New tactic in lawsuit against PACE providers: Breach of contract
Renovate America and Renew Financial, two of the largest providers of programs that finance energy-saving home upgrades, are facing more legal action from consumers.
Unlike earlier lawsuits, this one does not allege that the providers of Property Assessed Clean Energy Financing violated consumer protection laws. A U.S. District Court dismissed those claims last year, ruling that PACE liens are not subject to the federal Truth in Lending Act or Home Ownership and Equity Protection Act because they are not consumer credit.
Instead, the new lawsuit alleges that Renovate America and Renew Financial breached a contract with Los Angeles County to implement basic consumer protections and ensure “best in class protections” for the benefit of homeowners who participated in the PACE program, including protection from “predatory lending, unscrupulous contractors and poor quality assessment servicing,” the complaint states. They also agreed and promised to provide protections for seniors, provide assistance to consumers in multiple languages, and create a “consumer protection measures plan.”
PACE financing, which has been enabled under California law since 2007, can be used to finance energy and water efficiency upgrades. It is repaid through a lien on a home that is collected by municipalities along with local tax assessments. The program has attracted criticism because it was originally underwritten based on how much equity the homeowner has in a property, and not the homeowner’s ability to repay. Laws requiring underwriters to verify a borrower’s income and ability to repay only took effect this year.
Mortgage lenders also object to the fact that PACE liens are senior to those of first mortgages, increasing the potential for losses in a foreclosure. Both the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, and the Federal Housing Administration oppose PACE financing, and this can make it difficult for homeowners with PACE liens to sell or refinance.
The new lawsuit, which seeks class action status, also alleges that Los Angeles County is complicit in the failings of the PACE program, leaving thousands of low-income, elderly and non-English-fluent residents exposed to predatory lending practices.
The plaintiffs — represented by Irell & Manella and the nonprofit law firms Public Counsel and Bet Tzedek — also allege that these activities constitute financial elder abuse under California law, because the defendants knew or should have known that elders would be harmed if the companies extended credit without reference to the elders’ ability to make the required payments.
“It doesn’t matter if [PACE] is consumer credit or not under TILA,” said Robert Schwartz, a partner at Irell & Manella. “These promises arise as a matter of contract law.”
The lawsuits dispute the enforceability of the liens in the subject homes, the underlying PACE loan agreements, and the rights of defendants to maintain the liens, and impose supplemental assessments to pay off the PACE loans. The plaintiffs seek restitution of whatever monies the county has collected from them through such assessments and a judicial declaration of their rights.
In an emailed statement, Renovate America said that it has administered PACE in accordance with California law and L.A. County program requirements, and in many cases provided consumer protections that exceed both of those standards. The complaint faults it “for not historically complying with a law that did not take effect until 12 days ago,” according to the statement.
Renew Financial spokesman Colin Bishopp declined to comment on the pending litigation. But he said the company’s goal is for every homeowner who chooses PACE to have the best experience possible. “We have worked with Congress, state legislatures, local governments and the U.S. Department of Energy to develop, implement and enhance robust consumer protections for the PACE industry,” he said. “We are dedicated to serving our customers and proud of our track record."