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Mortgage Lender Approval Required for Co-ops Seeking PACE Loans

Paula Chin in Bricks & Bucks on September 1, 2021

New York City

PACE loans, building retrofits, Climate Mobilization Act, National Cooperative Bank, Fannie Mae.
Sept. 1, 2021

As New York City continues to compile its list of approved lenders offering Property Assessed Clean Energy (PACE) loans, co-op boards and other building owners are eager to secure this low-cost financing for clean-energy retrofits as they scramble to comply with the city’s ambitious Climate Mobilization Act.

PACE loans allow building owners, including co-op boards (but not condo boards), to finance up to 100% of the cost of energy-saving retrofits. Unlike conventional financing, long-term PACE loans are repaid in installments over the course of the project’s life – typically 10 to 20 years – through a charge on the subject property’s tax bill. While specific terms set by private PACE lenders may vary slightly, there is one requirement that all buildings must meet in order to qualify for financing: written consent from their existing mortgage holder.

“Most mortgages have a provision that precludes owners from voluntarily placing a lien on the property that's ahead of the first mortgage position,” explains Michael Karlosky, principal at MSK Resources and a PACE financing expert. “With a consent document, the mortgage bank is saying it is fully aware of the lien, and that they don’t consider a PACE loan as an event that triggers default of the mortgage.”

Banks are wary of PACE loans because the lien it places on the property may make it difficult for them to sell the mortgage on the secondary market to the Federal National Mortgage Association (FNMA) – better known as Fannie Mae – or to banks that create mortgage bundles for resale, known as Commercial Mortgage Bank Securities (CMBS).

Buildings that have Fannie Mae or CMBS mortgage loans will also have a hard time securing PACE financing. “Fannie Mae offers its own suite of green financing loan products that it likes to promote,” Karlosky says. “And the problem with CMBS lenders is that it’s not clear which entity has the legal position to grant lender consent. That’s why they haven’t warmed up to PACE financing as quickly as the rest of the lending market.

There is good news, however, for buildings with mortgage loans from the National Cooperative Bank (NCB): They can get financing for green projects and skip the PACE loans process altogether. “If a co-op has a $1 million mortgage with us and needs a $1 million for energy projects, there’s almost always room for them to borrow more money, whether it’s a line of credit or a second mortgage,” explains Harley Seligman, NCB’s senior vice president. “Our loans put them in a very safe position, because they don’t face the hurdles of qualifying for a PACE loan.”

As for when the PACE loan money will be available, the city is still working on approving an initial list of private lenders. “We’ve received about 20 inquiries so far from lenders seeking to prequalify,” says Peter Erwin, associate director for programs at New York City Energy Efficiency Corp. (NYCEEC), which is administering the PACE program. Once the lenders are approved, the city will roll out its roster on the PACE program website (, which Erwin anticipates will happen this month. “Our plan is to publish it during Climate Week, which begins Sept. 20,” he says.

There are currently more than 300 mortgage lenders nationally that have consented to PACE loans. But even for co-ops that currently have mortgages with those institutions, getting approval for a PACE loan is not guaranteed, because it’s very much on “a case-by-case basis,” Karlovsky points out. “That’s why co-op and condo boards should consult with PACE experts to help them make the right choices when it comes to getting money for energy retrofits. It's complicated.”

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