January 20, 2017
A new mortgagee letter updates FHA loan policy on properties bought with FHA loans that are “encumbered with a Property Assessed Clean Energy obligation”.
Mortgagee Letter 2017-06 updates PACE policy starting with a reminder; “The terms and conditions of a PACE obligation may vary by state, local government, and PACE program. Generally, a PACE obligation is secured and collected in the same manner as a special assessment is treated by the local government; funds obligated are not paid directly by the Borrower to the party providing the PACE financing.”
When the sale happens (including foreclosure sales), if a property has “outstanding PACE financing” the obligation will, according to the mortgagee letter, “continue with the property causing the new homeowner to be responsible for the payments on the outstanding PACE amount. In cases of foreclosure, priority collection of delinquent payments for the PACE assessment may be waived or relinquished.”
There are a number of updates to PACE policy for FHA loans. They include the following as described in the mortgagee letter:
–Application of Payments (section III.A.1.e.ii) has been modified to state that escrowed items include any assessments related to a PACE obligation.
–Pre-Foreclosure Sales (PFS) (section III.A.2.l.ii.) includes revised requirements to determine whether the title is impaired by a PACE obligation, analysis and reporting in the PFS appraisal of a PACE obligation that will remain outstanding, and disclosure of any PACE obligation in the property sales contract. Owner-Occupant Borrower Compensation may be used to resolve a PACE obligation.
–Deed-in-Lieu of Foreclosure (section III.A.2.l.ii i.) has been revised to state that HUD will allow a notice of lien recorded in the land records to secure repayment of a PACE obligation that may only become subject to an enforceable claim (i.e., a lien) for delinquent regularly scheduled PACE special assessment payments and otherwise complies with the eligibility and acceptability criteria for Properties encumbered with a PACE obligation provided in Section II.A.1.b.iv . (A)(6). Owner-Occupant Borrower Compensation may be used to resolve a PACE obligation.
–Conveyance of Acquired Properties (section III.A.2.t) has been revised to state that HUD will allow a notice of lien recorded in the land records to secure repayment of a PACE obligation that may only become subject to an enforceable claim (i.e., a lien) for delinquent regularly scheduled PACE special assessment payments and otherwise complies with the eligibility and acceptability criteria for Properties encumbered with a PACE obligation provided in Section II.A.1.b.iv(A)(6). Prior to the conveyance of a Property to HUD, the Mortgagee must pay PACE assessments currently due and payable at the time of conveyance or within 30 Days of conveyance. Mortgagees must not satisfy the full PACE obligation and seek reimbursement of such funds as part of their FHA claim.
–Assumptions (section III.A.3.b) includes a revised requirement that the Mortgagee advise the selling Borrower that any existing PACE obligation that will remain with the property must be fully disclosed to the buyer and made part of the sales contract.
We will examine the details of these changes in future blog posts. If you are not sure how the new PACE policy changes may affect your mortgage loan transaction, speak to your loan officer to clarify.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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