PACE financing for solar: what the lien does to your tax bill, your sale and your refinance

How a PACE assessment differs from a solar loan

A Property Assessed Clean Energy program is set up by a local government or a group of them. The government issues bonds or otherwise raises the money, a private company usually runs the program day to day, and the homeowner signs a financing agreement that is recorded against the property. The payments are then collected with the property tax, which is how the CFPB's rulemaking describes it: financing repaid "through the property tax system alongside the consumer's other property tax payment obligations."

Three features follow from that design. The first is priority. The liens typically rank like other real property tax liens, which are superior to other mortgage liens, including ones recorded earlier. The second is attachment: the obligation is tied to the property, so it stays when ownership changes unless someone pays it off at the sale. The third is risk. The CFPB observed that the program and its investors face very low repayment risk whether or not the owner can repay, because the loan is a small share of the property's value, does not accelerate on default and is recovered ahead of other liens in a tax sale or foreclosure.

A few states write the lien the other way. The CFPB's notice names Minnesota, Maine and Vermont as authorizing subordinated-lien PACE, and adds that it understood there had been little to no loan volume in those programs. The practical conclusion is that the version most homeowners meet is the senior one, and that where the lien is junior the product barely exists.

Where it is actually offered

The CFPB counted 19 states plus the District of Columbia with enabling legislation for residential programs, and found active programs mainly in California, Florida and Missouri. It also noted that some states have walked it back; Wisconsin amended its law in 2021 so that PACE is no longer authorized for single-family homes. The program began in California, where Assembly Bill 811 enabled the first programs in 2008.

As of December 31, 2023, the industry had financed 371,000 home upgrades totalling over $9.1 billion, per the trade association data the CFPB cited. Origination peaked at more than $1.7 billion in 2016 and averaged $769 million a year from 2018 to 2021. That makes PACE a niche product concentrated in three states, which is the first screen to run: if your county has no active residential program, the rest of this page is background.

What the CFPB found it costs

The bureau's 2023 PACE report analysed loans originated between July 2014 and December 2019 and found terms that ran from 5 to 30 years, most often 20. Interest rates clustered around 7 to 8 percent, with annual percentage rates averaging about a point higher, in a period when the average prime offer rate for mortgages was around 3.5 percent. Fees vary by program, and the agreements the CFPB reviewed included charges for application, origination, tax administration, lien recordation, title, escrow, bond counsel, processing, underwriting and fund disbursement. In response to comments on the proposal, one PACE company reported that its recently originated loans carried an average interest rate of 9.9 percent.

The table runs a $23,600 assessment, which is this site's benchmark comparison line for an 8 kW system at $2.95 per watt DC (the U.S. Department of Energy's Q1 2025 residential benchmark, modeled market price in 2024 dollars, checked October 30, 2026), through three of those rates on the most common 20-year term. Payments here are level and monthly for comparison, though many programs collect annually with the tax bill, which changes the arithmetic slightly.

Fees paid into the assessment raise the principal, so every row is the floor. The CFPB's report also found that, on average, a household's total property taxes rose by almost 88 percent because of the PACE payment, which is why the bill that arrives after installation can look nothing like the bill before it. Stretching the term trades a smaller payment for more interest: the same $23,600 at 8 percent costs $225.53 a month over 15 years and $173.17 over 30, but the interest alone is $16,995 on the first and $38,741 on the second.

What the rule that took effect on March 1, 2026 changed

Congress directed the CFPB in 2018 to write ability-to-repay rules for PACE, and the bureau published the final rule in the Federal Register on January 10, 2025, effective March 1, 2026. It treats a PACE assessment as credit under the Truth in Lending Act, clarifying that the exclusion for tax liens and assessments covers only involuntary ones, and then applies the mortgage ability-to-repay requirements to PACE transactions with adjustments. A PACE company that is substantially involved in the credit decision is covered, not just the government sponsor.

The rule also supplies model Loan Estimate and Closing Disclosure forms built for PACE, requires the PACE payment and other property taxes to be shown as separate components of the estimated taxes, insurance and assessments, and says a PACE transaction is not a qualified mortgage. It exempts PACE from two mortgage servicing rules, the higher-priced mortgage escrow requirement and the periodic statement requirement. For mortgage lenders it clarifies that an existing PACE obligation has to be considered when originating a new mortgage. The bureau's notice describes TILA's right of rescission as applying to these transactions: three business days from the latest of consummation, the rescission notice or the material disclosures, and up to three years if the disclosures were never delivered.

A trade group sued to stop it. On February 12, 2026, the federal district court in the Middle District of Florida granted summary judgment to the CFPB, holding that PACE financing meets the definition of credit and that the bureau reasonably accounted for the program's features. The group's earlier appeal of the denial of a preliminary injunction had been refused expedited review by the Eleventh Circuit on January 26, 2026, and it appealed the February 12 judgment as well. A legal-news report dated September 30, 2026 says an Eleventh Circuit panel appeared skeptical of the challenge at argument; no ruling was found in the sources read, so the rule applies as written unless a court says otherwise, and the case is the thing to check if the answer matters to you.

The eight things a PACE company has to weigh

Section 1026.43(c)(2) of Regulation Z lists what a lender must consider when deciding that a borrower can repay, and the PACE rule applies the list to the PACE company as well as the lender of record. The factors are: income or assets other than the home that secures the loan; current employment status if employment income is relied on; the monthly payment on this transaction; the monthly payment on any simultaneous loan; monthly mortgage-related obligations, which include property taxes; current debt obligations, alimony and child support; the debt-to-income ratio or residual income; and credit history. Each has to be checked against reasonably reliable third-party records, such as a credit report or an employer's verification form.

The notable omission is equity. The test is about the household's income and obligations, not the value of the house, and the home securing the loan cannot be counted as the asset that makes the borrower look able to pay. For a borrower who pays property tax through a mortgage escrow account, the rule adds one more step: the PACE company has to count the extra monthly escrow payment the assessment will cause, including a cushion of one-sixth of the year's payments unless a different amount is expected. That matters because the escrow account usually does not learn about a new assessment until the tax bill changes, and the first adjustment lands as a shortage that raises the monthly mortgage payment.

What the rule leaves alone

Lien priority is state law, and the rule does not change it. A rule that makes the company check your ability to repay does not move the PACE lien behind your mortgage, so the sale and refinance consequences below are unchanged. Nor does it cap the interest rate or fees; the disclosures are meant to make them visible, not lower. Florida's own law, as the CFPB described it, goes further than the federal baseline in places: a limit of 10 percent of household income on the estimated annual payment for all PACE loans, notice to the existing mortgage holder before the agreement is signed, a three-business-day cancellation right and a written disclosure to prospective buyers.

California's own law: the strictest checklist a PACE contract faces

California runs the largest program, and its statutes show what a stricter regime looks like. The text below comes from a public mirror of the California code, which lists the sections as updated on dates from January 1, 2019 (Fin. Code 22686 and 22687) to January 1, 2021 (Fin. Code 22684 and Streets and Highways Code 5898.16 and 5913), and was fetched on October 23, 2026; it was not compared against the legislature's own site, so a lawyer's reading of the current section is the safeguard.

Before the administrator may sign an assessment contract, or any work may start, the property must clear a screen: property taxes current with no more than one late payment in the prior three years or since purchase; no involuntary liens above $1,000; no unrescinded notice of default; no bankruptcy in the last four years, with a narrow exception for one discharged or dismissed two to four years ago with no payment over 30 days late in the past year; and current mortgage payments with at most one late payment of no more than 30 days in the last six months. The financing cannot exceed 15 percent of the property's value up to the first $700,000, and 10 percent of value above that, and the PACE assessments plus mortgage debt cannot exceed 97 percent of market value. A separate rule bars participation if the annual property taxes and assessments would then exceed 5 percent of market value.

The administrator must also make a reasonable good-faith determination that the owner can afford the annual payment, based on income, assets and current debt, using third-party records such as pay stubs, bank deposits or tax returns, and it may not count the home equity that secures the assessment. Then comes a recorded phone call. The administrator must confirm orally, in plain language and in the owner's preferred language where supported, the total annual cost including fees, the monthly amount to set aside, that the lien may have to be paid in full before a sale or refinance, that utility savings are not guaranteed and do not reduce the payments, that a late payment draws a 10 percent penalty with foreclosure possible and 18 percent a year after June 30, and that the owner has a three-business-day right to cancel. The call is recorded and kept for five years.

The cancellation form reads like Regulation Z's: three business days after the last of signing, receipt of the financing estimate or receipt of the notice, and the provider must have the lien discharged and the money returned within 20 calendar days. The California checklist is the standard against which a contractor's promise of fast, easy approval should be heard. It would be a mistake to assume other states have the same one: the CFPB notice found Florida has its own limits, and Missouri's rules were not read here.

The lien at a sale or a refinance

Fannie Mae's Selling Guide, in the version dated October 8, 2025, is the clearest statement of what the senior lien does to the next mortgage. It describes PACE loans as repaid through the real estate tax bill and typically holding automatic first-lien priority over previously recorded mortgages, notes that the Uniform Security Instruments prohibit a loan that has senior lien status to the mortgage, and concludes that Fannie Mae will not purchase a mortgage on a property with an outstanding PACE loan unless the program does not give the PACE lien priority. Separately, the guide's solar section says a property with solar panels financed by PACE is not eligible for delivery if the PACE loan is not paid in full prior to or at closing.

In practice the buyer's or refinancer's lender needs the assessment paid off. That can be done from the sale proceeds, or by a refinance whose new loan includes the payoff, and a seller who underestimated the balance can find the closing short by the whole remaining assessment. The guide does carry an exception, for PACE loans originated before July 6, 2010, which is not a product anyone is selling for solar now. The FHA, VA and Freddie Mac rules were not verified; the Fannie text is the one read in full, and any lender can say in a sentence how theirs treats a property with a recorded assessment.

Compare that with a conventional solar loan, where a UCC filing or a fixture filing can usually be subordinated or paid off, which is the terrain of the leased-solar sale guide. A PACE lien is a tax-collection lien, which is why it is harder to negotiate around.

Does the payment fit inside the value of the solar?

The question a brochure skips is whether the solar earns enough to cover the assessment payment. It is a cash-flow test, separate from payback. Divide the annual payment by the annual production and you get the value each kilowatt-hour must have for the system to carry its own payment. On the table above, an 8 percent assessment costs $2,404 a year if paid annually over 20 years, and the system makes 9,600 kWh at the example factor of 1,200 kWh per kW, so each kWh must be worth 25.0 cents; at 9.9 percent the figure is 28.7 cents.

The two states with the biggest PACE volume show how different that is. This site's state records use 2025 average residential prices from the U.S. Energy Information Administration and a production range per kW. The test below uses the mid-point of each range and values every kilowatt-hour at the full retail average, which is the generous case. Rates by state are the utility's to publish; EnergyBS explains how rate plans work.

The California row is the best case and should be discounted: California's net billing credits exports at avoided-cost values that sit well below the retail price, which the California net billing guide works through. The Florida row says a plain thing. Where the average price is about 16 cents, a 20-year assessment at these rates costs more each year than the electricity it replaces, and the household is paying for the system out of other money for two decades. Missouri is the third active state, but it is not in this site's state records and the price is left out rather than guessed.

Reading the contract the contractor puts in front of you

The CFPB's rulemaking records that PACE companies rely heavily on home improvement contractors to sell and originate the loans, often door to door, and that contractors collect the application data and sometimes deliver the disclosures and get the signature. That is the structural weakness to read around. The person selling the panels is also the person selling the financing, and the contractor's pay depends on the signature.

Three documents deserve a slow read before anything is signed. The financing agreement states the principal, the rate, the term, the fees folded into the principal and the first payment date. The Loan Estimate, which the March 2026 rule now makes a PACE-specific form, shows the annual payment and how it adds to the tax bill. The recorded notice is the lien itself, and you can ask where and when it will be recorded. If the contractor offers to start work before the cancellation window ends, the window exists so that you can decline.

If the assessment is already on the house

Owners who already carry one have three routes. They can keep paying it with the tax bill, which is the default. They can prepay it, since the CFPB's notice records that the loans are not open-ended and do not negatively amortize, and the payoff amount comes from the program administrator. Or they can refinance the first mortgage with a cash-out structure that includes the payoff, which is what Fannie Mae's guide describes for loans it holds where the borrower has enough equity.

Whichever route, ask the administrator for a written payoff figure before a listing or an application, because the figure on a tax bill is the installment, not the balance. A buyer's agent will ask for the same number. And if the original installer has closed, the assessment does not disappear with them; the same logic applies as in the guide to a closed solar company, except that the lienholder is the program and not the installer.