Florida Judge Validates $2 Billion Of Statewide Bonds for PACE

BRADENTON, Fla. — A Florida judge has validated $2 billion of municipal bonds to fund Property Assessed Clean Energy initiatives statewide.

The Florida PACE Funding Agency sought the validation, which recognizes that the special assessments levied in the program are valid and cannot be challenged if, for example, the assessments are used to back bonds.

The validation ruling was handed down Aug. 25 but did not become official until Sept. 27 after an appeal period ended.

The ruling also confirmed a provision in the state’s PACE law, which prevents a mortgage lender from declaring a default or accelerating the payment of a mortgage, note, or lien if a property owner enters into a financing agreement with the PACE agency.

Florida PACE Funding Agency currently is reviewing proposals from as many as 20 firms interested in providing financial advisory services.

Firms are also being sought to provide suggestions on how the start-up agency should be structured. A request for proposals to develop and run administrative operations is expected to be released later.

Formed through an interlocal agreement between Flagler County and the city of Kissimmee, the Florida PACE agency is a special purpose unit of government that will offer financing for energy conservation and renewable-energy improvements as well as wind-resistance improvements, such as reinforcing roofs and installing storm shutters.

The fledgling program eventually will offer taxable bond financing to home and commercial property owners.

Meanwhile, officials with PACE programs around the country are reviewing a California court ruling in late August that found the Administrative Procedures Act was violated when the Federal Housing Finance Agency in 2010 called the PACE program into question.

FHFA directed Fannie Mae and Freddie Mac to stop buying mortgages with

PACE liens out of concern for the lack of standard underwriting and energy retrofit guidelines among the various programs across the country, as well as questions about a PACE assessment priority over mortgages when homeowners default.

The FHFA decision brought PACE bond financings to a halt and drew lawsuits from several states, including the consolidation of complaints brought by California, Sonoma and Placer counties, the city of Palm Desert, and the Sierra Club.

A federal judge in the Northern District of California dismissed many of the counts in the suit.

However, a motion for a preliminary injunction by Sonoma County was partially granted because the FHFA should have complied with notice and comment requirements related to agency rulemaking, the judge said.

“The significance of the decision was that the court found that FHFA could not change the underwriting rules for Fannie Mae or Freddie Mac by a notice, but had to proceed with the [Administrative Procedures Act] notice and rule-making procedure to effect such a change,” said attorney Bob Reid of Bryant Miller Olive PA, the Florida PACE Funding Agency’s bond counsel.

Reid said a major issue in the case is that the FHFA had, in the past, acknowledged the ability of local governments to impose taxes and assessments that are superior to a mortgage lien but the federal agency had determined that PACE assessments were not “traditional assessments.”

“In Florida, we have a court final judgment with statewide impact which declares that the [PACE] assessments under … Florida Statutes are legally the same as any other governmental assessment, and recognized as such under the Florida constitution,” Reid said.

The California case, 10-cv-03084-CW, is still pending.

Federal legislation aimed at clearing hurdles posed by the FHFA decision has also been filed and is making its way through congressional committees.

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