The American Land Title Association (ALTA) has sought guidance from the Federal Housing Finance Agency (FHFA) regarding the Property Assessed Clean Energy (PACE) program and its potentially harmful impact on real estate closings.
ALTA sent a letter to the FHFA asking for clarification about the process by which a PACE lien is created, and how it is administered and satisfied to repay the obligation. Without knowing additional information regarding PACE liens, consumers will not be able to be properly informed that they have clear title to their property, and creditors will be unaware of their lien priority, ALTA says.
"This information allows consumers and lenders to make an informed decision about purchasing a property or providing mortgage financing," says ALTA CEO Kurt Pfotenhauer. "This uncertainty increases the potential of impeding or preventing real estate transactions."
In addition, ALTA says concerns exist about whether PACE financing is defined as a loan or a tax assessment. If the financing is considered a loan, repayment is secured by a tax lien against the property. The Real Estate Settlement Procedures Act (RESPA) requires that all loans secured by a lien against real property be conducted in accordance with RESPA, including the issuance of a good-faith estimate and HUD-1 form.
ALTA also seeks clarification regarding whether PACE liens must be recorded in the local public records and how ownership of the property is determined. A property owner must have title in order to grant a lien against the property, but guidelines for the PACE programs are unclear in how to prove ownership.
"Without establishing standards for determining title to property, PACE loans run the risk of significant losses due to fraud," Pfotenhauer says. "In addition to harming PACE participants, it also damages local property records, and results in increased costs of underwriting, claims, escrow services and compliance for the land title industry."
SOURCE: American Land Title Association