The IML Real Estate Blog

What Are Mello-Roos Taxes?

December 8th, 2010 1:42 PM by Dave Gubler

What Are Mello-Roos Taxes? Willy Wonka's Latest Creation? Unfortunately no. Not a sweet treat! Not exactly the Golden Ticket you had in mind but still worth understanding. Homes subject to Mello-Roos can still hit the sweet spot... it's just a matter of having the the knowledge and ability to compare a home with Mello-Roos to a home without Mello-Roos accurately.

 

Golden Ticket

Mello-Roos Explained
Mello-Roos taxes are assessed to special tax districts, known as Mello-Roos Districts or Community Facilities Districts, for the purpose of financing public services and/or facilities including streets, police protection, fire protection, elementary schools, parks, libraries, museums, and cultural facilities.

California State Senator Henry Mello and Assemblyman Mike Roos spearheaded the successful passage of the Mello-Roos Community Facilities District Act in 1982. The Act passed in response to Proposition 13 (enacted in 1978), which limited the ability of local governments and developers to finance new projects.

Mello Roos District
The Mello-Roos act authorized any county, city, special district, school district or joint powers of authority to create a Mello Roos District with approval of a two-thirds margin of qualified voters in the district.

Property Owners
The Mello Roos District can issue bonds to pay for public improvements. The district's property owners are responsible for payment of a "special tax" to repay these bonds. The act allows for considerable flexibility on how the special tax is calculated. The calculation often takes into account property characteristics such as square footage of the home and parcel size. Typically, the tax is included with your general property tax bill.

Time Limit
The special Mello-Roos tax stays in effect as long as needed to repay the principal and interest on the special bond along with any reasonable administrative costs. The tax may not stay in effect for a period longer than 40 years.

Property Sale
An increased value of the property does not affect the amount of the tax when property is sold.

Mello - Roos Q&A

What Is Mello-Roos?
Mello-Roos 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 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.

Are The Assessments Included Within The Proposition 13 Tax Limits?
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 Facility 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.

How Long Does The Tax Stay In Effect?
The tax will stay in effect as long as it is needed to pay the expenses of service or until the principal and interest on the bonds are paid off along with any reasonable administrative costs incurred in collecting the special tax, but in no case shall exceed 40 years.

wonka barsWhat Are My Mello-Roos Taxes Paying For?
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 spaces, museums, cultural facilities, floor and storm protection and services for the removal of any threatening hazardous substance. The 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 and others.

What Is The Basis For The Tax?
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 changes. 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.

How Much Will The Mello-Roos Payments Be?
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 with 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 in sufficient detail to allow each land-owner within the proposed district to estimate the maximum amount that he or she will have to pay.

How Is The Special Tax Reflected On Real Property Records?
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 continuing to lien to secure each levy of the special tax.

What Happens If A General Tax Payment Is Not Made On Time?
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.

How Are Mello-Roos Taxes Affected When The Property Is Sold?
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 tax when the 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 before the sale of the real property since the underpaid amounts are a lien against the property.

Posted in:General
Posted by Dave Gubler on December 8th, 2010 1:42 PM

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