An Express Article from the California Land Title Association
Bulletin 10/11-8 - July 21, 2010
California State Attorney General Jerry Brown is suing the federal housing agencies, asking a judge to stop government-sponsored entities from blocking a program that lets homeowners pay for energy-efficient improvements through increased property taxes.
The complaint filed by Attorney General Brown states: “[u]nder longstanding California law, assessments create liens that have priority over mortgages. By their practices and documents, Fannie Mae and Freddie Mac have for decades accepted and agreed that in California, assessments constitute priority liens.”
Brown then equates the newly established PACE programs, which caused Fannie and Freddie to seek the invalidation of all mortgages on which a PACE lien has been placed, with assessments already recognized by the federal mortgage lenders: “Charter cities are authorized to establish PACE programs under the Communities Facilities District Act (commonly known as Mello-Roos Act), which has been in existence since 1982. With the passage of California Assembly Bill 811 (AB 811) in 2008, all other local governments in California are similarly authorized. Under the plain language of California law, any liens that result from PACE assessments have priority over mortgages, operating in the same way as other assessments.”
“Under California law,” Brown continues, “liens resulting from PACE assessments, like other assessments, have priority over mortgages. [Fannie and Freddie] seek to change that priority for their own benefit in violation of California law. [Their] longstanding business practices in California, reflecting their interpretation of their Uniform Security Instruments (including the California Deed of Trust), recognize that assessments can attain priority over mortgages, and that a mortgage holder subject to assessments that can attain priority is not inherently in violation of the California Deed of Trust.”
In response to Fannie and Freddie’s actions, the Attorney General is seeking a declaration that: “PACE programs operate through assessments, not loans; assessments receive lien priority under California law; lien priority for assessments does not violate and does not run contrary to Fannie Mae’s or Freddie Mac’s Uniform Security Instruments; [and] the GSE’s May 5, 2010 Lend Letters and FHFA’s July 6, 2010 Statement mischaracterize California law and the operation of the GSE’s own Uniform Security Instruments.” Brown asks the Court, furthermore, to “declare that under California law, PACE financing is accomplished through assessments and not ‘loans,’ and nothing in Fannie Mae’s or Freddie Mac’s Security Instruments, as reflected in Fannie Mae’s and Freddie Mac’s longstanding business practices, prohibits participation in PACE programs.”
In his complaint, Brown goes on to seek a temporary restraining order and an injunction that would prevent Fannie and Freddie from “taking any adverse action” against any mortgage holder participating in a PACE program under California law.For a copy of the complaint, visit the California State Attorney General’s website.