CPACE Legal Framework 2 — Questions and Answers
Question 1: Under PACE financing, the special assessment is attached to which entity?
- The property owner personally
- The real property itself (Correct answer)
- The contractor who installed improvements
- The local government entity
Correct answer: The real property itself
PACE assessments run with the land as a lien on the real property, not as personal liability of the owner.
Question 2: Which federal law requires lenders to provide loan disclosures and has been debated in the context of PACE residential financing?
- Community Reinvestment Act (CRA)
- Truth in Lending Act (TILA) (Correct answer)
- Equal Credit Opportunity Act (ECOA)
- Bank Secrecy Act (BSA)
Correct answer: Truth in Lending Act (TILA)
TILA disclosure requirements have been a central regulatory debate for PACE programs, particularly regarding whether PACE constitutes 'credit' under the statute.
Question 3: A property owner defaults on a PACE assessment. In most jurisdictions, the PACE lien is treated with what priority relative to a first mortgage?
- Junior to the first mortgage
- Equal priority with the first mortgage
- Senior or superior to the first mortgage (Correct answer)
- Senior only if the project is solar-related
Correct answer: Senior or superior to the first mortgage
PACE liens typically hold super-priority status similar to property tax liens, placing them ahead of existing mortgage liens.
Question 4: Which California statute is considered the foundational enabling law for commercial C-PACE programs in that state?
- California Environmental Quality Act (CEQA)
- AB 811 and SB 77 (Improvement Act for Commercial Properties) (Correct answer)
- California Mello-Roos Community Facilities Act
- California Environmental Protection Act
Correct answer: AB 811 and SB 77 (Improvement Act for Commercial Properties)
California's AB 811 and its commercial extension SB 77 created the legal framework allowing local agencies to offer PACE financing.
Question 5: When a commercial property with a PACE assessment is sold, who is generally responsible for the outstanding PACE obligation?
- The original property owner remains personally liable
- The new property owner assumes the obligation as part of the property (Correct answer)
- The PACE program administrator absorbs the remaining balance
- The local municipality pays off the balance at closing
Correct answer: The new property owner assumes the obligation as part of the property
Because PACE is a property-based assessment, the obligation transfers to the new owner at sale, similar to property taxes.
Question 6: Which government-sponsored enterprise (GSE) policy significantly affected PACE financing by restricting purchase of mortgages on PACE-encumbered properties?
- Federal Home Loan Banks policy
- Fannie Mae and Freddie Mac conservatorship guidance (Correct answer)
- Federal Deposit Insurance Corporation rules
- HUD Mortgagee Letter 2010-34
Correct answer: Fannie Mae and Freddie Mac conservatorship guidance
Fannie Mae and Freddie Mac, under FHFA conservatorship, issued guidance restricting purchase of mortgages on properties with senior PACE liens.
Question 7: A PACE program operates through a 'contractual assessment district.' What governmental body must typically authorize this district?
- State environmental agency
- Local city or county government (Correct answer)
- Federal Energy Regulatory Commission
- State utility commission
Correct answer: Local city or county government
Local governments — cities or counties — must establish and authorize the contractual assessment district under state enabling legislation.
CPACE Legal Framework 2
Under PACE financing, the special assessment is attached to which entity?