Quick Answer
Homes with PACE (Property Assessed Clean Energy) financing for solar or energy improvements can qualify for a reverse mortgage, but the PACE lien — which has property tax super-priority over all mortgages — must be paid off before the HECM can close in first lien position.
- PACE financing creates a property tax lien with super-priority over all mortgages.
- The PACE balance must be paid off before the HECM can close in first lien position.
- PACE payoff statements take 2 to 3 weeks to process — request immediately.
- Owned solar panels (no PACE) have no issue — treated as a property improvement.
- Solar leases require the leasing company's consent or subordination agreement.
- PACE programs include Ygrene, HERO, CalFirst, and others in California.
Key Facts
| Topic | Key Fact |
|---|---|
| PACE lien priority | Property tax super-priority — above all mortgages |
| PACE payoff requirement | Must be paid before HECM closing |
| PACE payoff statement timing | 2 to 3 weeks — request at start of process |
| Owned solar panels | No issue — valued as property improvement in appraisal |
| Solar lease | Requires leasing company consent/subordination |
| Solar PPA | Same as lease — company consent required |
| Common CA PACE programs | Ygrene Energy Fund, HERO Program, CalFirst Financing |
| PACE payoff source | Can come from HECM proceeds at closing |
Detailed Explanation
PACE financing allows California homeowners to fund solar panels, energy efficiency improvements, and other qualifying projects through a special property tax assessment repaid over time on the property tax bill. Unlike a traditional mortgage or home equity loan, the PACE assessment creates a property tax lien — a type of lien that has super-priority over all mortgage liens under California law. This super-priority is what prevents a HECM from closing while a PACE balance remains outstanding.
The practical resolution is straightforward: the PACE balance is paid off from the HECM proceeds at closing, similar to how an existing mortgage is paid off. However, PACE payoff statements take 2 to 3 weeks to process from most PACE programs — making early initiation of the payoff request critical to the closing timeline. Jay requests PACE payoff statements in the first week of the reverse mortgage process for any borrower with identified PACE financing.
Solar systems that were purchased outright (cash or a conventional personal loan not secured by the property) do not create any lien issue. These systems are treated as permanent fixtures that may add to the property's appraised value — particularly in California where solar ownership is well-understood by appraisers. Owned solar panels are an asset, not a complication, in the reverse mortgage process.
Solar lease and Power Purchase Agreement (PPA) situations require coordination with the solar company. The solar company owns the panels and has a contractual interest in the property — the HECM lender requires either a formal subordination of the solar company's interest or an assignment of the lease to an agreed party. Most solar companies accommodate HECM refinances, but the process takes 2 to 4 additional weeks.
Jay Zayer, CRMP — 18 Years Experience
The PACE lien is the financing complication I identify most frequently in my California practice. I ask about solar panels in the first three minutes of every consultation, and then immediately ask how they were financed. Owned: no issue. PACE: we start the payoff request today. Lease or PPA: I contact the solar company this week. The PACE programs have streamlined their payoff processes over the years, but 2 to 3 weeks is still the realistic minimum. Starting that clock at the very beginning of the process is how we avoid it becoming a closing delay.
Who This Is Right For
This may be a good fit if:
- You have PACE-financed solar or energy improvements and want to understand how to proceed with a reverse mortgage
This may NOT be the right fit if:
- There is no situation where PACE financing creates a permanent barrier to a reverse mortgage — it requires payoff at closing but does not disqualify
Common Misconception
Myth: PACE solar financing prevents a reverse mortgage.
Fact: PACE financing creates a super-priority lien that must be paid before closing — not a permanent disqualifier. The PACE balance is paid from HECM proceeds at closing.
Source: California Property Assessed Clean Energy law; HUD HECM first lien requirements
Authoritative Sources
- California PACE law — calepa.ca.gov
- HUD: HECM lien position — hud.gov
- Ygrene: Payoff request — ygrene.com
People Also Ask
Does PACE financing for solar disqualify me from a reverse mortgage?
No — PACE financing requires payoff at closing but does not permanently disqualify you.
How do I pay off my PACE balance for a reverse mortgage?
Contact your PACE program administrator and request a payoff statement. Allow 2 to 3 weeks for processing. The payoff can come from HECM proceeds at closing.
Do I need to pay off my PACE balance before applying for the reverse mortgage?
No — but the payoff request should be submitted immediately when you start the process. The PACE payoff closes at the same time as the HECM.