6 Things You Should Know About Mello Roos in
Carlsbad Real Estate
There are 6 things you, the buyer, should know about Mello Roos.
First, let’s talk about what Mello Roos are, for those who are not familiar with real estate in California where these taxes exist. I know I didn’t have a clue when I was doing my home search for Carlsbad from my former home in Boston.
Mello Roos are named after the creators, Senator Henry Mello and Assemblyman Michael Roos, of the 1982 bill that was passed to allow local governments and builders to form Community Facility Districts where new subdivisions are/can be built.
Tax-exempt bonds are sold in these CFDs to fund the cost of public improvements, which can be roads, schools and a host of other things, and repayment of these bonds (which can be over 20 years or more) is the responsibility of the residents in the form of Mello Roos.
Mello Roos are, thus, a type of community financing and a property tax.
- Mello Roos are found in new housing communities built since 1982 and are different from California state property taxes and HOA fees.
- Mello Roos may have tax consequences – consult your CPA to determine how to handle Mello Roos taxes
- Mello Roos can run from several hundred dollars to over $5,000 per year depending on the community, the cost of house, and other factors, and the amount can vary from house to house within the subdivision
- Some new home builders in my area of Carlsbad are paying down a portion of the Mello Roos, especially in the early phases of a development, but this is the exception
- You will typically hear the total of Mello Roos and property taxes quoted as a percentage of the purchase price, say 1.35%, in new home communities (some areas of San Diego County they are as high as 1.9%).
- It is possible that a paydown of the Mello Roos could be negotiated as part of an offer package with a willing seller depending on the payoff amount owed, the specifics of the offer including cash down, and other factors. But it financially may not make sense for the seller to do this and from what I have heard it's very rare.
When looking for a home, be sure to watch for these expenses since they can be substantial and must be factored into your loan approval, as well as your personal budget.