FHA Updates PACE Policy
Property Assessed Clean Energy (PACE) obligations will vary depending on state law, local ordinances and other factors-these are not standardized state by state. According to FHA.gov, “The terms and conditions of a PACE obligation may vary by state, local government, and PACE program. Generally, a PACE obligation is secured and collected in the same manner as a special assessment is treated by the local government; funds obligated are not paid directly by the Borrower to the party providing the PACE financing.”
Any property-including those purchased in foreclosure sales-that has “outstanding PACE financing” will carry that obligation over to the new owner. According to FHA mortgagee letter 2017-06, PACE obligations “continue with the property causing the new homeowner to be responsible for the payments on the outstanding PACE amount. In cases of foreclosure, priority collection of delinquent payments for the PACE assessment may be waived or relinquished.”
The updated PACE policy for FHA loans includes the following changes as described in the mortgagee letter:
- Application of Payments requirements have been modified to state that “escrowed items include any assessments related to a PACE obligation”.
- Pre-Foreclosure Sales (PFS) regulations now will include revised requirements “to determine whether the title is impaired by a PACE obligation, analysis and reporting in the PFS appraisal of a PACE obligation that will remain outstanding, and disclosure of any PACE obligation in the property sales contract. Owner-Occupant Borrower Compensation may be used to resolve a PACE obligation” according to the mortgagee letter.
- Deed-in-Lieu of Foreclosure rules have been revised to state that “HUD will allow a notice of lien recorded in the land records to secure repayment of a PACE obligation that may only become subject to an enforceable claim (i.e., a lien) for delinquent regularly scheduled PACE special assessment payments and otherwise complies with the eligibility and acceptability criteria for Properties encumbered with a PACE obligation provided in Section II.A.1.b.iv.(A)(6). Owner-Occupant Borrower Compensation may be used to resolve a PACE obligation.”
- Conveyance of Acquired Properties rules now state that HUD will allow a notice of lien recorded in the land records “to secure repayment of a PACE obligation that may only become subject to an enforceable claim (i.e., a lien) for delinquent regularly scheduled PACE special assessment payments and otherwise complies with the eligibility and acceptability criteria for Properties encumbered with a PACE obligation provided in Section II.A.1.b.iv(A)(6). Prior to the conveyance of a Property to HUD, the Mortgagee must pay PACE assessments currently due and payable at the time of conveyance or within 30 Days of conveyance. Mortgagees must not satisfy the full PACE obligation and seek reimbursement of such funds as part of their FHA claim.”
- Assumptions now feature revised requirements that the Mortgagee advise the selling borrower “that any existing PACE obligation that will remain with the property must be fully disclosed to the buyer and made part of the sales contract”.
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