A Mello-Roos District is an area in California where a special property tax on real estate (a parcel tax) is imposed. There are three different ways for a Mello-Roos District to be initiated: a written and signed request by two members of either the local government or school district, a signed petition by 10% of eligible voters in the area, or by a petition signed by 10% of landowners in the area of the proposed district.
Mello-Roos taxes are assessed to special tax districts, known as Mello-Roos Districts or Community Facilities Districts (CFD), for the purpose of financing infrastructure and/or facilities in a community including streets, lights, phone lines, police protection, fire protection, flood and storm protection, elementary schools, and maintenance of parks and trails. The CFD is formed after a 2/3 majority approval vote by the residents within the proposed district, and bonds are sold to private investors to finance the infrastructure and 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.
Understanding Mello-Roos Taxes
Mello-Roos is an additional property tax added to the 1% tax rate subject to Proposition 13, within a Community Facilities District (CFD) and has a time frame of twenty-five to forty years for repayment. The tax paid by homeowners is used to make payments of the principal and interest on the bonds. If the property you are considering is within a Communities Facilities District (CFD), the changes will be added to the 1% tax rate as required by Proposition 13.
The Mello-Roos tax calculation often takes into account property characteristics, such as square footage of the home and lot/parcel size. The tax is included with your general property tax bill as a special tax lien and is recorded as a “Notice of Special Tax Lien.” If the Mello-Roos is delinquent for more than 90 days, then the CFD has a right to foreclose on the property.
The amount of tax varies each year and can increase by a maximum of 2% each year, but it cannot exceed the maximum amount specified in the Resolution of Formation. The Resolution of Formation is formed at the time the Community Facilities District is created and specifies the rate, method of apportionment, and manner of collection. Homeowners are able to calculate the amount of Mello-Roos that they have to pay. Owners who commit to living in the district for a long term see the benefits of paying off the Mello-Roos early so that they do not face the maximum 2% Mello-Roos increase.
There are instances where the builder on a new home enclave absorbs the costs of infrastructure on a new home and passes on the fees in the form of a price increase. This is advantageous to the buyer because the Mello-Roos tax portion of the tax bill is not a tax deduction. If a buyer were to take out a mortgage, the interest on the entire mortgage is a tax deduction.
Most developments that were built in the early 2000s are within Community Facilities Districts. This includes Chula Vista, Carlsbad, Encinitas, Escondido, Lemon Grove, Oceanside, Miramar, Santaluz, Del Sur, Black Mountain Ranch Villages, 4S Ranch, San Marcos, Santee, Vista, and Harmony Grove. Homes can be within multiple Community Facilities Districts, and thus have more than one Mello-Roos tax. Residents can determine this by visiting the website of the Office of Property Tax Services at the County of San Diego, entering the assessor’s parcel number, and viewing the Mello-Roos tax.
How Long Will I Have Mello-Roos?
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. Mello-Roos bonds carry a typical time frame of twenty five to forty years for repayment. The tax may not stay in effect for a period longer than 40 years. Santaluz Mello-Roos tax is projected to be paid off between 2030 and 2033. The Black Mountain Ranch Villages are determined to be paid off between 2036 and 2037.
An owner can pay off Mello-Roos, however in some instances only certain types of Mello-Roos can be paid off. Non-bonded Mello-Roos cannot be pre-paid, while some bonded Mello-Roos can. To determine if your home’s Mello-Roos tax can be paid off, you can contact the County of San Diego Auditor & Controller, Property Tax Services department. For a fee, the department will determine the amount of pay off based on the Rate and Method of Apportionment of Special Tax, also known as the taxing formula.
An increased value of the property does not affect the amount of the tax when property is sold. Some communities like Santaluz have an additional community enhancement fee of a .5% that is conveyed upon transfer of sale. Not to be confused with Mello-Roos tax. In addition, homeowners must make a “good faith effort” to disclose the Mello-Roos tax upon the sale of their property by completing the Notice of Special Tax form and providing it to the buyer.
Need More Information as a buyer in San Diego?
If you’re having thoughts of buying or selling in San Diego, please do not hesitate to contact Aumann Bender & Associates with any questions or to begin your househunting process. We look forward to hearing from you and welcome the opportunity to help you find the home that best suits the needs of you and your family.
Joy Bender is the co-founder/owner of Aumann Bender & Associates, La Jolla real estate agents. She has a passion for digital marketing and helping clients discover San Diego's lifestyle. Joy Bender specializes in La Jolla Condos, San Diego beach homes, San Diego oceanfront real estate, and San Diego ocean view houses in La Jolla, Coronado, Del Mar, Solana Beach, Encinitas, Rancho Santa Fe, and beyond.