Industry News
November 20, 2012
Federal Action on PACE Programs Upheld
A Federal Appeals Court recently issued an opinion in two separate appeals granting motions to dismiss in favor of the Federal Housing Finance Agency and the Office of the Comptroller of the Currency, respectively. The question was whether federal law precluded judicial review of a Directive issued by the FHFA to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks regarding PACE programs and whether legal standing existed to pursue claims against the Office of the Comptroller of the Currency.
The Court decided that a directive from Federal Housing Finance Agency (FHFA) to Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), expressing concerns that priority liens under local governments' first-lien Property Assessed Clean Energy (PACE) programs enhanced the risks associated with subordinated mortgages, and directing Fannie Mae and Freddie Mac to protect themselves against such risks, was within FHFA's powers as conservator for Fannie Mae and Freddie Mac.
On the issue of standing, the Court ruled that a litigant that is not the regulated party must demonstrate that action by the agency is likely to result in action by the regulated party, in addition to demonstrating a link between the procedural or substantive injury to the litigant and the adverse agency action. The Court noted that even if the OCC Bulletin were vacated, national banks would remain entirely free to treat PACE-related properties on an unfavorable basis. Thus, the municipality and national not-for-profit environmental advocacy group did not have standing to sue.
Pace programs are operated by local governments and encourage property owners to take actions to reduce energy consumption. The local governments offer financing to commercial and residential property owners to fund the cost of the property improvements. Typically, the owners repay the particular local government, which calls the financing advances “assessments,” on a scheduled periodic basis. If a scheduled payment is not made, in many PACE programs, the delinquent amount attaches to the real property as a “tax lien.” Such a lien has priority over any other lien attached to the property, including new and preexisting mortgage liens, and stays with the property in the event of sale. However, some PACE programs do not carry such priority and were not the subject of the Court’s ruling.
