New City Program Helps Homeowners Slash PG&E Bill

Mouthy Toilet.jpg
Is it a good thing that a city program will now encourage you to place a low-flow toilet or other green wonders in your home? Perhaps...
But Some Consumers May Be Better Off Looking Elsewhere To Fund Green Home Improvements, Program's Architect Acknowledges

Mayor Gavin Newsom this evening will hold an "Internet town hall" to tout a new program helping property owners pay for energy-saving improvements. Dubbed GreenFinanceSF, the program lets local homeowners sign up for a special type of loan that will pay for energy-saving improvements such as solar panels, adding insulation, and low-flow toilets. The money will then be repaid through homeowners' property tax bill under a 1982 rule designed to let local governments fund infrastructure improvements.

However, specific provisions of the what's known as the "Mello-Roos" law, named after the California legislators who backed it, can create hidden pitfalls while providing illusory benefits for homeowners enrolling in GreenFinanceSF.

Under GreenFinanceSF, San Francisco creates a special taxation district under the Mello-Roos law. If applicants qualify after paying a $300 application fee, homeowners can obtain money up front to pay for efficiency measures, which may result in energy cost savings. The money is repaid at 7 percent interest. And unlike a traditional home-improvement loan, property owners don't have to pay money back to the bank at the time of sale. Rather than pay the loan off in full, GreenFinanceSF participants can simply pass repayment to the new buyer on the property's tax bill.

"This debt stays with the property, not the person," said  Cisco DeVries, president of Renewable Funding,the finance company behind the initiative. "The energy savings can pay for the cost."

But fine print of the Mello-Roos law suggest there are dangers, and phantom benefits, to this type of financing. For one thing, the law provides for "accelerated foreclosure" proceedings, whereby Mello-Roos Assessment districts can begin foreclosure six months after a tax bill becomes delinquent. For ordinary homeowners, counties must wait five years to foreclose for delinquent taxes.

"It does have an accelerated foreclosure schedule, but because of that, you get lots of noticing," said DeVries. "It's important to recognize that, like any other type of mortgage debt, failure to pay has serious consequences."

Meanwhile, the supposed savings to be had by passing green home improvement debt onto a new homeowner's tax bill may be illusory.

Following a series of 1980s scandals relating to Mello-Roos districts, in which home-buyers ended up paying more in taxes than they bargained for, California law in 1990 began requiring Mello-Roos district home sales to include a "Notice of Special Tax." Savvy Realtors know to advise home-buyers to factor in this tax when calculating how much they should pay for real estate.  The resulting potential reduction in sales price could potentially eliminate any benefit to be had by not having to completely repay an energy efficiency loan.

"My point is not to suggest that I, or the GreenFinanceSF program could suggest the best program for you," said  DeVries, when asked about these pitfalls. "My suggestion is only that you figure out which one is the best for you."

There are already a number of existing federal and state programs, aside from GreenFinanceSF, designed to help homeowners make their property more energy efficient.

Here are a few of the various ways the government helps finance making buildings more energy efficient:

  • The Federal Housing Administration offered what's called a 203(k) loan to pay for home repairs, which HUD guidelines say can be used to fund energy efficiency measures.

  • The Foster City company Solar City will help homeowners exploit federal and state tax credits and utility rebates by leasing, rather than paying cash up front, for expansive solar panels.

  • California has a rebate program for wind and fuel-cell renewable energy systems.

  • The U.S. Department of Energy provides financial assistance for making buildings more efficient through its Energy Renewables Program.

Additionally, homeowners with good credit can finance energy saving projects with a home improvement loan.

GreenFinanceSF is for property owners who don't want to have additional debt applied to their credit record, or who can't obtain a home improvement loan at a better rate than the city program's 7 percent.

GreenFinanceSF "is not the only financing option that's best for everybody," DeVries said. "However, it has some advantages that are unique."
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