I wrote a post several days ago that seemed to get a wide range of responses’ in regards to Mello Roos and/or the aka CA Bond as it applies to residential properties. I have to say I am very surprised at some of the emails and lack of understanding. So let’s point out the pros and cons of Mello Roos and you decide for your self.
When a Mello Roos bond is issued the funds raised are to pay for infrastructure items such as – Storm Drains, Street Lighting, Sidewalks, Parks and Schools to service a specific community. When these costs are paid for through means of a Mello Roos bond there is a direct impact to the sale price of a property within the footprint of a specific community. So the cost of the infrastructure items is covered by the fund raised when the bonds are sold.
Bonds are another way to finance a desired project much like a traditional loan in terms of it must be repaid. So who repays the Mello Roos bond? The answer is simple; it is every property owner within the footprint of the issued bond. This is where most people get lost. If you purchase a property with Mello Roos then you are purchasing a property with a silent second note that needs to be repaid.
In the example that I used it was for a Corona CA property that did not have Mello Roos. The home is still for sale as I understand it and you can see it online at http://budurl.com/FeaturedProperty. This property does not have Mello Roos and that was the point of discussion in the original posting. So what does this mean to a buyer? If you run the figures in reverse using a rate of 4.5%, 30 Yr term and a Mello Roos payment of $150 monthly the total value difference is $29,604.17. This difference is the difference in buying power which is the silent second that is hiding behind the Mello Roos bond.
Zillow is a peaty neat online system that is used by many people to get a quick value of a residential property. This is an automated system and does not factor in Mello Roos and this is why a value is applied and there is also a range given as it is possible to address even detail of every property at this time.
Many people do not realize that these Bonds have many provisions built into them which allow for increases the monthly payment to cover increased cost. Please stay with me on this as it is important. Agents know about Condo HOA’s and how they can request a special tax assessment to be applied to all of the home owner’s to cover back unpaid dues which most likely are no fault of your own. Think about all of the homes that are in foreclosure and most likely these homes are not receiving their monthly payments which means the Bond payments are not being paid. Keep in mind that Mello Roos hides behind a tax assessment already. Just like in a HOA scenario an increased Mello Roos assessment can be applied to you the home owner.
Many people think that their Mello Roos will end at some point in the future. Well I would not bank on it. I have not seen a bond structure yet that does not have a “maintenance provision” within it. So what does this mean, simple put then infrastructure must be maintained so that tax rate will most likely never change. Have you ever seen your property HOA or special tax assessment go down?
We have all been very complacent when it comes to Real Estate. We seem to ignore the risk associated with real estate in terms of investment. We have all received the wake up call and our eyes should be open know, even Vic should agree with that. My point is to look at everything so you are not surprised later. If you have a Mello Roos tax associated with your property then please do look up your bonds structure. This is all public record stuff that you should be able to find with a little leg work.