A loan company targeting potential solar consumers has been sued by residents of California and Florida claiming the company deceived customers into believing the loans were risk-free and low cost. The loans also prevented customers from selling their homes or getting new mortgages.
By Taylor Arluck
Law360, New York (March 13, 2017, 6:52 PM EDT) — Ygrene Energy Fund Inc., which provides homeowners with financing for clean energy projects, pushed risky loans with undisclosed fees and deceived consumers about government support for the transactions, a proposed class action has alleged in California federal court.
California and Florida homeowners contend that a network of 3,200 “ill-trained and self-interested home improvement contractors” maximized profits by pushing Ygrene Energy’s Property Assessed Clean Energy, or PACE, loans on them without properly disclosing prepayment penalties and fees. The contractors also didn’t tell consumers that Fannie Mae and Freddie Mac wouldn’t purchase or refinance mortgages on a property with an outstanding PACE loan, according to the complaint filed on March 9.
“Ygrene deceives consumers into believing the PACE loan is a risk-free, no-strings-attached program, backed by government support that allows immediate energy efficiency improvements to a home in exchange for nothing more than increased property tax assessments,” according to the complaint.
The PACE loans are financial instruments that allow homeowners to opt into a special assessment district to receive financing for energy improvements repaid through an annual property tax assessment, according to the complaint. The homeowners alleged Ygrene Energy Fund marketed the loans as a “smart alternative to traditional credit-based financing.”
In reality, the PACE loans functioned as additional mortgages that can’t be transferred to future buyers and that contain inadequately disclosed, surreptitiously added prepayment waiver fees, according to the complaint. The homeowners alleged that the loan structure makes it “impossible or nearly impossible” for them to sell their homes without first paying off the loan and incurring a large prepayment penalty.
The primary financing instrument for PACE loans are municipal revenue bonds secured by liens. The loan program originated in California in 2008, but in 2010 the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, raised concerns over the seniority of liens that led to Fannie Mae and Freddie Mac refusing to buy mortgages with affiliated PACE loans, according to the complaint.
The homeowners alleged Ygrene Energy Fund knew the FHFA policy would force consumers to satisfy their PACE loans before being able to sell their homes but failed to disclose it.
A Ygrene Energy Fund representative said the company was confident in its PACE financing.
“We take these matters seriously and at the same time we feel there’s no merit to the case,” Mike Lemyre, a Ygrene Energy Fund representative, told Law360 Monday.
Manuel S. Hiraldo, a partner at Hiraldo PA who represents the homeowners, declined to comment on the pending litigation Monday.
Attorneys from Kasdan LippSmith Weber Turner LLP and Tycko & Zavareei LLP for the proposed subclasses did not immediately respond to a request for comment Monday.
Counsel information for Ygrene Energy Fund was not immediately available Monday.
The case is Grachian L. Smith et al. v. Ygrene Energy Fund Inc. et al., case number 3:17-cv-01258, in the U.S. District Court for the Northern District of California.
–Editing by Jill Coffey.