PACE subordination to a reverse mortgage is not how a HECM takes first lien. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. Mortgagee Letter 2017-18 is blunt: a property still encumbered with Property Assessed Clean Energy financing is not eligible for an FHA-insured HECM. Asking the administrator to “step behind HUD” is the wrong letter.
Take a homeowner in Indio, California named Nestor, 67, occupying the house, whose PACE assessment still printed on the county tax bill. A solar salesman told him the HECM could subordinate like a HELOC. Title will not treat PACE as a friendly junior. See PACE eligibility for paying it off from proceeds. Stay here for why subordination is not the tool.
A HECM is FHA-insured. PACE is not a second-lien HECM product.
Why does HUD refuse a subordinated PACE instead of treating it like a HELOC?
PACE rides the property-tax bill with super-priority in California. A HELOC is a voluntary junior mortgage a first-lien holder might consent to, or might not. HUD’s 2017-18 letter did not recast PACE as an ordinary utility charge. 24 CFR 206.45 still requires marketable title a first-lien HECM can record. An assessment that can jump the mortgage is not that title.
Nestor’s leftover cash, after a written PACE demand is stacked with other mandatory obligations, still lands in the mid-30s to low-50s percent of appraised value, depending on age and expected rate. Model leftover cash after the demand, not after a hoped-for subordination. Do not interpolate HUD rows. If the principal limit cannot cover PACE plus the first mortgage plus costs, bring other funds or do not originate.
24 CFR 206.36 can still matter if the PACE was placed last month and leftover cash would be large. Paying from proceeds is allowed when the lien is more than twelve months old, or when cash to the borrower is $500 or less. Subordination is not one of those forks.
What is the actual curative path, since subordination is closed?
Get a written PACE payoff. Pay it at closing from HECM proceeds when capacity covers it, or pay it from other money before recording. Confirm the assessment will not reprint on the next tax bill. Then record the HECM in first position.
A second geography: a 72-year-old in Benson, Arizona with a PACE-style assessment if a local program exists, or a solar UCC-1 if it does not. Arizona files still need first-lien title. Do not import an Indio PACE consent form onto Cochise County and call it HUD law. Confirm what title actually found.
Jay confirmed a LESA cannot be added after closing to “catch” future PACE installments. A LESA holds taxes and insurance on the origination schedule. It is not a PACE administrator.
Initial MIP remains 2.00 percent of maximum claim amount (HUD Mortgagee Letter 2017-12). The 2026 cap is $1,249,125 (HUD Mortgagee Letter 2025-22). Origination cannot exceed $6,000 under 24 CFR 206.31. None of those figures subordinate PACE.
How is this different from subordinating a reverse second behind a new first?
A reverse second such as HomeSafe Second needs the first-lien holder’s written consent to exist at all. That is a private-lien conversation. See subordination request. PACE is the opposite direction: you cannot ask PACE to sit behind a new HECM first. Pay it.
An adjustable HECM, once it exists, accrues at 1-month CMT plus lender margin. An ineligible PACE file never gets that note.
Counseling still costs $125–$175. The certificate lasts 180 days. California Civil Code 1923.2(k) still adds seven days after counseling. Burning that clock while waiting for a subordination HUD will not use is a wasted certificate. Arizona skips 1923.2(k) and still cannot subordinate PACE as a HECM path.
Annual MIP of 0.50 percent of outstanding balance starts after a living HECM funds. It does not start while PACE still encumbers.
What if PACE is on a condo’s tax bill rather than a detached house?
The assessment still encumbers the property. Mortgagee Letter 2017-18 does not care that an HOA exists. Condo project approval is a separate stall. See condo application. Paying PACE at unit closing still has to happen. Asking the HOA to subordinate PACE is not a HUD path.
Nestor should get the written demand from the PACE administrator, not from a solar flyer. Recapture clauses can exceed the dinner-table number. Counseling still costs $125–$175. The certificate lasts 180 days. A complete refinance I originate still typically closes in about 30 days after the file is whole, including a live PACE demand. An expired estimate is how that average stretches.
The 2026 claim cap of $1,249,125 (HUD Mortgagee Letter 2025-22) does not subordinate PACE. Heirs who later keep Indio still repay the outstanding HECM balance under 24 CFR 206.125(a)(2)(i).
Who should not book counseling on a promise that PACE will “just subordinate”?
This path does not help a household that wants me to originate around HUD’s PACE letter. I work with multiple lenders. I will not. It does not help a file whose only proceeds story is a PACE payoff so large leftover cash is a token after 2.00 percent initial MIP.
Heirs who later keep Nestor’s Indio house still repay the outstanding HECM balance under 24 CFR 206.125(a)(2)(i). Retiring PACE at origination does not rewrite that subsection. It just lets the HECM record.
Get the written demand. Pay the assessment. Record first. Subordination is the word a HELOC uses. It is not this file.