TL;DR — Key Takeaways
- A PACE lien California home sale problem is an assessment problem, not a loan problem. Streets and Highways Code section 5898.30 makes the assessment, its interest and its penalties a lien until paid, collected with the general taxes of the city or county.
- Two documents are recorded and both are findable. Section 5898.32 requires a recorded notice of the existence and amount of each contractual assessment, and section 5898.24(d) a separate recorded document titled “Payment of Contractual Assessment Required” in at least 14-point boldface, stating the annual amount and the date or circumstances of expiry – or that the assessment is perpetual.
- The statute assumes a sale will force the question. The Financing Estimate and Disclosure in section 5898.17 carries a borrower-initialed acknowledgment that on a sale the buyer or their mortgage lender may require the balance to be paid off as a condition of sale, and section 5913 repeats it in a recorded call.
- A solar lease or power purchase agreement is a different instrument, and no statute read for this article transfers one on sale. Section 7169(c)(11) of the Business and Professions Code contemplates three outcomes: assignment, a balloon payment, or removal.
- Section 5940 is the provision to know in a dispute. Where the owner contracted on the reasonable belief the work would be PACE-covered and then cancels within the right-to-cancel period or is not approved for the amount requested, the home improvement contract is unenforceable, the contractor gets no compensation, and must restore the property and return everything.
- The consumer protections expire. Sections 5898.16, 5898.17 and 5913 each remain in effect only until January 1, 2029, with later operative versions queued behind them.
The Direct Answer
A PACE assessment is a voluntary contractual assessment under Streets and Highways Code Chapter 29, recorded against the parcel and collected with the property tax bill. On a sale it does not transfer like a mortgage: it stays with the property unless paid off, and the buyer’s lender commonly requires payoff at closing.
PACE Lien California Home Sale: What the Assessment Is and Where It Is Recorded
A contractual assessment on the parcel, and two recorded documents saying so.
Property Assessed Clean Energy financing runs through Streets and Highways Code Chapter 29, sections 5898.10 to 5899.4. Section 5898.14(b) declares the public purpose: a voluntary contractual assessment program letting a public agency finance distributed generation renewable energy sources and energy or water efficiency improvements permanently fixed to real property. The owner does not borrow from the agency in the ordinary sense; the owner agrees to an assessment.
That distinction decides how the obligation behaves. Section 5898.30 provides that assessments levied under the chapter, and the interest and any penalties on them, constitute a lien against the parcels until they are paid, and applies the Improvement Bond Act of 1915 and Government Code Articles 13 and 13.5 to their imposition and collection – including, in the statute’s own words, provisions related to lien priority and collection in the same manner and at the same time as the general taxes of the city or county on real property. Section 5898.31 adds that the Legislature finds voluntary contractual assessments are not assessments for the purposes of Articles XIII C and XIII D of the California Constitution.
| Recorded document | Statute | What it must contain |
|---|---|---|
| Notice of the existence and amount of the contractual assessment | Sts. & Hy. Code Sec. 5898.32 | Existence and amount, recorded by the clerk with the county recorder |
| “Payment of Contractual Assessment Required” | Sts. & Hy. Code Sec. 5898.24(d) | Title in at least 14-point boldface; owners’ names, legal description and parcel number; the annual amount; the date or circumstances of expiry or a statement that it is perpetual; the purpose; the entity paid and its contact information; an authorized signature |
Two details about that second document matter at closing. Section 5898.24(d) requires it to be recorded concurrently with the instrument creating the assessment, and section 5898.24(e) requires the recorder to index it under the names of the owners and the payee entity – so it is a searchable record rather than something buried in a bond file. Section 5898.24(f) lets the agency combine it with the section 5898.32 notice.
What Disclosure Obligations Apply to Solar Financing?
Two layers – the origination disclosures the owner received, and the resale disclosure the seller owes.
At origination, section 5898.17(a) requires a Financing Estimate and Disclosure to be completed and delivered before the owner consummates the assessment, as a printed paper copy in no smaller than 12-point type unless the owner opts out in writing by signing a printed paper document. Section 5898.17(b)(1) limits the requirement to residential property with four or fewer units. The form is set out in the code, and it carries the total amount financed, the annual percentage rate, the simple interest rate, the total annual principal, interest and administrative fees, itemised other costs, whether there is a prepayment fee, and borrower-initialed acknowledgments. One of those is the point of this whole article: that the owner may be required to pay off the remaining balance by a mortgage lender refinancing the home, and that on a sale the buyer or their mortgage lender may require payoff as a condition of sale. Another states the penalties on a late property tax payment – a 10 percent penalty, late fees, and 1.5 percent per month interest, with the property subject to foreclosure.
Section 5898.16(b) supplies the right to cancel, and the form is in the code too. The window is three business days after whichever of three events happens last: signing the contractual assessment, receiving the Financing Estimate and Disclosure, and receiving the notice of the right to cancel. For a senior citizen – section 5898.16(d)(2) defines that as an individual 65 or older – the references to “third” become “fifth,” and section 5898.16(b)(1)(C) applies the five-day right to assessments entered into on or after January 1, 2021. On cancellation the provider must, within 20 calendar days of receiving notice, take the steps necessary to reflect that any recorded lien has been discharged and removed from the tax rolls, and return money other than the application processing fee. Under subdivision (b)(2) notice is effective when sent.
Section 5913 adds a recorded telephone call. The program administrator must orally confirm that at least one owner has the assessment documents, the Financing Estimate and Disclosure and the right to cancel form, then confirm the key terms in plain language and obtain acknowledgment. The section lists sixteen required points, including that payments will be added to the property tax bill, that the property will be subject to a lien during the term and the obligations may have to be paid in full before the owner sells or refinances, that utility savings are not guaranteed and do not reduce the assessment, and that the owner may repay before the due date without an early repayment penalty. Subdivision (b) requires the call to be recorded in audio, prohibits a prerecorded message, and requires retention for at least five years. Subdivision (d) provides that where a language specified in Civil Code section 1632 is not supported and no interpreter is chosen, the transaction shall not proceed.
Behind all of it is an underwriting precondition. Financial Code section 22687(a) requires the administrator to determine, before executing the assessment contract, that the owner has a reasonable ability to pay the annual payment obligations – and provides that no work shall commence under the financed home improvement contract, and that contract shall not be executed, until the determination is made. Subdivision (a)(5) forbids considering the property’s equity.
Solar specifically has its own document. Business and Professions Code section 7169(b) requires a solar energy system disclosure document, printed on the front or cover page of every solar energy contract in boldface 16-point type, giving the total cost and payments including financing costs, information on how and to whom customers may complain, and the consumer’s right to the applicable cancellation period under section 7159. Subdivision (d) requires the contract and the disclosure to be in the same language as the oral sales presentation or the marketing material. And subdivision (e) draws a line worth remembering: for a PACE-financed system, the section 5898.17 Financing Estimate and Disclosure satisfies section 7169 as to the financing contract only, and not as to the underlying installation contract.
At resale, the seller’s duty comes from Civil Code section 1102.6b, which reaches a Chapter 29 contractual assessment alongside Mello-Roos and 1915 Act charges: a good faith effort to obtain the section 5898.24 notice, and delivery of it.
Who Assumes a Solar Lease or PPA When the Property Sells?
Whoever the contract says. That is the answer.
No statute read for this article transfers a solar lease or a power purchase agreement on the sale of a home. Assumption is governed by the assignment and transfer provisions of the lease or the agreement itself, and this article does not interpret any particular form. Anyone telling you the law assigns it, or forbids assigning it, is describing a contract they have read and you have not.
What the statutes do is acknowledge the three possible outcomes. Business and Professions Code section 7169(c)(11) permits the solar disclosure document to include the impacts that financing options or lease terms will have on the sale of the home, “including any balloon payments or solar energy system relocation that may be required if the contract is not assigned to the new owner of the home.” Assignment, payoff, or removal – the Legislature named all three, which tells you they all happen.
PACE is not in that category, and conflating the two is the most common mistake in this area. A PACE obligation is an assessment on the parcel collected with the property taxes, so there is nothing to assign: it stays with the property until paid off. Section 5913 requires the owner to be told at origination that the obligations may have to be paid in full before a sale or refinance.
So the first task in any transaction is identification, and it is a document exercise rather than a legal one. An assessment shows up as a line on the property tax bill and as the recorded documents above. A lease or power purchase agreement shows up as a separate monthly payment and a contract with an assignment clause. An equipment loan may show up as a separate security interest against the system.
Can a Solar Lien Block or Delay Closing?
Yes, and the statute says so before escrow opens.
The clearest evidence is the acknowledgment the owner initialed at origination. The section 5898.17 Financing Estimate and Disclosure has the owner acknowledge that if they sell the home, the buyer or their mortgage lender may require them to pay off the balance as a condition of sale, and section 5913 requires the same point in the oral confirmation. The scheme was drafted on the assumption that this becomes a closing condition, and it usually does.
The mechanics explain why a lender treats it that way. Section 5898.30 gives the assessment, its interest and its penalties the character of a lien until paid and applies the 1915 Act’s lien priority and collection provisions. That is a different animal from a junior mortgage, and it is not extinguished by a sale.
Two timing points come from the statutes. Section 5913 requires the owner to be told that the annual secured property tax bill including the PACE installment is mailed no later than November 1 each year, and that if the lien is recorded after the fiscal year closes but before the bill is mailed, the first installment may not appear until the following year. That gap produces proration arguments at closing, because the bill in the file may not show the charge that exists. And the recorded section 5898.24(d) document carries the annual amount and the expiry date or perpetual status on its face, indexed under the owners’ names.
Order the payoff demand early. Escrow needs a figure from the program administrator and confirmation of how the county will treat the current-year installment, and neither arrives the day it is asked for.
What Are a Homeowner’s Options in a Dispute With a Solar Financing Company?
The strongest provision is one nobody cites.
Streets and Highways Code section 5940(a) makes it unlawful to commence work under a home improvement contract, or to deliver property or perform services other than obtaining building permits or similar preliminary services, and makes the home improvement contract unenforceable, where two things are both true: the owner entered the contract on the reasonable belief that the work would be PACE-covered, and the owner either applies for, accepts and then cancels the financing within the section 5898.16(b) right-to-cancel period, or applies but is not approved for the amount requested.
If work has commenced in violation of that subdivision, subdivision (b) is unusually blunt. The contractor is entitled to no compensation for the work, must restore the property to its original condition at no cost to the owner, and must immediately and without condition return all money, property and other consideration given by the owner – and where property given as consideration cannot be returned, must return its fair market value or its value as designated in the contract, whichever is greater.
Subdivision (c) puts one duty on the owner: to make any property the contractor delivered available for return within 90 days of the contract’s execution, provided subdivision (b) has been complied with and the property can practically be returned and removed at the contractor’s expense without damage. If the contractor fails to comply, the owner may retain the property without obligation in law or equity. Subdivision (d) allows a narrow waiver for emergency or immediately necessary repairs, and it is deliberately hard to satisfy: the owner must have initiated the contract and must provide a separate statement handwritten in ink, dated and signed by each owner, describing the situation and expressly acknowledging the right to cancel and its waiver. Subdivision (f) confirms that nothing in the section authorizes commencing work where Financial Code sections 22684, 22686 or 22687 prohibit it.
Three other routes are worth listing. Cancellation under section 5898.16(b), with the provider’s 20-calendar-day duty to discharge the recorded lien. Non-compliance with the Financial Code section 22687 ability-to-pay determination, which is a precondition to executing the assessment contract at all. And the complaint channels the disclosure statutes require: the Financing Estimate and Disclosure must carry a customer service toll-free number and email address with a response within 24 hours or one business day, and the solar disclosure document must state how and to whom customers may complain.
What this article does not do is tell you what a claim is worth. Nothing here states a private right of action, a limitations period, or any measure of damages beyond what section 5940 provides, and none of those questions was researched.
The January 1, 2029 Sunset in the PACE Consumer Protections
This is the part no other summary will mention, and it changes how any of this should be cited.
Three of the sections above expire. Section 5898.16(e) provides that the section “shall remain in effect only until January 1, 2029, and as of that date is repealed,” and sections 5898.17(f) and 5913(f) say the same. In each case a later version is already on the books and becomes operative that day.
The current versions come from the 2019-2020 session: sections 5898.16 and 5898.17 as amended by Assembly Bill 2471, Stats. 2020, Ch. 158, and section 5913 as amended by Assembly Bill 1551, Stats. 2020, Ch. 156, all effective January 1, 2021.
Two consequences follow. First, the right to cancel, the Financing Estimate and Disclosure and the oral confirmation all sit in statutes with an expiry date, so a transaction closing after 2028 will be governed by text that has to be read at the time rather than assumed to match. Second, this article deliberately does not describe the successor versions. A section that becomes operative in 2029 will read as it reads then, and it can be amended again first. Anyone relying on these protections for a current transaction is on solid ground; anyone writing about them for the long term is not.
When to Bring Counsel In
At the identification stage, and at once on a cancellation question.
For a buyer, the moment is when the tax bill, the title report and the seller’s disclosure package do not agree about what is on the property. The recorded section 5898.24(d) document, the section 5898.32 notice and the administrator’s payoff figure should reconcile, and when they do not, that is a closing problem with a date attached. For a seller, it is before pricing, because an assessment the buyer’s lender will require to be paid off comes out of proceeds. For a homeowner inside the cancellation window, it is the same day, because section 5898.16(b) counts in business days and section 5940’s remedies depend on canceling within that period. And for anyone whose installation has gone wrong, it is before signing anything the provider offers as a settlement.
Adjacent questions are covered separately: what to do when a solar company stops responding, how to cancel a home improvement contract signed at the door, what a seller must disclose about special assessments, and what an unlicensed contractor changes about your rights.
Work with Bay Legal
Bay Legal, PC advises California owners, buyers and sellers on PACE assessments in escrow, solar lease and power purchase agreement transfers, cancellation rights, and disputes with solar financing companies and installers. If an assessment has appeared on a title report nobody explained, or a solar installation has gone wrong and the paperwork is being used against you, call (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or schedule a consultation at https://baylegal.com/contact-us/.
Frequently Asked Questions
What is a PACE lien and how does it affect a California home sale?
It is a voluntary contractual assessment under Streets and Highways Code Chapter 29, recorded against the parcel and collected with the property tax bill. Section 5898.30 makes the assessment, interest and penalties a lien until paid and applies the Improvement Bond Act of 1915’s collection provisions. It does not transfer like a mortgage and is not extinguished by the sale; in practice the buyer’s lender commonly requires payoff, which the section 5898.17 disclosure has the owner acknowledge at origination.
Who assumes a solar lease or PPA when the property sells?
Whoever the contract provides for. No statute read for this article transfers a solar lease or power purchase agreement on sale, so the answer is in the assignment and transfer provisions of the agreement itself. Business and Professions Code section 7169(c)(11) recognizes the three outcomes the Legislature expected: assignment to the new owner, a balloon payment, or relocation where the contract is not assigned. A PACE assessment is different, because it stays with the parcel rather than needing assignment.
Can a solar lien block or delay closing?
It can, and the statutes assume it will. The Financing Estimate and Disclosure required by Streets and Highways Code section 5898.17 has the owner initial an acknowledgment that on a sale the buyer or their mortgage lender may require payoff as a condition of sale, and section 5913 requires the same point in the recorded oral confirmation. Section 5898.30’s lien and its 1915 Act collection treatment are why lenders and title companies handle it that way.
What disclosure obligations apply to solar financing?
At origination, the Financing Estimate and Disclosure under section 5898.17, the right to cancel document under section 5898.16, the recorded oral confirmation under section 5913, the ability-to-pay determination under Financial Code section 22687, and for solar the disclosure document under Business and Professions Code section 7169, printed in boldface 16-point type on the front of the contract. At resale, Civil Code section 1102.6b requires the seller to make a good faith effort to obtain the section 5898.24 notice and deliver it.
What are a homeowner’s options in a dispute with a solar financing company?
Streets and Highways Code section 5940 is the provision to read first. Where the owner contracted believing the work would be PACE-covered and then canceled within the right-to-cancel period or was not approved for the amount requested, the home improvement contract is unenforceable, the contractor gets no compensation, must restore the property at no cost, and must return all money and property. Cancellation under section 5898.16(b) also obliges the provider to discharge a recorded lien within 20 days.
