Mello Roos refers to special property taxes that are levied against California homeowners residing in districts categorized as Community Facilities Districts (CFD). These taxes are used to raise necessary funds for public services such as fire protection, ambulance services, road improvements, and to build or improve local schools.
It is vital for homeowners to pay the Mello Roos special tax because of accelerated foreclosure laws. This is much different than California real estate laws that require Counties to wait 5 years to foreclose on properties because of past due property taxes.
Under the 1915 Act Assessment Districts, properties located within special financing districts are subject to foreclosure any time tax payments are delinquent by 150 to 180 days. Furthermore, this Act was amended in 2002 and requires homeowners to disclose that their property is located in a CFD.
Mello Roos is named after California Senators Henry Mello and Mike Roos who spearheaded the Community Facilities District Act in 1982. CFD began in 1978 when California residents voted in favor of Proposition 13 legislation to limit property taxation.
To overcome reduced property taxes, the Senators came up with Mello Roos as a way to finance community improvements and public construction. In order for a district to be deemed Mello Roos two-thirds of the community must vote in favor of the special tax.
The tax pays for municipal bonds that cover costs of community infrastructure. This encompasses emergency services including fire and police protection and ambulance services; sewer lines and utility connection; roads and streetlights; schools, libraries, and public parks.
Homeowners that reside or own property located in CFDs have to repay municipal bonds used to fund infrastructure projects. A lien is placed against all properties located in the district. The payment amount varies from year to year, but cannot surpass the maximum amount determined when the community was established.
Mello Roos tax isn't in place for infinity. The length of time the special tax is assessed varies between 7 and 40 years, with the average duration being 15 years from the original build date. With that said, the tax remains in place until the municipal bond is repaid, but cannot last longer than 40 years.
The tax is collected on an annual or semi-annual basis. The tax amount depends on the year the neighborhood was constructed and ranges between $25 and $300 per month. Mello Roos is assessed on the majority of homes constructed in 1994 to present.
Prospective buyers tend to shy away from houses for sale in Mello Roos communities because they believe their monthly payments will be substantially higher. Although property taxes are somewhat higher the trade-off is that most Mello Roos communities have better schools and community services than those that do not implement the special tax. Furthermore, these communities tend to have lower crime rates and a more desirable housing inventory.
People that want to buy a house in Mello Roos communities ought to talk to an experienced real estate agent or tax accountant to determine if living in the neighborhood warrants higher loan payments.
Homeowners that are selling real estate located in CFDs are required by law to disclose the property is subject to Mello Roos tax. Although there are non-disclosure penalties, this does not always mean buyers are informed. Therefore, it is vital to check property records to determine if the property is located in a Mello Roos district or not.
Buying a house is a very important and expensive decision that requires careful research. This is particularly true in California due to the number of Mello Roos communities. We offer a comprehensive home buying and real estate investment blog to help buyers, sellers, and investors minimize risks and learn about factors that can increase the cost of homeownership. Click this link to learn more.