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Security Interests in Energy Conservation and Performance Leases and Loans

BY Thomas B. Howard
November 02, 2014

Section 30 of the Housing Act states that the Secretary of the U.S. Department of Housing and Urban Development (“HUD”) “may authorize a public housing agency to mortgage or otherwise grant a security interest in any public housing project or other property of the public housing agency,” which raises the question of how important a Section 30 approval should be to lenders participating in Energy Conservation Contract or Energy Performance Contract lending to Housing Authorities (“HA”).

The answer depends on the lessor's full understanding of what benefits a Section 30 approval provides them and their risk tolerance, as it relates to their security interest position in contract financing transactions.

This article examines whether a HUD Section 30 approval is necessary to perfect the lessor's security interest in property (the energy conservation project (“ECP”) equipment, the guaranty or related payments due from the ESCO and HUD subsidy funds) associated with the lease of an ECP lease, in addition to what other benefits might accrue to the lessor with this approval. Section 30 has never been interpreted in a reported court case, making any conclusions we reach on the impact tentative.

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