Title Consumer Series
When 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 CLTA has answered some of the questions most commonly asked about the Mello-Roos Community Facilities Act of 1982.
What is a Mello-Roos District?
Mello-Roos District is an area where a special tax is imposed on those real property owners within a Community Facilities District. The district has chosen to seek public financing through the sale of bonds for the purpose of financing certain public improvements and services, which may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection for newly developing areas. The tax you pay is used by the district 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 within the district.
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 maintenance and lighting of parks; parkways, streets, roads, and open space; museums and cultural facilities; flood and storm protection; and services for the removal of any hazardous substances. Facilities which may be financed under the Act include: property with an estimated useful life of five years or longer; parks, recreation, parkway, and open-space facilities; elementary and secondary school sites and structures; libraries; child care facilities; construction and undergrounding of water transmission and distribution 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 real property in a subdivision within a Community Facilities District you can expect to be assessed 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, along with any reasonable administrative costs incurred in collecting the special tax, are prepaid, permanently satisfied, and canceled in accordance with law or until the special tax ceases to be levied and a notice of cessation of special tax is recorded in accordance with law.
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 Community 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" establishing the district 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 provided 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.
The Title Consumer is published by the California Land Title Association. Member companies of the California Land Title Association are dedicated to facilitating the transfer of real property throughout California and increasing the public's awareness of the value and purpose of title insurance. This communication is provided for informational purposes. It is general in nature and is not intended to and should not be relied upon or construed as legal or tax advice. Please consult with an attorney or accountant for further questions regarding this matter.
©California Land Title Association
Updated: March 2017