upgrades depreciate.
  • Buyers would have to qualify for a higher monthly payment. They either won’t be able to qualify — there are even some indicators that Fannie Fae and Freddie Mac disallow these transfers completely — or, the buyers will consider purchasing a more expensive house. $300 in monthly PACE/HERO payments is similar to purchasing a house for $50,000 more, which could be in an entirely different neighborhood and/or have significantly more upgrades; it’s a new price point.

The Bottom Line to HERO/PACE:

If someone is considering making energy improvements, but plans to sell within the foreseeable future, they should consult their Realtor or financial planner before doing so as the detriments of doing so may outweigh the benefits.

Additionally, it is generally a good idea to consult a Realtor when making upgrades to a house to make sure the upgrade is one that will benefit the house’s value the way one expects it will.

Numerous real estate clients of mine invite me to their homes years after a sale to talk about plans for upgrades, renovations, and energy improvements. Since a realtor is an unbiased party (not benefiting from a loan or construction job), homeowners could benefit from this inquiry. Additionally, Realtors generally know what the going rates are for certain jobs and may be able to help determine how realistic certain job estimates are.

Post written by Realtor at “Meet Kevin“, the amazing real estate agent and broker serving Ventura County, including Camarillo, Ventura, Oxnard, & beyond. Writing for home buyers, sellers, investors, and anyone with an interest in real estate. Kevin thanks you for reading.