During the home buying process, it’s important to keep the potential of your dream home having a Mello-Roos tax included, especially when you’re looking at newer homes in the area.
If you’ve never heard of Mello-Roos, you’re not alone! You’ve come to the right place. Learn everything you need to know about Mello-Roos below:
What is A Mello-Roos Community?
Technically known as Community Facilities Districts (CFD’s), these are areas with a special property tax on real estate in addition to the standard property tax.
Developers planning new and larger communities can pass the costs of funding the infrastructure around the community off to home buyers, effectively keeping the prices of the home lower than they would be without the tax. Therefore, Mello-Roos must be disclosed to potential buyers.
Why Does Mello-Roos Exist?
In addition to what is mentioned above, Mello-Roos communities can be created by a city, county, or school district to finance a specific project or service through the sale of bonds. These bonds can also cover projects like streets, water, sewage and drainage, electricity, and other projects related to infrastructure.
Mello-Roos was created as a result of Prop 13, which caps property taxes in California to 1% of its assessed value and the rate of increase on the assessment to 2% annually. With the addition of Mello-Roos, local governments can bypass this cap.
What Does Mell-Roos Look Like in A Home Sale?
Mello-Roos fees are a separate charge in your property tax bill. Keep in mind, homes can have more than one Mello-Roos!
How Do I Find Out if A Home Has Mello-Roos?
Although not all homes have Mello-Roos, homes built before the early 1990’s likely do not have Mello-Roos. Homes built after the year 2000 are likely to have Mello-Roos.
Alternatively, most gated communities with HOA’s will have Mello-Roos taxes with some exceptions. If you are interested in a particular community, check out the neighborhood’s website and check if they mention Mello-Roos.
How Much Does Mello-Roos Cost?
To figure out the cost, contact Placer County to obtain a copy of the tax bills for the home you are interested in. You will need to have the parcel number for the property and then you can determine its exact tax rate from the privacy of your home.
If you don’t see the “CFD” fees on the tax bill associated with the property, it does not pay mello-roos in that area.
This is important information to consider because failure to pay the tax can result in a quick foreclosure. Mello-Roos districts often have accelerated foreclosure laws. These taxes are typically not deductible from federal taxes either.
How Long Does Mello-Roos Last?
Mello-Roos lasts somewhere between 15 to 40 years, depending on the community. It typically lasts between 15-20 years.
It’s good to keep in mind that the start date of Mello-Roos begins from the build out of the community, it does not start over each time the home is bought. This tax will be included in your standard property tax bill, so it is subject to the same penalties as your other property taxes.
Pros & Cons of Mello-Roos
There are several key advantages and disadvantages to consider when purchasing a home with Mello-Roos. Some of the main disadvantages include the fact that the cost of living in that home is higher, as a result of the additional taxes the buyer must pay. Mello-Roos is also not viable for many home buyers, so it can potentially reduce the number of prospective buyers if the time comes for you to sell the home later.
However, residents in these communities have plenty of advantages to enjoy as well. These taxes cover the community’s infrastructure, like new schools, parks, police and fire stations, roads, libraries, and more. They also often have some of the most desirable schools in the area. Additionally, home buyers have the benefit of being part of a wonderful community.
Additional Notes About Mello-Roos
Firstly, it’s important to remember that not all new communities have Mello-Roos. The developers may have paid for it up front. The prevalence of Mello-Roos also depends on where you live. That is why you should retrieve documentation of the home so you can see if the community has Mello-Roos taxes.
You will also want to know what the funding is specifically for and the expiration date, so you will know how much longer the taxes will be applicable on the community you are interested in.
Mell-Roos is likely applicable if the community grew recently and needed new public infrastructure to accommodate the growth. The tax is only applied to residents of the district that benefit from the projects it is funding.