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S.F. No. 3245 - Consumer Protections for Residential Property Assessed Clean Energy (PACE) Loans (Second Engrossment)
Author: Senator Eric R. Pratt
Prepared By: Carlon D. Fontaine, Senate Counsel (651/296-4395)
Eric S. Silvia, Senate Counsel (651/296-1771)
Date: April 9, 2018


Section 1. Scope. Adds a reference to chapter 216C.

Section 2. General. Adds a reference to chapter 216C.

Section 3.  Examination fee authority.  Adds a reference to “residential PACE administrators.”

Section 4.  Assessment authority.  Adds a reference to “residential PACE administrators.”

Section 5. General assessment basis. Specifies that assessments against residential PACE administrators be made by the commissioner of commerce according to the total business volume as of the end of the previous calendar year.

Section 6. Financial institutions account; appropriation. Includes in the financial institutions account license and renewal fees charged under the PACE statute.

Section 7. Scope. Makes a conforming change to include a reference to new section 216C.437.

Section 8. Authority. Specifies that the term “authority” does not include a residential PACE administrator.

Section 9. Cost-effective energy improvements. Modifies the definition of “cost-effective energy improvements” for purposes of the PACE program.

Section 10. Commercial PACE loan contractor.  Provides a definition.

Section 11. Commercial PACE loan program. Provides a definition.

Section 12. Commissioner. Provides that the “commissioner” is the commissioner of commerce.

Section 13. Homeowner. Provides a definition.  

Section 14. Implementing entity. Modifies the definition to specify that “implementing entity” does not include a residential PACE administrator.

Section 15. PACE. Provides a definition.

Section 16. Qualifying commercial real property. Clarifies the definition applies to commercial property.

Section 17. Qualifying residential real property. Provides a definition.  

Section 18. Residential PACE administrator. Provides a definition.

Section 19.  Residential PACE loan contract.  Provides a definition.

Section 20. Residential PACE contractor. Provides a definition.  

Section 21. Residential PACE lien. Provides a definition.

Section 22. Residential PACE loan. Provides a definition.

Section 23. Residential PACE loan program. Provides a definition.  

Section 24. Vulnerable adult. Provides a definition.

Section 25. Program purpose and authority. Specifies that a commercial PACE program must serve a public purpose and not primarily be for the benefit of private entities or private investors even though private benefit may result incidentally.

Section 26. Scope. Provides that section 216C.436 applies only to programs offered to owners of qualifying commercial real property.

Section 27. Program requirements. Makes conforming changes to clarify that the section applies to commercial PACE and include additional references to cost-effective energy improvements.  

Section 28. Coordination with other programs. Provides a definition.  

Section 29. Repayment. Provides a definition.

Section 30. Bond issuance; repayment. Provides a definition.  

Section 31. Supplemental funding sources. Provides a definition.

Section 32. Residential PACE loan program; authority; consumer protections. Provides a definition.

Subdivision 1. Scope. Provides that the section only applies to PACE loan programs offered to homeowners.

Subdivision 2. Program purpose and authority. Allows an implementing entity to establish a residential PACE loan program to finance cost-effective energy improvements to enable homeowners to pay for the cost-effective energy improvements to qualifying residential real property. Requires the program to serve a public purpose and not primarily be for the benefit of private entities or private investors even though private benefit may result incidentally. Prohibits an implementing entity or residential PACE administrator from providing financing to a homeowner who is not current on mortgage or real property tax payments; or permitting a homeowner to have more than one residential PACE loan outstanding at a time.

Subdivision 3. Financing terms. Specifies that an implementing entity ensure that financing for PACE loans has a cost-weighted average maturity not exceeding the useful life of the improvements installed, not exceeding a term of 20 years, and a principal amount not to exceed: for energy efficiency improvements only, the lesser of ten percent of the assessed value of the real property or the actual cost of installing the cost-effective energy improvements; and for a loan including a renewable energy system, the lesser of 20 percent of the assessed value of the real property or the actual cost of installing the cost-effective energy improvements. Provides that the combined debt of existing mortgages, the residential PACE lien, and all other liens on the qualified residential real property may not exceed 90 percent of the assessed value of the real property.

Subdivision 4. PACE lien position. Provides that a residential PACE lien is (1) subordinate to all liens on the qualifying residential real property recorded prior to the time the PACE lien is recorded; (2) subordinate to a first mortgage or deed of trust on the qualifying property recorded after the PACE lien is recorded; and (3) superior to any other lien on the qualifying residential real property recorded after the PACE lien is recorded.

Subdivision 5. Lienholder notice. Requires an implementing entity or a residential PACE administrator to provide written notice to each of the servicers of any mortgage or other lien on the qualifying residential real property that the homeowner intends to enter into a residential PACE loan contract.

Subdivision 6. Licensing. Requires residential PACE administrators to be licensed by the commissioner of commerce. Provides information that must be submitted to the commissioner when applying for a license.

Subdivision 7. Term of license. Specifies that licenses for residential PACE administrators expire on December 31 and are renewable on January 1 each year after that.

Subdivision 8. Timely renewal. Provides that for a PACE administrator license renewal to be timely it must be received by the commissioner by December 15 of the renewal year.

Subdivision 9. Contents of renewal application. Requires a renewal application to include any changes in information required in the initial application.

Subdivision 10. Cancellation. Requires a licensee no longer wishing to be licensed to inform the commissioner in writing, surrender the license, and submit a plan for withdrawal.

Subdivision 11. Powers of the commissioner. Allows the commissioner to impose civil penalties, condition or refuse to renew a license, order restitution, and issue orders or directives. 

Subdivision 12. Fees. Provides the fee schedule for an initial license ($1,000) and for a renewal license ($500). $50 of each fee must be credited to the consumer education account.

Subdivision 13. Financial examinations. Allows the commissioner to conduct financial examinations of licensees. Requires residential PACE administrators to retain any books, accounts, and records for six years.

Subdivision 14. Bond. Requires an applicant for a residential PACE administrator license to file a surety bond in the amount of $100,000 with the Department of Commerce. Requires a licensee to maintain or increase its surety bond to reflect the total dollar amount of the residential PACE loans made in the state.

Subdivision 15. Annual reporting. Requires residential PACE administrators to file annual reports by March 31 of each year. 

Subdivision 16. Residential PACE loan contracts. Specifies the information that must be included in a PACE loan contract.

Subdivision 17. Underwriting. Provides the underwriting necessary to determine the ability of the homeowner to repay the residential PACE loan including:

  • determining that the ratio of the homeowner's total monthly debt to total monthly income at the time the loan is executed does not exceed 43 percent;

  • determining that the homeowner has sufficient residual income to meet basic living expenses;

  • considering whether reductions in income or increases in debt that could adversely impact the ability of the homeowner to repay the residential PACE loan are reasonably anticipated to occur following the execution of the residential PACE loan; and

  • considering other factors, including credit reports and credit scores, that indicate 
    the homeowner may not have the ability to repay the residential PACE loan.

Subdivision 18. Oral confirmation. Requires oral confirmation from the homeowner to the residential PACE administrator prior to the execution by the homeowner of a residential PACE contract and prior to the commencement of any installation of any energy improvement, confirming terms of the agreement and other information regarding the PACE loan.

Subdivision 19. Right to rescind a residential PACE loan contract. Gives a homeowner the right to rescind a residential PACE loan contract until midnight on the third calendar day following execution of the contract.

Subdivision 20. Rescission notice and form. Provides the recession notice and form that must be furnished to the homeowner at the time the residential PACE contract is executed.

Subdivision 21. Installation of energy improvements. Requires cost-effective energy improvements financed through a residential PACE loan to be installed by a residential PACE contractor licensed by the commissioner of labor and industry as a residential building contractor or residential remodeler. Prohibits a residential PACE contractor from commencing work prior to the expiration of the rescission period. Prohibits a residential PACE contractor from charging a homeowner a different price for than the contractor would charge for the installations that are not financed through a residential PACE loan. Requires an implementing entity to inspect all installations. 

Subdivision 22. Coordination with other programs. Requires a residential PACE loan program to include cooperation and coordination with the conservation improvement activities of the utility serving the qualifying residential real property.  

Subdivision 23. Retail and end use prohibited. Prohibits energy generated by an energy improvement from being sold, transmitted, or distributed at retail.  

Subdivision 24. Prohibited practices. Prohibits a PACE administrator or residential PACE contractor from:

  • making any statement or implication that is false, unfair, unlawful, deceptive, abusive, or misleading, or make any material omission, regardless of reliance on the statement or omission by the homeowner;

  • implying that the cost-effective energy improvements will pay for themselves or offset or exceed the amount of the residential PACE loan;

  • implying that the residential PACE loan is free, a form of public assistance, 
    or a government program;

  • implying that the residential PACE loan will be repaid, in whole or in part, 
    by a subsequent homeowner;

  • engaging in any false, deceptive, or misleading advertising, act, or practice;

  • using an implementing entity's logo, city seal, or other graphic;

  • directing a homeowner to a residential PACE loan;

  • providing any tax advice or information

  • providing direct or indirect monetary payments or any other form of 
    compensation, incentive, kickback, inducement, or any other thing of value to a homeowner;

  • entering into any residential PACE loan unless both the Federal Housing Finance Agency and the Federal Housing Administration will purchase, refinance, or insure mortgages encumbered by PACE liens;

  • violating state or federal do-not-call or telemarketing restrictions or prohibitions; or

  • violating any other state or federal law or rule.

Subdivision 25. Relation to other laws. Requires residential PACE administrators to comply with the Servicemembers Civil Relief Act.

Subdivision 26. Special protection for low-income homeowners. Requires screening of a homeowner for eligibility to, and if eligible, referral to the free low-income weatherization assistance program and low-income home energy assistance programs, programs offered by the Minnesota Housing Finance Agency, programs offered by the electric and gas utility company or companies serving the homeowner, and other no- or low-cost programs.

Subdivision 27. Disclosures. Provides the written disclosure that must be given to a homeowner.

Subdivision 28. Repayment. Requires an implementing entity to:

  • secure payment with a lien against the qualifying real property;

  • collect repayments as a special assessment, provided that special assessments may be made payable in up to 20 equal annual installments;

  • impose requirements and conditions on financing arrangements to ensure timely repayment;

  • require a petition to the implementing entity by all homeowners of the qualifying real property requesting collections of repayments as a special assessment;

  • provide that payments and assessments are not accelerated due to a default and that a tax delinquency exists only for assessments not paid when due.  Payments made by the homeowner for any outstanding special assessments will be first credited to all other outstanding special assessment charges before being applied to the special assessment imposed under this section; and

  • require that liability for special assessments related to the financing runs with the qualifying real property.

Requires a local government that authorized an implementing authority to impose and collect special assessments necessary to pay debt service on bonds issued by the implementing entity and transfer all collections of the assessments to the authority.

Subdivision 29. Prepayment of loan. Allows prepayment of PACE loans without penalty or premium.

Subdivision 30. Preservation of claims and defenses. Allows a homeowner, subsequent homeowner, or any person obligated to pay the property taxes on qualifying residential real property encumbered by a PACE lien to assert all claims and defenses against a subsequent residential PACE administrator that the homeowner who originally entered into the residential PACE loan could assert against the original residential PACE administrator.  

Subdivision 31. Standard of conduct; agency relationship. Requires residential PACE administrators, residential PACE contractors, subcontractors, and agents to act in good faith toward and in the best interests of the homeowners.

Subdivision 32. Remedies. Provides remedies for homeowners aggrieved by violations of the requirements of the program, including: (1) actual, incidental, and consequential damages; (2) statutory damages of (3) reasonable attorney fees; and (4) investigative and court costs.

Subdivision 33. Waivers not permitted. Prohibits parties to a residential PACE loan contract from waiving any rights or requirements specified for the program.

Section 33. Program qualifications. Includes a reference to residential PACE liens within the senior citizens’ property tax deferral program statute.

Section 34. Municipality; certain counties.  Adds a cross-reference to the residential PACE loan program for purposes of defining a "municipality" in the special assessment chapter.

Section 35. Improvements authorized. Adds a cross-reference to the residential PACE loan program to the list of improvements for which municipalities have the authorization to assess property owners.

Section 36. Ordinances. Add a cross-reference to the residential PACE loan program to the list of items that a municipality may collect through the use of the special assessment process.

Section 37. Repealer. Repeals section 216C.435, subdivision 5 (definition of “energy improvement”).


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