What Is a PACE Lien and How Does It Affect a Home I Buy?

PACE stands for Property Assessed Clean Energy. The California Department of Financial Protection and Innovation (DFPI) explains that PACE lets homeowners finance energy-efficient, water-saving and other environmentally beneficial improvements through their property taxes. The financing is funded by private lenders and secured by a lien on the property.

I'm Jeanette Nelson, a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas. Many homes here have solar panels or other upgrades, and some were paid for with PACE. When you're buying, it helps to know how to spot it.

This is general information, not legal or lending advice. Your lender and a real estate attorney can speak to your situation.

There are a few places it can show up:

• The property tax bill. DFPI says the money borrowed and its costs are added to the property taxes for the term of the PACE contract. A PACE payment appears as a special assessment line.
• Seller disclosures. California Civil Code Section 1102.6b covers disclosures when a property is subject to a continuing lien from a contractual assessment program, which includes PACE.
• The preliminary title report. Your escrow and title company will show recorded liens during escrow.

If the home has solar panels, ask early whether they were paid for in cash, leased, or financed. For more on that, see What Should I Know Before Buying a Home With Solar Panels?

In California, PACE is collected like a property tax, which can put it ahead of a mortgage. That's why mortgage investors treat it carefully.

Fannie Mae. Its Selling Guide says it will not buy loans on properties with an outstanding PACE loan unless the PACE program does not give the lien priority over first mortgages. It also says homes with energy items financed through PACE are not eligible if the PACE loan isn't paid in full before or at closing.

FHA. HUD announced in 2017 that FHA would no longer insure new mortgages on properties with PACE assessments. A 2026 HUD mortgagee letter says that when a home has a PACE obligation, the sales contract must state the seller will pay it off at or before closing.

DFPI also warns that PACE can make a home harder to sell or refinance, because the lien stays until the contract is paid off. Ask your lender how your specific loan program handles it before you write an offer. See also What Questions Should I Ask a Lender Before I Apply?

That's negotiated in your purchase agreement. With many loans, the seller pays it off from their proceeds at closing. If you're paying cash, you may have more options, yet you'd then take over the yearly payments on the tax bill.

Either way, get the payoff amount in writing during escrow. The balance and any payoff terms come from the PACE administrator, and the escrow officer can request them.

If a PACE lien stays on the home, its payment stays on the property tax bill until the contract ends. That's on top of the base property tax and any other assessments.

Budget for the full tax bill, not just the base rate. Your lender will count it in your monthly payment if it stays. Read more in How Will My Property Taxes Be Set When I Buy?

If you're looking at a home with solar or other upgrades and want to know what you're taking on, I'd love to help you sort it out before you write an offer. Call or text me at 714.366.8575 | DRE: 01397168, or contact me. Jeanette Nelson is a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas.