MELLO ROOS ACT
In purchasing a new home,
the 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?
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 makes the payments of principal and
interest on the bonds.
Passage
of Proposition 13 in 1978 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 a financing tool. Proposition 13
tax limits are on the value of the real property while Mello Roos taxes are equally and uniformly applied to all
properties. These taxes pay for both
services and facilities. The services
may be financed only to the extent of new growth. 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 that my be financed under the Act
include: property with an estimated
useful life of five years or longer, parks and 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.
By purchasing an interest
in a subdivision within a Community Facilities District, you can expect to be
assessed for a Mello Roos tax that 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. This tax
remains 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 not
longer than 40 years. Because the Mello Roos tax is collected with your general property tax bill,
the Facility District that obtained the lien may withdraw the assessment from
the tax roll and commence judicial foreclosure.
This special tax was 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 allows for considerable
flexibility in the method of apportionment taxes and the local agencies may
have established an entirely different method of levying the special tax
against property in the district.
The amount of tax may vary
from year to year but may not exceed the maximum amount specified when the
district was created. For a new home
purchased 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 will
have to be paid. This special tax is a
lien on the property 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.
When the property is sold,
the Mello Roos tax is assessed against the land but
not based upon the value of the property.
Therefore, the increased (or decreased) fair market value of the
property does not affect the amount of the tax when the 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.
Courtesy of The
California Land Title Association, www.clta.org
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