Lender Questions: How does PACE work if you are a lender?
CleanFund enables the Lender to fund the PACE directly.
PACE for Banks and Lenders.
CleanFund will enable the lender to fund the PACE or will fund it directly and pay the lender any origination fees that would have been earned on a mortgage.
- Lenders earn the same closing fee on PACE.
- PACE has better credit (lower risk)
- The PACE return will have a longer term.
- PACE has better capital treatment.
- PACE is certified ESG credit for the lender.
- Borrowers prefer a mix of PACE with mortgage.
No acceleration: like all property taxes, the future taxes can’t be accelerated, even upon a default.
Limited risk: Only annually levied property tax payments, if unpaid, would be considered “senior” to a mortgage in a foreclosure situation.
Relationships: Bankers care about helping borrowers maximize the value of their property investment and meet their financial goals.
- It is non-recourse
- No payoff upon mortgage payoff
- Long-term, fixed rate
- Potential for slightly more proceeds
- Potential for lower WACC.
- Property taxes are a pass through on some leases.
If the loan is currently being underwritten, CleanFund can review your existing loan documentation to provide language to permit the assessment financing. If your loan has already been approved, CleanFund seeks a simple, one-page acknowledgment of the financing.
PACE assessments are flat rate, fixed amounts so they can be incorporated into your T&I escrow process. You as the lender will then pay the property taxes when they are due. If your borrower doesn't pay the monthly property tax impound it is a default under the mortgage. The lender will generally step in upon default and pay property taxes to avoid penalties.
PACE does not affect any existing remedies under loan documents. Lenders are free to exercise any and all remedies provided for them in their existing loan documents. Additionally, most loan documents contain provisions which allow them to advance property taxes, if unpaid, and to capitalize them to the unpaid principal balance.
Commercial Banks, Credit Unions, Agency (Freddie Mac & Fannie Mae) Retained assets, Life Insurance Companies, CMBS, Secured Federal and State Historic Tax Credit Lenders, and Private Lenders.
No, PACE is not a loan. PACE is recorded as an investment for the lender. It is a state-tax-free municipal security. As an investment, it will not require the same reserves as a mortgage loan. The PACE payment will impact your DSCR if the taxes go up by more than the utility savings.
PACE is non-accelerating, meaning the PACE capital provider can never call the unpaid balance due and payable. The property’s obligation is the current year’s assessment. PACE is non-recourse, with the ability to pay evaluated based on cash flow generated by a property. PACE provides for automatic transferability upon sale, with no additional due diligence or payoff required during a transfer of title. The assessment can also be prepaid at any time.
Neither. PACE is an assessment. Assessment payments are known in advance, and recorded on real property records with a predetermined amortization schedule. The assessment is only an obligation in a particular given year, and can never be accelerated or called, based on any factor, including transfer of ownership or refinance of mortgage debt.