Selling · Fannie Mae B5-3.4-01Selling a house with a PACE loan: why the buyer's lender wants it paid off

Property Assessed Clean Energy (PACE) loans are made through local programs to pay for energy-related improvements – solar panels, roofs, windows, HVAC – and are repaid through the property tax bill. They typically have automatic first lien priority over mortgages recorded earlier. Fannie Mae's uniform security instruments prohibit liens senior to the mortgage, and Fannie Mae will not purchase a loan secured by a property with an outstanding PACE loan unless the PACE program does not give it priority over first mortgages; a PACE loan structured as a subordinate lien or an unsecured loan does not block the loan. The loan application asks the borrower whether the property will be subject to a PACE lien with priority, and the lender whether it currently is. For a seller, that means a priority PACE balance usually has to be paid off at or before closing for a buyer using a Fannie Mae loan – which comes out of the seller's proceeds. Finding it early matters: it shows up on the property tax bill and in the title search, not on the mortgage statement.