Bulletin: NE2017003

Dear Associates: 

Legislative Bill 625 of the 2017 Session of the Nebraska Unicameral was passed by the Legislature and, on April 27, 2017, was approved by the Governor. As such, this Bill was effective at that time and remains in effect. L.B. 625 repealed prior (2016) legislation that created the Property Assessed Clean Energy Act, §§18-3201 - 3211, Neb. Rev. Stat. The newly-approved Act is codified in those sections.

PACE provides for assessment liens, levied by a municipality, for the purpose of assisting in funding clean energy improvements to real estate, which liens become liens on real estate, in many cases, with the same priority as regular property tax liens. Real property that is agricultural, commercial, industrial, or single-family residential is qualified as properties to which a PACE assessment can attach.

There a few foundational definitions: 

1. The property to be assessed is designated “Qualifying Property.”  
2. Qualifying Property must be in a municipality, which is any city or village in the state. 
3. Qualifying Property can be agricultural; commercial (including multifamily residential); industrial; or single family, including 1-4 family residential. 

A. THE PAPER TRAIL

1. Following notice and a public hearing, the municipality will pass an ordinance creating a Clean Energy Assessment District. There are two important considerations in connection with this hearing:

a. It is not clear whether this ordinance will be recorded in the real estate records; there is no requirement for such recording.

b. The statute requires ten days’ notice of the hearing, and notice is to be by publication. This is the only notice requirement. There is no specific requirement for notice to individual property owners.

Therefore, it may be difficult to determine whether a particular property is within a Clean Energy Assessment District. An off-record inquiry will be necessary in order to make that determination.

2. Under the ordinance, the municipality may enter into an assessment contract with the record owner. Additionally, a third-party lender that may be financing the energy project may be a party to the assessment contract as well. The signed assessment contract will be recorded with the Register of Deeds and filed with the County Assessor as well.

3. Notices of delinquent assessment liens

a. Single-family property: The lien attaches upon initial annual assessment, and notice of lien is filed in the Register of Deeds office.

b. Other-than single-family property: Fourteen days after the assessment becomes delinquent, the municipality files a notice of lien for delinquent assessment, and the lien attaches at that time.

4. Release of PACE lien, as appropriate 

B. LIEN PRIORITY

1. Single Family Qualifying Property

PACE lien is subordinate to:

(i) All liens filed prior to the time notice of PACE lien is filed

(ii) First mortgage/deed of trust on the property

2. PACE lien has priority over any lien filed after the PACE lien is filed.

3. PACE lien on other than single family qualifying property has the same priority and status as a real property tax lien.

C. TRANSFER OF OWNERSHIP

1. Single Family Qualifying Property

a. In the case of a mortgage foreclosure or nonjudicial sale, lienholders receive proceeds in accordance with the foregoing priority provisions.

b. If the sale generates sufficient funds to satisfy delinquent PACE installments, such delinquent installments are extinguished.

c. Non-delinquent installments are not accelerated by foreclosure and the non-paid installments continue as liens.

2. Other than Single-Family Qualifying Property: the obligation to pay annual installments shall run with the property.

3. Notice to purchaser: Prior to the effective date of a contract that binds the purchaser, the owner shall provide notice to the purchaser that purchaser assumes responsibility for payment of annual assessments.

D. COLLECTION OF ASSESSMENTS

1. Annual assessments shall be levied against and collected at the same time and in the same manner as property taxes are levied and assessed, EXCEPT

2. Assessment contract for other than single qualifying property may provide for 3rd party lender to create an escrow account for collection and payment of assessments.

E. EFFECTIVE DATE: This Bill was passed with an emergency clause and therefore became effective on April 27, 2017, the date it was approved by the Governor.

F. TITLE CONSIDERATIONS:

1. NOTICE OF PENDING ASSESSMENT: Creation of a Clean Energy Assessment District (CEAD) may be in its initial phase at the time we issue a title policy. It is possible that nothing will appear in the real estate records until an executed assessment contract is recorded. Seller’s/owner’s affidavits should include a representation that no notice of a pending ordinance for the creation of a CEAD is pending.

2. NOTICE TO PURCHASER: Must be given prior to the time that a binding purchase contract is effective; it is our understanding that the Nebraska Realtors Association will be amending their standard purchase agreement forms to address this disclosure and buyer’s consent thereto. Additionally, at least until all standard purchase agreements forms are amended similarly, our commitments should require a representation whether the purchaser has received this notice.  

3. PROPERTY TYPE: As noted above, single-family property is often treated differently from other types of property. This impacts lien priority, release, extinguishment or continued existence of delinquent assessment liens, and other issues.

4. FUNDING: Funding for a PACE program can be via sale of municipal bonds, third party lenders, or by other methods. If a third party lender is to provide funds relating to other than single family qualifying property, a consent and subordination agreement by the proposed lender must be recorded in the real estate records.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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