Options for Dealing with a Problem PACE loan with Renovate America / aka HERO
PACE loans encourage lenders to loan homeowners money for home improvement contracts that help improve the environment. They are a truly innovate form of finance.
The way the program was implemented has left many California homeowners at risk of losing their homes. The problem has many causes. One of which is that lenders making these loans receive a "super-priority" position on begin repaid if the home goes into foreclosure. The private lenders are secured by an assessment lien which has the same priority for payment as your property taxes. This means the PACE lender gets paid first, even if you have pre-existing home loans from when you bought your home, or refinanced long before PACE came along. As a practical matter, this means that the private lender CANNOT lose money on this deal. They are GUARANTEED to be repaid every penny with interest (and the interest is high!)
This feeling of security has led the various lenders to be lax in the standards they use to determine when to make such loans. Most lenders have to take into account the income of their borrower customers, to make sure they will be repaid. Not so with PACE lenders. All they need or want to know is does the house have enough equity to guarantee repayment with interest? If YES, consider the loan APPROVED.
To be sure, this has changed dramatically since January 1, 2019, when a new California law too effect that REQUIRES them to verify that the borrower has the ability to repay it on penalty of paying damages in a lawsuit. But this new law did NOTHING for the thousands of homeowners who signed on before these requirements came into effect. For these homeowners, they are straddled with a debt that they cannot keep paying, and are all but guarantee to lose their homes to foreclosure.
Often the victims are elderly. Their homes tend to have lots of available equity, having been paid down by their working income over decades of hard work. Not that they are retired, they tend to be "income poor". This combination is a recipe for disaster. The PACE program signs up new borrowers by mostly using home improvement contractors as a sales force. The contractor stands to get new business if they can qualify someone for a HERO loan. Due to their low fixed income, elderly California homeowners often lack the ability to qualify for a lower interest rate loan, but due to the equity in their homes, are easily qualified for a HERO / PACE loan.
Undoubtedly many PACE loans are entered into willingly by the homeowner who is aware of the cost of the project, cost of financing, monthly payments, and the fact that repayment comes out of the property tax. But, others are the result of FRAUD.
The contractors who sign up homeowners often do so by way of electronic signature on tablet computers belonging to the contractor. It is not always clear whether the homeowner has actually read the contract and understands all of its terms. Some elderly residents do not have email accounts, or have them but don't know how to use them. Copies of the contracts they signed and reviewed may have been sent to their email address but never actually read or accessed by the individual. Contractors may over promise the energy cost savings associated with some improvements. The cost of the monthly payments may not be made clear.
Complicating the whole matter is that since at least 2017, and somewhat earlier, many of these PACE loans, and specifically those made by the HERO program require binding arbitration and do not let homeowners bring suit in regular court or participate in class action litigation that might address some of these issues on a larger scale. Arbitration is a form of dispute resolution in which the parties to a dispute argue their case in front of a neutral third party, often an attorney or retired judge, who then decides who wins or loses. The private judge is paid by the parties. There is limited opportunity to take depositions or engage in detailed examination of the company's business practices, other than both sides exchanging documents. It is very expensive. Fees for an arbitrator's time can easily exceed $6000 per day. No class actions are allowed.
That is the BAD part of arbitration. Now for the GOOD NEWS.
Courts and Judges do not like it when consumers are forced into expensive arbitration that they cannot afford. Attorneys have successfully gotten their clients out of arbitration agreements in the past based on how expensive it would be to the consumer. So the companies, like the HERO program, have been forced to agree to arbitration rules that REQUIRE the COMPANY to pay almost ALL of the cost of the private arbitration. Specifically, HERO uses JAMS, a leading private arbitration administration to handled arbitration claims brought by customers against the company.
JAMS rule require HERO to pay all but $250 of the fees. So, you the consumer pays only a one time fee of $250, and you proceed to a hearing before the arbitrator who hears your evidence and arguments and makes a decision. A "hearing" is an informal trial of sorts. It takes place in a business conference room (some hearing rooms look a "little" like a Court house) but it is informal, no rules of evidence apply. You tell your story. Show the arbitrator the documents you think help prove your case. The other tells their version of events. The arbitrator makes a written decision within 30 days as to who is right, and who pays.
Even if you lose, in California, the arbitrator cannot make you pay the JAMS fees paid by the company to get to the hearing. Costs for even a one day hearing could approach $10,000. This costs factor gives you some leverage in negotiating a settlement to your claim. As long as your claim is not frivolous, meaning its not a merit less claim meant just to harass, you cannot be made to pay costs of arbitration beyond the $250 you initially paid.
Since the procedure is informal, even unrepresented parties can do it. It is best to have an attorney represent you. But if you've exhausted that option and can't find one, then you still can bring your claim instead of just letting it go. Its another option.
There are always risks in litigation, even where you have a favorable arbitration clause like you do with JAMS rules. If there is a "winner gets attorney fees" provision in your contract, you could be ordered to pay the other side's attorneys fees if you lose. HERO does not have such a provision when it (Renovate America) is sued (verify this by reviewing your contract with them). If other parties are brought into the suit they will argue for attorney fees.
But if you decide to press your claim, you can use my guide to JAMS consumer arbitration against Renovate America / HERO.
This will help you get a claim filed, and outline some of the types of claims you might consider bringing IF you have the facts to support them. This is NOT a substitute for a lawyer. Before you purchase the guide call me for a free consultation to see if I can represent you. If I can't, make an effort to find someone who will. If you decide to bring a claim on your own, I still recommend hiring an attorney to review the basis for the claim and to advise you of its merit, and offer some strategies for providing it at an arbitration hearing. I offer a more limited scope of representation along these lines as well.