California Assembly Bill 811: PACE Financing, Protections, and Oversight

California Assembly Bill 811, signed in 2008, is the state law that first let cities and counties set up Property Assessed Clean Energy (PACE) programs, giving homeowners a way to pay for energy-saving, water-saving, and renewable-energy improvements through an assessment added to their property tax bill.¹ The original bill created the financing mechanism but built in almost no consumer protection. Two later laws, AB 1284 in 2017 and AB 2063 in 2018, filled that gap after reports that contractors were pushing PACE assessments on homeowners who couldn’t afford them. A federal Consumer Financial Protection Bureau rule takes effect March 1, 2026, adding another layer on top.²

How PACE Repayment Actually Works

You apply through a PACE program administrator, get approved, have the qualifying work done, and then repay the cost through a special assessment on your annual property tax bill. The local government collects it with regular property taxes and forwards it to the program.³ Terms can run up to 20 or 30 years, and residential PACE interest rates generally fall between roughly 5% and 10% of the funded amount.

Two features set PACE apart from an ordinary home improvement loan. First, it is not personal debt. The assessment attaches to the property, not to you, so it stays with the house if ownership changes. Second, because the payment is collected as a property tax, any past-due PACE amount holds a senior lien position: in a foreclosure it takes priority over your existing mortgage.³ That priority is what makes PACE attractive to the investors who fund it and what has driven every layer of consumer protection built around it since.

Improvements You Can Finance

California’s enabling statute limits PACE financing to improvements that are permanently attached to the property. The authorized categories are:⁴

Energy efficiency, including insulation, high-efficiency HVAC, lighting upgrades, and building envelope work like windows and cool roofs.
Renewable energy, including solar photovoltaic panels, solar thermal, small wind, and geothermal. A roof replacement needed to support a rooftop solar array also qualifies.
Water efficiency, including low-flow fixtures, efficient irrigation, recycled water connections, cisterns, synthetic turf, and permeable pavement.

Some California PACE programs also finance seismic retrofits and wildfire-resistance improvements under later legislation. The common thread across every category is permanence. If you could unscrew it and take it with you, it doesn’t qualify.

Consumer Protections Added After AB 811

AB 1284 and AB 2063 built the guardrails that define residential PACE today. They apply to properties with four or fewer units, where the risk of predatory sales practices was highest.

Ability-to-Pay Determination

Before an assessment contract can be signed and before any work begins, the program administrator has to make a good-faith determination that you can reasonably afford the annual payments. That means reviewing your income, assets, and existing debts.⁵ If the administrator can’t confirm affordability, the contract cannot proceed. Early PACE programs had approved financing with little or no income verification, and this was the single most important reform.

Financial Eligibility Thresholds

Beyond the general affordability check, the law sets specific limits:⁵

The PACE financing must be less than 15% of the property’s market value on the first $700,000 and less than 10% of any value above that.
PACE assessments plus all mortgage-related debt on the property cannot exceed 97% of market value.
You have to be current on property taxes and mortgage payments, with no more than one late mortgage payment in the six months before applying.⁶
You cannot have been a party to any bankruptcy proceeding in the previous four years.

The annual assessment also cannot push total property taxes and assessments above 5% of the property’s market value.⁷

Disclosures, Oral Confirmation, and the Right to Cancel

You have to receive a written financing estimate and disclosure document laying out the total cost of the financing and what the assessment does to your title, plus a separate Right to Cancel disclosure. Both come on paper unless you specifically agree to electronic delivery.⁸

Before the contract is finalized, the administrator conducts a recorded oral confirmation with you, walking through the key terms and verifying that you understand what you are agreeing to. If a PACE solicitor is in the room and starts feeding you answers, the administrator has to stop and explain that you need to respond on your own.⁸ That rule was written to address a specific pattern of early abuse: contractors standing over homeowners during confirmation calls.

After signing, you get a right-to-cancel period. Administrators cannot let work begin until the cancellation window has closed, which stops contractors from rushing through a same-day installation.⁹

Licensing and Oversight by the DFPI

AB 1284 brought PACE program administrators under the California Financing Law and required them to be licensed by what is now the Department of Financial Protection and Innovation (DFPI).⁵ PACE solicitors and their individual agents are also registered, with background checks and at least six hours of training within three months of enrollment.

The DFPI can inspect an administrator’s books and records at any time, investigate complaints, and take enforcement action. When the commissioner finds problems, the agency issues a report documenting findings and requesting corrective action or that the violations stop.¹⁰

What a PACE Assessment Does to Your Mortgage and Home Sale

The senior lien position catches a lot of homeowners off guard when they try to refinance or sell. Because past-due PACE payments jump ahead of the mortgage in a foreclosure, major mortgage investors have taken a hard line.

Fannie Mae will not purchase a mortgage secured by a property with an outstanding PACE assessment unless the PACE program’s terms specifically disclaim lien priority over first mortgages, and most California PACE programs do not disclaim that priority. If you want to refinance an existing Fannie Mae-backed loan, you generally have to pay off the PACE assessment first. Fannie Mae requires lenders to try qualifying you for a refinance that pays off the PACE obligation. Only if you lack sufficient equity will Fannie Mae let the PACE assessment stay in place, and even then the PACE payments have to be counted in your monthly housing expense and debt-to-income calculation.¹¹

Selling is the same story from the other side. When a property with an active PACE assessment changes hands, the remaining balance technically transfers to the new owner along with the energy savings. In practice, many buyers and their lenders won’t accept a property with a senior PACE lien, so sellers often pay off the outstanding balance at closing. That converts what was supposed to be long-term financing into a lump-sum cost. If you’re considering PACE, factor in the possibility of settling the balance early if you sell or refinance before the term ends.

The 2026 Federal CFPB Rule

Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act directed the CFPB to write ability-to-repay rules for PACE financing and apply the Truth in Lending Act’s civil liability provisions to violations. The CFPB issued its final rule on December 17, 2024, with an effective date of March 1, 2026.²

The rule amends Regulation Z to treat residential PACE transactions much like mortgage loans. Program administrators must provide the same TILA-RESPA Integrated Disclosures, the Loan Estimate and Closing Disclosure, that borrowers receive in a conventional mortgage transaction.¹² For California homeowners, the federal layer sits on top of the existing state protections from AB 1284 and AB 2063. Where the federal standard is stricter, it controls. Where California law already exceeds the federal floor, the state requirements remain in effect.

Tax Treatment of PACE Assessments

Because PACE payments appear on your property tax bill, it is easy to assume they’re deductible as real estate taxes. They are not. The IRS has stated that assessments financing improvements to a single property do not qualify as deductible real estate taxes, because deductible taxes have to be levied uniformly across all properties in a jurisdiction at a like rate.¹³ A PACE assessment applies only to properties whose owners voluntarily enrolled, so it fails that uniformity test.

The interest portion of your PACE payments may qualify as home mortgage interest, because the assessment is secured by a lien on your home. IRS guidance directs homeowners to Publication 936 to determine eligibility. Whether you can actually claim the deduction depends on your total mortgage interest and the current cap on state and local tax deductions, so run it past a tax professional rather than assuming.

1
California Legislative Information. AB-811 Contractual Assessments: Energy Efficiency Improvements
2
Consumer Financial Protection Bureau. Residential Property Assessed Clean Energy Financing, Regulation Z
3
U.S. Environmental Protection Agency. Commercial Property Assessed Clean Energy
4
California Legislative Information. AB-1883 Public Improvements: Contractual Assessments
5
California Legislative Information. AB-1284 California Financing Law: PACE Program Administrators
6
California Legislative Information. AB-2063 California Financing Law: PACE Program Administrators
7
California Legislative Information. California Code, Streets and Highways Code SHC 5898.16
8
Legal Information Institute. Cal Code Regs Tit 10, 1620.06 – Assessment Contracts
9
Legal Information Institute. Cal Code Regs Tit 10, 1620.14 – Monitoring Compliance
10
California Legislative Information. California Financial Code, Division 9, Chapter 3.5
11
Fannie Mae. Property Assessed Clean Energy Loans
12
Consumer Financial Protection Bureau. Property Assessed Clean Energy Transactions
13
Internal Revenue Service. Publication 530, Tax Information for Homeowners