Tag Archives: what is Mello-Roos

What the heck is Mello Roos?

If you’re new to Orange County, or even if you’ve been here a while, you’re probably curious about Mello-Roos. Many home buyers become acquainted with it when they see it in listings, ie “No Mello-Roos!” Or, you may have friends or family members who own homes in a Mello-Roos area and mention it (usually as a complaint or a warning). Let’s get the facts.

The newer homes in the Talega community of  San Clemente have Mello-Roos taxes. Click the image for more info.

The newer homes in the Talega community of San Clemente have Mello-Roos taxes. Click the image for more info.

What is Mello-Roos?
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. This is why Mello-Roos has a negative connotation–it’s a tax. The monthly payment for a home in a Mello-Roos community will be significantly higher than it would be for a home in a non Mello-Roos community.

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

Why is it called 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.

Why do certain communities have Mello-Roos while others don’t?
Two thirds of a community must vote in favor of becoming a Mello-Roos district for it to happen. What’s frustrating to many home buyers is that they weren’t part of the community when the vote was taken.

How does a Mello-Roos community operate?
In a Mello-Roos community, 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.

What about a non Mello-Roos community? How do they pay for infrastructure? 
In a non Mello-Roos community, the infrastructure and services would be paid for by the surrounding residents or the actual builder.

Where is Mello-Roos most commonly found?
In Orange County, 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.

What year homes have Mello-Roos?
Almost always, Mello-Roos is found in areas with newer neighborhoods and subdivisions built between 1994 and the present.

How long does Mello-Roos typically last?
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.

How much is it on a monthly basis?
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.
So, should you consider a home in a Mello-Roos community? It’s really up to you. It’s best to ask yourself if the amenities of a Mello-Roos community warrant the increased monthly payment. For many people, the attraction of a newly built home in a newer community is very high and worth the expense. No matter what, if the home was built after 1994, ask if there is Mello-Roos tax. It could be a significant part of your finances for years to come.

 Source: Realty Times