Forgotten Real Estate Bubble Burst!!!! Have we?

Residents of North Bay Village! My apologies for the delay in reporting on some of the issues that were addressed at the commission meeting on Tuesday April 8, 2014, I was extremely busy with personal stuff that needed my attention.

Let’s begin with an item presented by At Large Commissioner Jorge Gonzalez.  He was eagerly pushing for approval on the first reading of his resolution, too eagerly if you ask me. The proposed resolution would allow the Village to create a Property Assessed Clean Energy Act (PACE) and join the referenced municipalities in a program to finance energy efficient improvements.

                 

Commissioner Gonzalez quickly met resistance from Mayor Connie Leon-Kreps that wanted a workshop before voting, an item she knew very little about. Commissioner Gonzalez appeared very annoyed at the Mayor’s request and resistance. He quickly defended his position by explaining how this was a unique opportunity for single family property owners to make energy efficient improvement in their homes and fully finance it.  Commissioner Gonzalez proudly mentioned how the 360 of which he is president of the condo association spent $ 20,000.00 replacing all their bulbs to LED.  (Commissioner Gonzalez FYI Bulbs are not covered under the program!)

 He cited that before the bloggers had a field day with his proposal, he wanted the residents to know that this program carries no cost to the Village Local Government. It is done independently with the lenders. Payments that usually have a high interest cost although they promise the opposite, which is expected. The monthly payments that include principal and interest would be collected via the property local taxes over time. Typically these loans can have a life of 15 to 20 years depending on the amount and the improvement.  Commissioner Gonzalez I guess I am a blogger, however foremost I am a concern North Bay Village resident that cares!!!!!

I have done some research and my findings are only a small sample of the information available regarding this form of creative financing. Additionally I don’t want to bore you with a twenty page report.  I do know that jumping into this kind of commitment and partnership with the independent lenders and investors require more than Commissioner Jorge Gonzalez urgency and eagerness to sign up for PACE.

This creative finance would become part of the property and the payments would be transferred to the new home owners should the home be sold. In case of bankruptcy, short sale, foreclosure or abandonment, the loan would supersede any mortgages on the property and would have to be satisfied first as would any taxes in arrears.  Have we forgotten already what “creative finance” did to property values? Have we forgotten the “Real Estate Bubble Bust”? I believe that like separation of church and state, the government has no business partnering with lending institutions, banks and investors regardless of the incentives. You want to issue a credit, that’s fine but making loan payments part of your property assessment and real estate tax bill? I don’t know it just doesn’t sound right.   You be the judge, here is an independent report on the “Pros and Cons” found on the internet.

Advantages

·         Allows for secure financing of comprehensive projects over a longer term than does traditional financing, making more projects cash flow positive (i.e., monthly energy savings are greater than monthly principal and interest payments).

·         Transfers the repayment obligation with ownership, potentially overcoming hesitancy to invest in longer payback measures* by spreading repayment over many years and removing the requirement that the debt be paid at sale or refinance.

·         Can lead to low interest rates because of the high security of loan repayments as a result of their attachment to the property tax bill.

·         Helps some property owners deduct payments from their income tax liability. 

·         Allows municipalities to encourage energy efficiency and renewable energy without putting their general funds at risk.

·         Taps into large sources of private capital, such as the municipal bond markets.

Disadvantages

·         Available only to property owners; renters cannot access the program directly.

·         Cannot finance portable items (e.g., screw-in light bulbs, standard refrigerators, etc.).

·         Can require dedicated local government staff time.

·         High legal and administrative expenses to set up.

·         Not appropriate for investments below $2,500 due to minimum origination and administrative costs.

·         Potential resistance by lenders/mortgage-holders whose claim to the property may be subordinated to the unpaid assessment amount should the property go into foreclosure.

PACE is enabled in 31 states and the District of Columbia

State	Status
California	Available some locations
Colorado	Available, but no current loans
Connecticut	Available
District of Columbia	Available
Florida	Available
Georgia	Under development
Hawaii	On hold
Illinois	On hold
Louisiana	Under development
Maine	Available
Maryland	On hold
Massachusetts	Under development
Michigan	Under development, available in Southfield
Minnesota	Available
Missouri	Available
Nevada	On hold
New Hampshire	On hold
New Jersey	Under development
New Mexico	Under development
New York	Available
North Carolina	On hold
Ohio	Under development
Oklahoma	On hold
Oregon	On hold
Texas	On hold
Vermont	Available
Virginia	Under development
Wisconsin	Available
Wyoming	On hold

NORTH BAY VILLAGE DESERVES BETTER!

Honestly Opinionating!

More to come!!!

Mario Garcia

April 12, 2014