Mello-Roos: What Homebuyers Need to Know

When Proposition 13 passed in 1978, it severely limited the ability of local governments to use property taxes to construct public facilities and services. The Mello-Roos Community Facilities Act of 1982 — coauthored by Senator Henry Mello and Assemblyman Mike Roos — enabled 'Community Facilities Districts' (CFDs) to be established by local government agencies as a means of funding critical community improvements.

How it works: when a new school, road, or other public facility is approved in a CFD, tax-exempt municipal bonds are issued. These bonds are repaid over an extended period through the levy of a special tax (Mello-Roos) on properties that benefit from the facility. This tax is usually added to the annual property tax bills over a 20–25 year period. Commercial and industrial property owners are also subject to Mello-Roos. All proceeds must be used exclusively to finance the specific public facilities and services authorized in the CFD.

What public facilities are funded? School districts are the most common beneficiaries. Mello-Roos can also fund public roads, traffic light systems, storm sewers, water mains, police stations, fire stations, ambulance services, public libraries, recreational parks, museums, and cultural facilities.

How much will I be assessed? The amount varies by CFD. Typically, an adopted formula based on the size of the home (square footage or lot size) determines the individual assessment. In general, special taxes and assessments do not exceed 1% to 1.5% of market value, and total annual taxes (including property tax) usually do not exceed 2% to 2.5% of home value. The special tax can increase at a maximum rate of 2% per year over 25 years — but it's possible the tax will decrease if state funds or other resources become available.

Can I pay it off? Yes. A schedule of maximum special tax payments over 25 years is available to homeowners prior to close of escrow. Buyers may pay the Mello-Roos tax in its entirety at purchase. However, since statistics indicate the average California homeowner moves every 7 years, spreading payments over time is often more practical.

Team Goeglein at Fidelity National Title identifies Mello-Roos and other special assessments during the title search on every South Bay and Westside LA transaction. Matt Goeglein and Xavier de la Piedra IV ensure agents and buyers understand exactly how Mello-Roos taxes affect the total cost of ownership.