What is this thing called Mello-Roos?

Mello and Roos were two members of the California Legislature in the 80’s. They created the Bill the established Mello-Roos Bonds. Basically, a builder must provide as an expense of construction of a new residential subdivision funds to cover various infrastructure requirements (streets, lighting, etc.). Under Mello-Roos, the builder has the option of creating a “Mello-Roos District” which allows for the fees to be passed onto the home purchaser and paid over a number of years, as part of the buyer’s tax bill.

Keep in mind that MR is not calculated the same as the rest of your tax bill. Most of your tax bill is a percentage of the sales price of your home. According to Proposition 13, base property tax is 1.0% of the SALES PRICE of your home, plus voter approved indebtedness, such as school and water district bonds. As a result, the actual tax rate is from about 1.03-1.20% of the sales price, depending on the community (Lake Forest is the lowest in Southern Orange County).

In addition, many communities built after 1986 also have Mello Roos Bonds. A MR bond adds a fixed charge to the tax rate. It differs from the rest of your tax bill in two significant ways:

  1. MR can increase no more than 2.0%/year, and does NOT change upon sale of your home
  2. MR  is a bond with a fixed term, usually 20-25 years, and expires at the end of that time. For example, there were originally 2 MR bonds in Rancho Santa Margarita. At least one, and in some areas both of these bonds have expired and taxes have gone down as a result.

So, you can see that where you buy can have a significant effect on the monthly cost of home ownership. It’s important that you are  aware of the taxes. Keep in mind, too, that any sale creates a change in the tax bill. In Orange County, it usually takes about 6 months for the revised tax rate to show up, but the County will send a supplemental bill for the taxes from the sale date forward.