PACE financing for solar in California: how it works and the risks

With PACE financing, a $30,000 solar system (an example amount) is paid back through your property tax bill for years, with a lien on your home until it is paid off. For some homeowners that works. For others it has made selling, refinancing or simply paying the tax bill much harder. Here is how it works in California, using the state's own rules.

What PACE is. PACE stands for Property Assessed Clean Energy. It started in Berkeley in 2007 and pays for upgrades such as solar, energy efficiency and certain wildfire safety work. According to California's Department of Financial Protection and Innovation (DFPI), you repay it through increased assessments on your annual property tax bill for the full term of the contract, and a lien is placed on your home until it is paid off. DFPI has licensed PACE program administrators since 2019.

What it means when you sell or refinance. A PACE assessment does not transfer like a mortgage. It stays with the property unless it is paid off, and a buyer's lender commonly requires payoff at closing. California law requires PACE paperwork to warn that the balance may have to be paid in full before you sell or refinance. Plan for that cost if there is any chance you will move during the term.

How much you can borrow. DFPI says the amount financed generally cannot be more than 15% of the home's value up to the first $700,000, and must be less than 10% of the value above that. For example, on a home worth $600,000, the cap is about $90,000. On a home worth $900,000, it is about $105,000 on the first $700,000 plus just under $20,000 on the rest, for a total of a little under $125,000. That limit is only a ceiling.

Your protections before and after signing. Step 1: Before you sign, the PACE administrator must confirm the key terms with you out loud. Listen for the total cost, the yearly amount added to your tax bill, and the length of the term. Step 2: After signing, you have three business days to cancel, or five days if you are 65 or older. If you cancel, the provider must release any recorded lien within 20 calendar days, and the related home improvement contract cannot be enforced. These rules are written to expire January 1, 2029 unless the Legislature extends them.

Questions to ask before choosing PACE. What is the total you will pay over the full term, including interest and fees? How much will your property tax bill go up each year? If your mortgage lender pays your property taxes from an escrow account, will your monthly mortgage payment rise? How does the cost compare with a home equity loan, a solar loan or paying cash? A tax professional or a HUD-approved housing counselor can help you compare.

Red flags. A salesperson who will not leave the paperwork with you, rushes you through the confirmation call, or describes the program as free or government paid. DFPI says PACE contracts are difficult to void once signed, so take your time. Check the contractor's license with the Contractors State License Board, and call DFPI at 1-866-275-2677 to check an administrator or file a complaint.

A small step for today: if anyone in your household has signed a PACE contract, look at your most recent property tax bill and find the line for the assessment and how many years remain.