For property owners considering C-PACE (Commercial Property Assessed Clean Energy) financing, there are several potential risks to be aware of:
Risks to Property Owners
- Senior Lien Concerns:
- C-PACE assessments create a senior lien on the property, which can have priority over existing mortgages. This may require consent from existing lenders, adding complexity and time to the financing process.
- Lenders might push back or require additional conditions, such as monthly escrows for the C-PACE assessment.
- Property Transfer Issues:
- The C-PACE assessment remains with the property upon sale, transferring the payment obligation to the new owner. This can make properties with C-PACE liens less attractive to potential buyers.
- Refinancing Limitations:
- The presence of a C-PACE lien can limit refinance options. The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac not to purchase or refinance mortgages with C-PACE liens.
- Risk of Loss of Property:
- While the risk to property owners is generally limited, unpaid C-PACE assessments can lead to foreclosure on the property, similar to unpaid property taxes.
- Long-Term Financial Commitment:
- C-PACE financing typically spans 10 to 30 years, which is a long-term financial commitment that property owners must consider carefully.
- Availability and Regulation:
- C-PACE is not available in all states or localities, and the terms can vary significantly depending on state legislation.
Mitigating Risks
To manage these risks effectively, property owners should:
- Work closely with experienced professionals, such as attorneys and financial advisors, early in the process.
- Clearly understand the terms, benefits, and risks of C-PACE financing.
- Ensure that energy-efficient upgrades align with property goals and financial capabilities.
- Communicate with existing lenders and consider intercreditor agreements if necessary.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-potential-risks-for-property-owners-who-take-out-c-pace-financing/
