Many prospective homebuyers in California are becoming increasingly aware of the term Mello-Roos when looking to purchase new and used homes. For those that are unfamiliar, Mello-Roos is simply a special tax assessed to homeowners in a community as repayment for bonds used to fund the infrastructure within their community. To home buyers, Mello-Roos often carries a negative connotation, one where the monthly payment for a home will be significantly more than one in a non Mello-Roos community. But is this a fair assessment? We will attempt to answer this question in order to educate any potential homebuyers about Mello-Roos.
Advantages of a Mello-Roos District to Home Buyers
- New schools, parks, recreation centers, etc can be built and funded using the revenue generated from the Mello-Roos income.
- More housing inventory will be created when undeveloped locations are built up.
- Generally speaking, low crime rates and highly desirable new schools are common in Mello-Roos communities.
Disadvantages of a Mello-Roos District to Home Buyers
- Cost of housing may be increased because of the tax, possibly limiting the amount of prospective buyers when it comes time for resale.
- Maintenance of the improvements could be more costly than anticipated.
Q: Where Is Mello-Roos Most Commonly Found?
A: In Orange County, CA most cities with new construction will have at least one community with Mello-Roos; however, the southern portion of Orange County is where it is most prevalent. Likely cities might include: Irvine, Mission Viejo, Aliso Viejo, Tustin, Laguna Hills, Rancho Santa Margarita, Coto De Caza, and San Juan Capistrano.
Q: What Year Homes Have Mello-Roos?
A: Almost always, Mello-Roos is found in areas with newer neighborhoods and subdivisions built between 1994 and the present.
Q: How Long Does Mello-Roos Typically Last?
A: The length of the Mello-Roos tax varies from subdivision to subdivision. Fifteen years from the original build date is about average. The payment very rarely extends beyond 30 years or is shorter than 7 years.
Q: How Much Is It Typically?
A: Depending on the year of construction, it can range anywhere from $25 to over $300 per month; the actual tax is usually collected annually or semi-annually.
A Brief History of Mello-Roos
The term Mello-Roos was derived from the names of its co-authors, Senator Henry Mello and Mike Roos. It is also generally termed as the Community Facilities District Act (CFD). The CFD started when people in California voted for Proposition 13 in 1978 to limit property taxation. Therefore, new initiatives were considered to finance public constructions and improvements. In 1982, the California State Legislature made Mello-Roos legitimate.
After passing a community vote with two thirds in favor of becoming a Mello-Roos district, bonds are issued to help fund the community infrastructure. Normal services and infrastructure would include police services, schools, roads, ambulance and fire protection services, utility connection, sewer lines, and streetlights. Once Mello-Roos is established, residents must repay the bonds in order to fund ongoing projects. A special tax is assessed to the homeowners as the repayment method and levied yearly. An ongoing lien is used to make sure that the taxes are safe and secured.
The bottom line to the buyer of a home in a Mello-Roos community is that they will have to pay this tax in order to repay the municipal bond. This would be in contrast to a non Mello-Roos community where the infrastructure and services would be paid for by the surrounding residents or the actual builder.
Final Thoughts on Mello-Roos
Considering the pros and cons of living in a community with Mello-Roos is very important for Orange County homebuyers. Although Mello-Roos communities have many amenities that both established and newer Non Mello-Roos communities may not have, a prudent homebuyer should weigh these facts in determining if the amenities warrant the increased monthly payment. Ultimately, homebuyers will need to decide if the attraction of a newly built home is worth the extra expense in areas prone to having the tax. If a CA homebuyer is looking at homes built in the last 15 years, they should at the very least be inquiring as whether or not Mello-Roos exists in the community. It is the buyer’s choice whether Mello-Roos is something they can live with and we truly hope this guide will make their decision easier.
About the Author: Todd Foust is the chief marketing executive for the FOUST Team at C21 Discovery; one of the top-selling real estate teams in Southern California. He specializes in Orange and Los Angeles Counties and operates one of the area’s most informative real estate websites. To contact him or learn more about Irvine Real Estate , please visit FOUSTonline.com .
About the Author: Charmaine Ngo is the social marketing contributor/manager for the FOUST Teams public relations division. She is an Ohio native and while fairly new to Southern California, she brings a fresh perspective to the local home buying experience. She is entrusted with making sure that the company’s real estate knowledge is found by internet users around the world.