Mello-Roos Taxes

Mello-Roos Taxes Explained

What Is a Mello-Roos?

A Mello-Roos is a tax district created by an Ad Hoc Citizen Committee to finance infrastructure projects. A district can be created only with the approval of two-thirds of voters. Once approved a special tax can be assessed on its residents within the district. In 1982, a state law was implemented to allow such districts as a way for local governments to bypass Proposition 13. Prop 13 set the state’s 1978 cap on property tax increases. Mello-Roos Community Facilities Act of 1982 created a way to workaround Proposition 13, which limited property taxes to 1% of assessed value and caps assessment increases to 2% per year.

The district uses the tax as a form of public financing through the sale of bonds to finance certain public improvements and services. The improvements that the tax typically goe towards funding may include streets, infrastructure, sewage and drainage, water, schools, electricity, parks, and police protection for newly developing areas. Your Mello-Roos taxes are used to make payments of principal and interest on the bonds.

Realtors must inform potential buyers if a home is in a Mello-Roos Community Facilities District.

The Mello-Roos tax is not based on property value but instead of the land. Because the tax is not based in value they were able to get around the cap created by Proposition 13.

Today, Mello-Roos is most often used to create infrastructure or support services in and around new developments. It also provides a way to make improvements in older and less affluent neighborhoods that are no longer bringing in enough property taxes to cover basic services.

The Mello-Roos tax law remains controversial. Some California developers advertise their newly-constructed houses as “No Mello-Roos as a perk.

What do Mello-Roos taxes paying for?

What Mello-Roos Taxes Pay For

Mello-Roos taxes typically for both services and facilities. The services usually financed with these taxes are police, fire, ambulance and paramedic, recreation program, and library services. Additionally, the tax goes to pay for the maintenance and lighting of parks, parkways, streets, roads, and open space, fund museums, and cultural facilities, and pay for flood and storm protection. Facilities financed under the Act are property with an estimated useful life of five years or longer. This may include parks, parkway, and open-space facilities, recreation, elementary and secondary schools, and their structures, cable television lines, facilities to transmit and distribute electrical energy, childcare facilities, libraries, natural gas pipeline facilities, construction and undergrounding of water transmission and distribution facilities, telephone lines, facilities to transmit and distribute electrical energy, and others.

When do I pay these taxes?

When you purchase property in a subdivision within a Community Facilities District, you will be assessed a Mello-Roos tax. The tax is typically collected along with your property tax. Mello-Roos tax payments are subject to the same penalties that would apply to regular property taxes.

How long does the Mello-Roos tax stay in effect?

The tax will remain in effect until the the bonds and any reasonable administrative costsare satisfied. Once they are satisfied, the tax will be canceled per law. 

What happens the tax is not made on time?

If you fail to pay the tax, the Community Facilities District can obtain a lien against the property. If the lien is not satisfied, they can commence judicial foreclosure.

How much are Mello-Roos payments?

The amount of tax will likely vary from year-to-year. There is a maximum amount that can be charged ait will be specified when the district created the tax. When you purchase a new home in a subdivision within a district the tax will be specified in public record. The method of apportionment, rate, and manner of collection of the special tax will be documented in sufficient detail. Thus, allowing each property owner or within the proposed district a basis to form an estimate of the maximum tax amount that they will have to pay.

How is Mello-Roos tax reflected on the real property records?

Mello-Roos tax is treated as a lien on your property. No different than your general proprty tax lien. The tax will be recorded as a “Notice of Special Tax Lien”. The lien will be a continuing lien so that it can secure each levy of the special tax.

How are Mello-Roos taxes impact the sale of your home?

The Mello-Roos tax is not based on the value of the home. So regardless of the sale price, the Mello-Roos will not be affected or increase. The tax may not exceed the amount originally documented in the Resolution of Formation. If there are any delinquent payments, they must be satisfied in full prior to the sale of the property. The unpaid amount is considered a lien against the property, liens must be cleared to provide a transferable deed.