We have all seen those ads on television or YouTube claiming that through a special government program we can get solar panels installed “at no upfront cost to you” or, even better, with a tax deduction. While we all want to save on energy costs and know there is no Planet B, this sounds simply too good to be true – and it often is.
PACE Loans: Are they too good to be true?
Government loans for energy-efficient home improvements through the Property Assessed Clean Energy or “PACE” program are typically marketed by home improvement contractors through door-to-door salesmen, telemarketers, those almost ubiquitous television and YouTube ads or in upselling a homeowner who has hired them for other work. The homeowner signs one contract with the contractor and another for the loan which, as advertised, has “no upfront cost.” Instead, the loan is a tax assessment which may not appear on the tax bill for another 18 months.
Since these loans charge more interest than a regular home equity loan and must be paid even before the mortgage, they are very popular – with lenders. Since these loans cost more and are far less regulated than regular home equity loans and since the tax authorities cannot be sued or the loan adjusted for the contractor’s misrepresentations, shoddy or unfinished work, they are a trap for borrowers.
Some pitchmen tell homeowners there is a tax credit available for certain energy efficient upgrades. There is – but only to decrease or eliminate a tax liability. (26 United States Code 25C, 25D). Relatively few retired people will owe enough in taxes to take advantage of this.
All in all, a home equity mortgage is a less expensive way to make energy efficient or any other home improvement.
A senior who takes out a PACE loan (really a tax assessment) may find himself burdened with unanticipated property taxes. This can force him out of his home or force him to postpone property taxes to his death, at 5% per year interest, leaving nothing for his children.
Elder law attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is an Approved Guardianship Attorney. She assists people in elder law, estate and special needs planning, guardianship and settling estates. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.
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