Property Assessed Clean Energy (PACE) Financing and Companies

Updated 2026-05-17

Property Assessed Clean Energy (PACE) financing is a mechanism that allows property owners to fund energy efficiency, renewable energy, and water conservation improvements on their homes or businesses. Unlike traditional loans, PACE financing is repaid through an assessment on the property's tax bill, similar to a special assessment for public improvements.

A PACE Company is an entity that originates or administers these PACE loans. These companies facilitate the funding and implementation of the improvements for property owners.

Key Characteristics of PACE Financing

• Repayment via Property Taxes: Payments for a PACE loan are typically collected as part of the property owner's regular property tax bill.
• Lien Priority: PACE assessments often hold a senior lien position on the property, meaning they take precedence over other liens, including a first mortgage, in the event of foreclosure or tax sale. This characteristic is a significant consideration for mortgage lenders and can impact a borrower's ability to sell or refinance their property.
• Impact on Escrow Accounts: If a borrower has a mortgage with an escrow account for property taxes, the PACE loan payment will increase the required escrow payment. Mortgage servicers must be contacted for details on the adjusted payment schedule.

Role of PACE Companies

The PACE Company is responsible for providing the terms and conditions of the PACE loan. While PACE financing is distinct from a traditional mortgage, its repayment mechanism (via property tax assessments) and lien priority (often senior to a mortgage) necessitate its disclosure in mortgage transactions.

Disclosure Requirements on the Closing Disclosure (H-25(K))

Due to its unique structure and lien priority, PACE financing requires specific disclosures on the Closing Disclosure to inform consumers of the associated risks and obligations. The CFPB H-25(K) model form provides these specific modifications and includes:

• A dedicated "PACE Company" field in the "Transaction Information" section on page 1 and in the "Contact Information" section on page 5.
• "PACE Payment" listed under "Estimated Taxes, Insurance & Assessments."
• Warnings about:
  • Penalties and late fees from the property tax collector for late payments.
  • The potential requirement for a buyer or their mortgage lender to pay off the PACE loan as a condition of sale.
  • Potential liability for an unpaid balance under state law after a foreclosure or tax sale if the sale proceeds do not cover the PACE obligation.
  • Directing consumers to their PACE contract documents for details on default, early repayment, and prepayment rules.

MLOs should be aware of the PACE Company's role and how their financing impacts the borrower's overall financial obligations and property lien structure. MLOs must understand and explain these unique features and risks to borrowers considering PACE financing, especially its interaction with traditional mortgage loans and its impact on property ownership and transfer. The PACE Company's terms and conditions are referenced in the "Contract Details" section of the Closing Disclosure.