The HERO Program has been popular throughout southwest Riverside County since its inception in late 2011 for the financing of energy saving improvements that can be paid for within a homeowner’s property tax payment. The Home Energy Retrofit Opportunity, or HERO, was created by the Western Riverside County Council of Governments (WRCOG), who oversee a coordinated planning and development of Western Riverside County.
Like many government programs, we must believe it’s beginning was one motivated to help homeowners take advantage of the evolving technologies and retrofit their home with energy saving improvements that may otherwise have been unreachable for many homeowners as the economy was just starting to climb from the depths of despair. By taking advantage of the program, the conventional wisdom is that the home would increase in value with new energy efficient improvements while reducing monthly energy costs, which have continued to skyrocket.
Some of the most popular improvements that have been financed includes the installation of solar panels, retrofitting old windows and doors, replacing HVAC systems and even removing grass and replacing it with an artificial turf, along with many other ‘approved’ projects.
HERO is part of a much larger government program – the ‘Property Assessed Clean Energy’ (PACE) program which also began 2011 and now has spread to 31 different states. The popularity of the program revolves around the fact that homeowners need zero cash out of pocket to participate and take advantage of what could be an extremely expensive improvement.
One of the qualities of the HERO Program is that it is not based on the homeowner’s credit or even debt to income ratio. Rather the home itself must qualify by having equity and not being behind on any property tax payments. There are a few other hoops, but minor in comparison to qualifying for a second position mortgage or line-of-credit, the traditional home improvement financing, to pay for the retrofit energy efficient upgrades.
Yes, it has to be paid back, but only in two semiannual tax payments because the tab is put on the homeowner’s property tax bill. The improvement can be financed for either 5, 10, 15 or 20 years that include interest and other miscellaneous administrative charges that do not add any equity to the home.
The ‘pitch’ is that the current homeowner will only have to pay for their use of the improvement and the next buyer will continue to pay, as part of their property taxes, until the debt is paid in full. It all sounds so wonderful, in theory, but in reality, there are not many lenders who will allow such an arrangement, regardless of what government program is behind it.
What the homeowner needs to know
The debt is recorded as a lien against the property as a tax lien.
The lien is in first Position which means if there is any sort of default, HERO will get their money first.
The Federal Housing Administration and many other lenders will not guarantee or purchase a loan for a home with a HERO tax lien – this mean that if the home is sold and the new buyer wants to purchase with an Federal Housing Administration loan then the lien MUST be paid off.
What are the issues?
Homeowners who proceed with a HERO program often find themselves with any number of issues to deal with including any or all of the following:
Impound account – Unless the homeowners loan service is notified right away they stand to have a deficit in their impound account and may end up paying additional penalties and interest in order to get things squared away. If the bill does not show up on the tax bill until the second bill, this can be a huge issue trying to play catch up – because it starts as soon as the energy efficient improvement is installed.
Unlicensed lenders – Typically the process from estimate to loan approval takes place in less than an hour in the homeowner’s home. The contractors’ salesperson is not a licensed loan professional (they don’t have to be for this program) and typically offers zero advice beyond their company’s sales pitch on how wonderful the HERO program is. Either way, they are not responsible for the loan as a licensed professional with a fiduciary duty would be.
Contractors are businesses – Let’s face it, contractors are in business like anyone else for a profit. Nothing wrong with that but you need to make 100 percent certain that you’re getting the best deal for you. always get multiple (three is always a minimum) bids for every job. Negotiate a cash price before you talk about financing. It costs the contractor zero to accept HERO money so why would you pay more based on how your energy home improvements are paid for? Remember, this is your equity they are spending and many a contractor will rough figure out how much equity you have before they even arrive and bid a job as close to that number as they can. So, a solar system worth $20,000 may end up costing a homeowner twice that if they have the available equity. Then guess what value the system will actually add to the value of the home when the homeowner goes to either refinance or sell the home. Please be careful.
The HERO Program has many wonderful attributes that can certainly help most homeowners reduce their electricity and other utility bills. There is always a cost to benefit analysis that must be made when considering any sort of home improvement, regardless of how it is being financed and certainly HERO is no different. HERO certainly does offer a cost efficient way of improving a home while reducing energy and resource consumption. You just have to do your own due diligence and investigate the program so you understand it and not rely on the contractor’s interpretation and for goodness sake find a reputable contractor based on their local experience and not the slick ads that make it to your mail box or come knocking on your front door.
Call us at (951) 296-8887 and get the information you need enabling you to make an informed, educated decision.Questions regarding available inventory and/or other real estate matters please contact, [email protected] Mike Mason, Realtor® & Broker/Owner of MASON Real Estate. LIC: 01483044, Temecula Valley resident for 30+ years, Board of Director (since 2011) Southwest Riverside County Association of Realtors® (SRCAR).