FAQs – Part 4 (Mello-Roos)
What are Mello-Roos?
Well, what the heck is that? First time I saw this in the MLS when I started my California home search back in Boston, and it said “no Mello-Roos.” I wondered what was missing? Was this a good or bad? I had never seen a Mello-Roos before; was it unique to Southern California? Do they import them? Or do they grow wild?
Mello-Roos is a fee you sometimes have to pay in newer subdivisions (often in undeveloped areas) where a Community Facilities District (CFD) has been created. The CFD allows for financing to cover the costs of certain improvements (e.g., streets, sewers and other basic infrastructure, police and fire protection, ambulance services, schools, parks, museums, etc.). The Mello-Roos, a special tax, is collected from each resident in order to pay off the financing; the tax is not based on the value of the property. And these fees can be in addition to a Home Owner’s Association (HOA) fee, so keep this in mind when you are calculating your budget for your new home. The good news is that the Mello-Roos will stop in the future once the bond (if issued) is paid off, although sometimes a reduced fee may be levied to cover the cost of maintaining the improvements.
BTW the name comes from the co-authors of the Mello-Roos Community Facilities Act of 1982, Senator Henry Mello and assemblyman Mike Roos.
on January 23, 2007 on 5:06 pm
[...] you are not clear on what Mello Roos are, see my previous post on “What are Mello Roos?” Generally if there are Mello Roos fees on a property it will be noted in the MLS. But [...]
on February 13, 2008 on 3:17 pm
CFD Mello Roos taxes, from the homeowners perspective, are like a senior mortgage attached to the title of your property. The Mello Roos Act allows builders and municipalities to enter into private agreements to fund development entitlement expenses like school fees and water facilities. The sponsoring municipality sells bonds to wall street and pays for the principal repayment and interest via a special property tax levied on the homeowner. While some homeowners believe that CFD mello ross adds value to their property, it does so at an expensive price. Many CFD Mello Roos bonds, due to their small size, yield only 70 to 80 cents on the dollar and empirical research indicates that the homeowners’ cost of capital for CFD mello ross financed infrastructure investment ranges from 10% to 25%. While a great deal for the developer (no out of pocket expenses) and the municipality (larger fee amounts in some instances), many CFD mello roos districts are, in my opinion, an expensive and inefficient source of financing for the homeowner.
on February 14, 2008 on 7:20 am
[...] Mello Roos – some areas (especially new subdivisions) will levy additional fees called Mello Roos. Again, not avoidable and they can last for years. Check with an accountant regarding tax deductibility. [...]
on January 26, 2010 on 11:32 am
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