Property Assessed Clean Energy, often referred to as PACE, is a type of financing used by property owners to fund energy efficient upgrades and renewable energy projects. PACE programs therefore help property owners pay for the upfront costs of green initiatives, such as solar panels and energy efficient windows, which the owner pays back through special assessments on local government property taxes.

More specifically, a local government provides the up-front capital to the owner for an energy retrofit, and the owner repays the capital over time through a property assessment tax. The program is touted as an easy way for consumers to save money and go green.

Very clearly, PACE programs offer tangible benefits. These financing products do not encumber personal credit and are based on the value of the property, not the applicant’s credit score or income.

Furthermore, PACE programs provide a lengthy payback period of up to 20 years, meaning that consumers and the environment can reap immediate benefits without the property owner having to make large upfront payments. But despite the benefits, concerns have arisen over the manner in which consumers are being sold energy efficient products through various PACE programs.

Because PACE financing is accomplished via tax assessments, PACE liens become senior to existing mortgages recorded against the property. This arrangement can complicate home sales and refinancing deals, particularly when lenders refuse to accept a secondary position and require the PACE assessment to be paid off.

How clearly the first-lien requirement is laid out in documents provided to the consumer has been a source of concern, with some homeowners believing they have been deceived. Other concerns have been raised about whether contractors pitching the PACE program: (1) charge fair market value for the improvements; and (2) target vulnerable classes of property owners.

So, do Arizonans have anything to worry about? In short, the answer is no. PACE-enabling legislation has passed in 31 states and the District of Columbia; state laws must enable PACE before a local government can legally administer the program . However, Arizona is NOT one of these states.

PACE-enabling bills have been introduced in past legislative sessions, but have not been signed into law. As a result, Arizona state and local governments lack the ability to establish PACE programs and cannot fund the up-front cost of energy improvements to commercial or residential properties, even when the money will be paid back over time by the property owner.

Scott M. Drucker, Esq., a licensed Arizona attorney, is General Counsel for the Arizona Association of REALTORS® serving as the primary legal advisor to the association. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.