In purchasing your new
home, your future monthly payments will be made up of principal, interest, real
property taxes, and insurance. But what is the tax for the Community Facilities
District, otherwise known as a Mello-Roos District? The Land Title Association
(LTA) has answered some of the most commonly asked questions about the
Mello-Roos Community Facilities Act.
What is a Mello-Roos
District?
A Mello-Roos District is
an area where a special tax is imposed on those real property owners within a
Community Facilities District. This district has chosen to seek public
financing through the sale of bonds for the purpose of financing certain public
improvements and services. These services may include streets, water, sewage
and drainage, electricity, infrastructure, schools, parks and police protection
to newly developing areas. The tax you pay is used to make the payments of
principal and interest on the bonds.
Are the assessments
included within the Proposition 13 tax limits?
No. The passage of
Proposition 13 in 1978 severely restricted local government in its ability to
finance public capital facilities and services by increasing real property
taxes. The “Mello-Roos Community Facilities Act of 1982” provided local
government with an additional financing tool. The Proposition 13 tax limits are
on the value of the real property, while Mello-Roos taxes are equally and
uniformly applied to all properties.
What are my Mello-Roos
taxes paying for?
Your taxes may be paying
for both services and facilities. The services may be financed only to the
extent of new growth, and services include: Police protection, fire protection,
ambulance and paramedic services, recreation program services, library
services, the operation and maintenance of parks, parkways and open space,
museums, cultural facilities, flood and storm protection, and services for the
removal of any threatening hazardous substance. Facilities which may be
financed under the Act include: Property with an estimated useful life of five
years or longer, parks, recreation facilities, parkway facilities, open-space
facilities, elementary and secondary school sites and structures, libraries,
child care facilities, natural gas pipeline facilities, telephone lines,
facilities to transmit and distribute electrical energy, cable television
lines, and others.
When do I pay these
taxes?
By purchasing an interest
in a subdivision within a Community Facilities District you can expect to be
assessed for a Mello-Roos tax which will typically be collected with your
general property tax bill. These special tax payments are subject to the same
penalties that apply to regular property taxes.
How long does the tax
stay in effect?
The tax will stay in
effect until the principal and interest on the bonds are paid off along with
any reasonable administrative costs incurred in collecting the special tax or
so long as it is needed to pay the expenses of services, but in no case shall
exceed 40 years.
What happens if a general
tax payment is not made on time?
Because the Mello-Roos
tax is typically collected with your general property tax bill, the Facilities
District that obtained the lien may withdraw the assessment from the tax roll
and commence judicial foreclosure.
What is the basis for the
tax?
Most special taxes levied
on properties within these districts have been structured on the basis of
density of development, square footage of construction, or flat acreage
charges. The act, however, allows for considerable flexibility in the method of
apportionment of taxes, and the local agencies may have established an entirely
different method of levying the special tax against property in the district in
question.
How much will the
Mello-Roos payment be?
The amount of tax may
vary from year-to-year, but may not exceed the maximum amount specified when
the district was created. In the case of the purchase of a new house within a
subdivision, the maximum amount of the tax will be specified in the public
report. The Resolution of Formation must specify the rate, method of
apportionment, and manner of collection of the special tax in sufficient detail
to allow each landowner or resident within the proposed district to estimate
the maximum amount that he or she will have to pay.
How is the special tax
reflected on the real property records?
The special tax is a lien
on your property, essentially like a regular tax lien. The lien is recorded as
a “Notice of Special Tax Lien” which is a continuing lien to secure each levy
of the special tax.
How are Mello-Roos taxes
affected when the property is sold?
The Mello-Roos tax is
assessed against the land, but is not based upon the value of the property,
therefore, the possible increased value of the property does not affect the
amount of the tax when property is sold. The amount of the tax may not exceed
the original maximum amount stated in the Resolution of Formation. Any
delinquent payments must be satisfied before the sale of the real property
since the unpaid amounts are a lien against the property.