The Risks Of Energy Efficient Loans
UPDATE: 4:53 p.m., Nov. 30, 2018
Robert Unser is a 74-year-old cancer survivor with cognitive disabilities and a big dilemma.
He has four so-called Property Assessment Clean Energy loans he can’t pay back and four liens on his home.
“PACE loans are energy efficiency loans that are used to finance only energy efficiency home projects,” said San Diego Legal Aid Society Lawyer Katy Box who represents Unser.
She said the high-interest, high-fee loans are peddled door to door and financed through a first-priority tax lien on a homeowner’s property.
“That means that the lien gets priority above any mortgage, above basically any other lien on the property,” Box said.
Homeowners across the state have complained to prosecutors and groups like the San Diego Legal Aid Society about some PACE lenders. Thousands of PACE borrowers have said they didn’t understand the terms and are now saddled with loans they can’t afford to pay back.
California Attorney General Xavier Becerra said the elderly are easy targets for unscrupulous lending.
“They’re essentially sitting on a gold mine,” Becerra said. “Chances are they probably paid off most of the mortgage, and so they have a great amount of equity in that home.”
San Diego County prosecutor Valerie Tanney said repayment of PACE loans through property taxes backed by liens puts the elderly especially at risk.
“With seniors to the extent they have less capacity to understand what this will cost them, then they’re in a danger of losing their homes,” she said.
In the case of Unser, it’s both.
Unser has almost lost his home once. He lives on $11,000 in annual Social Security income. But because of the PACE loans, he’s seen his yearly property taxes jump from $300 to $17,000.
Unser appeared uncertain about how he ended up with four PACE loans.
“I don’t know where it came from,” he said haltingly. “There was one bank that wanted me to take out a loan. I said `Give me a few days.’ He wanted me to sign the thing uh, uh, I forget.”
Lawyer Katy Box has filed a lawsuit on behalf of Unser against PACE loan providers Renovate America and Renew Financial, alleging fraud and breach of contract. The complaint is one of several that have been filed against the two loan providers, including class actions on behalf of Los Angeles County homeowners.
Colin Bishopp, Renew Financial vice president of corporate communications, said in a written statement, “Over the past decade, we've helped more than 90,000 homeowners to make critical home upgrades that enable their families to live more efficiently, comfortably and securely.
“Customer complaints represent a small fraction of the many thousands of homeowners who choose our home improvement financing. When we receive a complaint, we do our best to resolve the matter as quickly as possible. We are dedicated to serving our customers and proud of our track record.”
Renovate America also released the following statement: “PACE financing has always been subject to underwriting criteria established by the state of California, and we have consistently complied with those standards. In fact, Renovate America led efforts to pass new laws that strengthened PACE financing by requiring income verification as part of the approval process.”
Representatives from both institutions declined to comment specifically on the Unser case because it’s in litigation, although Renovate America called Unser’s lawsuit meritless.
“It’s very apparent from speaking with him that he doesn’t understand these loans,” she said. “He doesn’t understand the contracts he entered into. He doesn’t understand who he owes money to. He doesn’t know why he owes the money.”
And Box said Unser did not need the renovations to his home that the PACE loans were meant to cover.
“He had kitchen remodeling done, and he doesn’t even cook,” she said. “He gets Meals on Wheels. He got solar panels. He lives in his living room, his bed and his chair and his TV are in his living room so I can’t imagine he uses that much power to have a need for solar panels.”
Box said Unser is the one who brought the PACE loan contractors into his world.
“He is lonely and everyone that knocks on his door, he invites in,” she said. “And they talked him into, `Hey you need these windows replaced. You need your kitchen remodeled.’”
Box said Unser’s PACE loans were finalized with electronic signatures on documents sent to nonexistent email accounts. Unser doesn’t have an email address, an internet connection or a cellphone.
“They literally made up a fake email address for him,” she claimed in a lawsuit against Renew Financial and Renovate America.
Laws took effect this year requiring more state oversight of PACE providers. They will have to consider a person’s ability to repay before approving the loans.
But it’s too late to help Unser, who is angry and stressed as his lawsuit plays out.
“This thing has taken a very bad toll on me,” he said. “They’re not helping me. They’re hurting me. They might as well just bury me and be done with it.”
After this story published, California Assemblywoman Cecilia Aguiar-Curry, who authored a bill aimed at reforming PACE lending rules, released a statement to KPBS.
“I read your excellent article about the potentially devastating impacts on consumers who are misled into signing contracts they cannot afford under the PACE program. This year, we fought and won a battle to assure that a potential customer could not be approved for the program in California until their ability to pay has been verified. My bill, AB 2063, co-authored by my colleague Senator Richard Roth, will protect Californians’ homes from unethical sales pitches from companies in the industry.
“The statement by Renovate America, however, boggles my mind. I simply cannot fathom that after this year’s repeated attempts to kill my consumer protection bill at every stage of the process, they’d have the nerve to try to convince anyone that the case in your article is an outlier, or that they’ve supported anything close to responsible income verification. They spent tens of thousands of dollars opposing the bill throughout, and even asked the Governor for a veto after it passed the State Senate (37-1) and Assembly (79-0) by overwhelming margins.
“I support the PACE program with the increased protections we enacted for California homeowners last year. I applaud the aggressive use of the oversight authority given to the State Department of Business Oversight and their partnership in crafting and passing AB 2063. But, I must object to the attempts by an industry opponent to revise the history of these efforts in the Legislature this year.”
Here’s Renovate America’s response to Aguiar-Curry’s statement:
“California passed landmark legislative and regulatory PACE reforms in 2017, and no player in the industry fought harder for those laws than we did. Why did we oppose PACE legislation in 2018 when only a year earlier we strongly supported it? Our objections to Assemblywoman Aguiar-Curry’s PACE legislation this year related to a number of technical aspects that undermined the viability of PACE and did not materially further consumer protections. We worked productively with her office throughout the session — literally spending dozens of hours in negotiations with her staff — and had a meaningful policy disagreement that we were willing to stand up and express, not because it was the convenient thing to do, but because we believed it was right.
“We believe strongly that ability to pay based on income is imperative in determining eligibility for PACE financing. But we are now seeing unintended consequences from the recent legislative and regulatory reforms that are causing contractors to simply abandon PACE altogether, determining that it is too cumbersome and burdensome as a point-of-sale offering for home improvement projects. As a result, people who could qualify for PACE and could afford a PACE assessment simply don’t have access to it anymore.
“We believe it is possible to establish a robust and enforceable regulatory framework that is fitted to the features of PACE financing – there is a sweet spot for both strong consumer protections and a strong and viable PACE financing product. We sought to work with lawmakers to achieve this throughout the 2018 legislative session and we are optimistic that the necessary fixes can still be made, for the simple reason that California needs PACE now more than ever.”