Newer Communities Are More Likely To Have Mello-Roos

Depending on where your home search takes you within San Diego County and the state of California, Mello-Roos may or may not be a consideration.  So, what is it and why should you care?  The short answer is that it is a special tax on homeowners who live in a community that used bonds to pay for the infrastructure within that community.  The Mello-Roos is basically the repayment for those bonds.  When we take our clients around to view homes, Mello-Roos is often viewed as a four-letter word.  Are there advantages to living in a community with this tax?  This post will discuss both sides.

Mello-Roos, also known as the Community Facilities District Act (CFD), comes from the names of its co-authors.  Senator Henry Mello and Assemblyman Mike Roos were instrumental in getting this act passed through the California State Legislature in 1982.  It was developed in response to the passing of Proposition 13 in 1978 which made it more difficult for local governments to use property tax revenue for public facilities and services.  In searching for other options to pay for these services, Mello-Roos was created.  Who decides whether a community will have Mello-Roos?

The community in which this tax is considered decides.  The vote must pass in favor of becoming a Mello-Roos community.  Once the vote passes, bonds are issued to support services such as schools, roads, parks, utility connections, sewer, police, fire and life safety.  Mello-Roos is typically paid annually or semi-annually.  The amount and term length of this tax varies from community to community.  When you break it down on a monthly basis, we’ve seen it as low as $80 per month and in upwards of $400 per month.  The term length of Mello-Roos is, on average, between fifteen to twenty years from the year the community was built. It is important to note that this tax is not the same as property taxes and may not be deductible.  Please check with your licensed tax accountant to confirm this deduction.  As a home buyer, expect to find Mello-Roos in newer communities.  Based on our experience in San Diego County, we have seen a large concentration in eastern Chula Vista (Eastlake, Otay Ranch) and the newer communities within San Marcos just to name a couple.

As stated earlier, home buyers typically have a negative view of Mello-Roos because it cuts into their purchasing power.  This point is valid because, in addition to Mello-Roos, the newer communities also have Home Owner Association fees.  In some cases, the inclusion of both of these fees could increase your monthly costs by $300 to $500.  A home that was affordable can now be out of reach.  On the other hand, there are advantages.  A Mello-Roos community, typically, benefits from the addition of newer schools, parks and community services.  If managed correctly, the money will be in place to support these services today and in the future.  As a home buyer, it is important to weigh both sides of a Mello-Roos community.  In addition to viewing property, make sure you see the services you are supporting with this fee.  If you do not like what you are paying for, that community may not be the one for you.  Please contact us if you would like more information about Mello-Roos communities and how it may effect your home search.  Feel free to search all listings in San Diego County and Southern California as a whole at www.NoBullAgent.com.

U.S. Congress

President Obama is expected to sign an extension, approved by the House and Senate, to the June 30 first-time home buyer tax credit deadline.  Why is this extension important and is it necessary?  The simple answer is “yes” to both questions.

The original timeline for the first-time home buyer tax credit, as detailed in our previous post, stated that a home buyer must be in contract by April 30, 2010 and close by June 30, 2010 to be eligible for the credit.  Many first-time buyers positioned themselves to take advantage of this credit which is evident by the increase in sales during the month of April.  The current challenge is getting some of these transactions done in the 60 days previously given between the two deadlines.  This timeline can be especially short considering short sales are still taking, on average, from four to six months to process.

There are many opinions as to why short sales take so long.  The general consensus is that lenders are playing “catch-up” to the mass influx of these transactions, are short staffed and are reworking their processing procedures on the fly.  This extension is important and necessary for these buyers who need the additional time, for no fault of their own, to complete their transactions.  The extension, if signed by the President, will allow home buyers until September 30, 2010 to close their transaction.  It is important to note this extension is only for buyers who signed a contract by April 30 and not for home buyers who entered into contract after this date.  Please consult a tax professional to confirm eligibility.  There is, however, another reason that is a little closer to the government’s heart and that has to do with the IRS.

Approximately 1,300 prison inmates have improperly received over $9 million in home buyer tax credits while they were incarcerated.  The IRS and state prison officials require additional time to investigate this situation and share information about the suspected inmates.  These inmates were not the only people to fraud the system.  According to a report from J. Russell George, the Treasury Department’s inspector general for tax administration, more than 14,100 tax filers wrongly received approximately $26.7 million in home buyer tax credits.  Clearly there are some loop holes that need to be closed and the hope is the extension will provide enough time to do so.

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