Mello Roos is a type of real estate property tax assessed in the state of California when people buy homes in areas designated as Community Facilities Districts (CFD). This special tax is levied to pay back municipal bonds acquired to provide residents with public utilities and services.
The special Mello Roos tax was established in 1982 by Senators Henry Mello and Mike Roos. Its purpose was to overcome tax deficiencies that occurred when Proposition 13 was signed into legislation.
This special tax only applies to properties situated in CFDs. In order for a neighborhood to be classified as a community facilities district at least two-thirds of residents have to vote in favor of implementing the Mello Roos property tax.
Tax amounts range from $25 to $300 or more per month. Property owners pay this tax semi-annually or annually. Mello Roos taxes aren't assessed indefinitely. Instead, taxes are collected from property owners until the municipal bond is paid off.
Mello Roos taxes cannot be collected for longer than 40 years. However the average duration is 15 years from the date the community was built. Annual taxes range between $300 and $3600 per year. The special property tax applies to nearly all housing communities developed between 1994 to present.
Mello Roos property taxes pay for vital public services that include infrastructure, utilities, public sewer and water lines, public protection services such as fire, police, and ambulance transport, libraries, schools, and parks.
One crucial aspect that homeowners in CFDs need to understand is defaulting on Mello Roos taxes could result in foreclosure. In the state of California, counties are prohibited from foreclosing on property owners until taxes are delinquent by five years. However, homeowners that reside in Mello Roos districts are subject to foreclosure once their property taxes are delinquent by 150 days.
In addition, California homeowners that list property for sale are required by law to disclose their property is subject to Mello Roos taxation. These properties have liens attached until the municipal bond is repaid.
People that buy houses in community facilities districts need to be aware that they will be paying higher property taxes. The tax can add as much as $300 per month to their mortgage costs.
Although there is no guarantee that houses in CFDs are worth more or better than houses that are not in these districts, they tend to have less crime, better community services, and more desirable schools. Furthermore, the housing inventory is often higher quality.
Prior to submitting a purchase offer on houses located in Mello Roos districts it's wise for buyers to talk to a realtor or real estate lawyer. It's also important to research property records to find out if the house is subject to special property taxes. Although homeowners are required to disclose this information, some are unaware of the disclosure law and others choose to ignore it.
Investing in real estate as a primary residence or for investment purposes necessitates conducting due diligence. California has a multitude of real estate laws that can adversely impact the overall cost of the property, so it is imperative for buyers to be informed.
As a California real estate investor, I've put together a home buying and investing blog to help others learn about available options. I invite you to continue reading about real estate law, special property taxes such as Mello Roos, and government-sponsored home buying programs and grants for investors and first time home buyers.
Published on August 14, 2012 at 10:33 PM