While schools are the primary beneficiary of Mello-Roos levies, funds generated by Mello-Roos are also spent on public roads, traffic light systems, police and fire stations, public libraries, museums, and recreational parks, to mention only a few of the public amenities that make communities desirable in which to live.

Communities are definitely enriched by the prudent application of Mello-Roos funds. The neighborhoods affected generally are more pleasant in which to live and play.

Not all areas in which new homes are built result in the creation of a Communities Facilities District. But typically, in larger "master-planned communities" a CFD is created, with homes located within the geographical boundaries of the CFD being subject to a Mello-Roos levy. For example, the master-planned communities of California Oaks in Murrieta, Paloma del Sol in Temecula, and Menifee Lakes in Menifee each have a specific CFD. But, on the periphery of these CFDs may be residential home tracts exempt from Mello-Ross.

The amount of annual Mello-Roos levy, which is collected though the county property tax bill, is an amount determined by lot size or square footage of the home. It is not an "ad valorum" tax, such as the basic property tax. For example, in one master-planned community it might be $840 per year on standard lots, and $1,200 per year on oversized or premium lots.

The basic (Proposition 13 mandated) tax rate is limited to no more than one percent (1%) of the assessed market value of the home. Often, school bonds can add another quarter percent.

However, if the value of the home in the same CFD is higher, without being subject to a premium on lot or home size, the rate drops. For example, a home assessed for $150,000 will still be subject to the base tax of one percent, and the school bonds of a quarter percent. But the same $840 Mello-Roos represents 0.56% of this property's assessed value, resulting in a combined blended tax rate of only 1.8%.

If a builder's project is subject to Mello-Roos, the per unit cost was built in the pricing of the home, rather than the same amount being put onto the tax bill. But there are many builders who don't generally deal with the Mello-Roos obligation this way. Perhaps one of the best reasons why is that the interest rates for financing Mello-Roos levies as general obligation bonds are low. Such bonds are exempt from both State and federal income taxes on the interest they earn, and therefore are sold to investors as "tax-free muni bonds", with interest rates at about half the going rate for residential mortgage loans. If the lump sum amount of a Mello-Roos bond were, for example, $11,000, the annual interest as a general obligation bond might cost the homeowner $846 at 4.5% annual interest rate as a "muni-bond." However, for the very same amount, could cost $1,205 at 96/0 interest financed at regular market rates.

Therefore, a builder who might sell a home for, say, $530,000 with Mello-Roos financed by long term general obligation bond, might instead try to sell it for quite a bit more without long term bond. The buyer, in the second scenario, would end up paying many additional dollars per year in higher home payments for essentially the same home.

This differential is known, and the builders whose projects are located outside of a Mello-Roos district often can and do ask more for a home whose identical copy (if there were such a thing) inside a Mello-Roos district would have to sell for less.

After all is said and done, the one and only issue that a buyer needs to consider when deciding between a home located in a Mello-Roos District (or an other special assessment district for that matter), and one that isn't, is: how much down and how much per month for an essentially equal home offering the identical value. If the monthly payment is the same for either, then it's a wash. Whether the payment is skewed toward high principal and interest, with lower taxes on one, or the payment is skewed toward lower principal and interest, with higher taxes on the other, it's still the same monthly payment.


MELLO-ROOS, Q and A's

Q. What is a Mello-Roos District?
A. A Mello-Roos District is an area where a special tax is imposed on those real property owners within a Community Facilities District. This district has chosen to seek public financing through the sale of bonds for the purpose of financing certain public improvements and services. These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax you pay is used to make the payments of principal and interest on the bonds.

Q. Are the assessments included within the Proposition 13 tax limits?
A. No. The passage of Proposition 13 in 1978 severely restricted local government in its ability to finance public capital facilities and services by increasing real property taxes. The Mello-Roos Community Facilities Act of 1982 provided local government with an additional financing tool. The Proposition 13 tax limits are on the value of the real property, while Mello-Roos taxes are equally and uniformly applied to all properties.

Q. What are my Mello-Roos taxes paying for?
A. Your taxes may be paying for both services and facilities. The services may be financed only to the extent of new growth, and services include: Police protection, fire protection, ambulance and paramedic services, recreation program services, library services, the operation and maintenance of parks, parkways and open space, museums, cultural facilities, flood and storm protection, and services for the removal of any threatening hazardous substance. Facilities which may be financed under the Act include: Property with an estimated useful life of five years or longer, parks, recreation facilities, parkway facilities, open-space facilities, elementary and secondary school sites and structures, libraries, child care facilities, natural gas pipeline facilities, telephone lines, facilities to transmit and distribute electrical energy, cable television lines, and others.

Q. When do I pay these taxes?
A. By purchasing an interest in a subdivision within a Community Facilities District you can expect to be assessed for a Mello-Roos tax which will typically be collected with your general property tax bill. These special tax payments are subject to the same penalties that apply to regular property taxes.

Q. How long does the tax stay in effect?
A. The tax will stay in effect until the principal and interest on the bonds are paid off along with any reasonable administrative costs incurred in collecting the special tax or so long as it is needed to pay the expenses of services, but in no case shall exceed 40 years.

Q. What happens if a general tax payment is not made on time?
A. Because the Mello-Roos tax is typically collected with your general property tax bill, the Facilities District that obtained the lien may withdraw the assessment from the tax roll and commence judicial foreclosure.

Q. What is the basis for the tax?
A. Most special taxes levied on properties within these districts have been structured on the basis of density of development, square footage of construction, or flat acreage charges. The act, however, allows for considerable flexibility in the method of apportionment of taxes, and the local agencies may have established an entirely different method of levying the special tax against property in the district in question.

Q. How much will the Mello-Roos payment be?
A. The amount of tax may vary from year-to-year, but may not exceed the maximum amount specified when the district was created. In the case of the purchase of a new house within a subdivision, the maximum amount of the tax will be specified in the public report. The Resolution of Formation must specify the rate, method of apportionment, and manner of collection of the special tax in sufficient detail to allow each landowner or resident within the proposed district to estimate the maximum amount that he or she will have to pay.

Q. How is the special tax reflected on the real property records?
A. The special tax is a lien on your property, essentially like a regular tax lien. The lien is recorded as a "Notice of Special Tax Lien" which is a continuing lien to secure each levy of the special tax.

Q. How are Mello-Roos taxes affected when the property is sold?
A. The Mello-Roos tax is assessed against the land, but is not based upon the value of the property, therefore, the possible increased value of the property does not affect the amount of the tax when property is sold. The amount of the tax may not exceed the original maximum amount stated in the Resolution of Formation. Any delinquent payments must be satisfied

Joan (joni) Trossen, [E-MAIL]
Not Your Ordinary So. CA - Riverside / San Bernardino County - Broker / Agent
40 years of service
I want to be your Southern California Realtor®
909 . 653 . 4341

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