Mello Roos and CFD Assessments
Mello Roos or CFD assessments are paid in addition to the regular property taxes for a home, and appear as part of the annual Los Angeles County property tax bills. Property tax rates for residential real estate in the Santa Clarita Valley generally run between 1.1% to 1.25% on the home’s assessed value in areas that do not have Mello Roos (also called Community Facilities District or CFD) assessments or the large landscape maintenance district (LMD) assessments that are typically seen in neighborhoods requiring hillside maintenance. CFD and landscape maintenance districts will vary by development area, generally ranging from around $2,000 per year to .05% of the property’s initial purchase price (what the original owner paid the builder).
Forming a Mello Roos District
Mello Roos or CFD assessments are typically used to finance streets, sewer systems and other basic infrastructure, police protection, fire protection, ambulance services, schools, parks, libraries, museums and other cultural facilities. In Santa Clarita, CFDs are usually formed in undeveloped areas and are used to build roads and install water and sewer systems so that new homes or commercial facilities can be built.
Forming a CFD requires a two-thirds majority vote of residents living within the proposed boundaries. For new development areas, a single owner or developer may be making the decision as to whether to finance required infrastructure improvements via a Mello Roos assessment or not. If there are fewer than 12 residents, the vote is conducted amongst the current landowners instead. The total assessment is then allocated amongst the individual subdivided lots according to a mathematical formula that takes into account the use of each property, square footage of the buildings, and lot size. The special assessment must include a maximum special tax amount and a percentage maximum annual increase.
When bonds are issued by the CFD, the special assessments will be charged annually until the bonds are paid off. After that, the CFD may opt to continue charging a reduced rate to maintain the existing improvements.
Santa Clarita Mello Roos and CFD Districts
The majority of the areas in the Santa Clarita Valley that were built starting in the early 2000’s have Mello Roos or CFD assessments. There are exceptions to this, and in some cases the builder opted to charge higher homeowners association (HOA) fees instead of the Mello Roos assessment.
Some of the older developments have Mello Roos or CFD assessments as well, including Stevenson Ranch, parts of Valencia Northbridge, and parts of the Saugus Copperhill area. If you are buying a home in the Santa Clarita Valley, make sure that you receive a copy of the Natural Hazards Report (NHD) with the extra tax disclosure section so you’ll be able to verify whether the home you’re purchasing is subject to these special assessments or not. Developers will also disclose the Mello Roos or CFD amounts when you purchase a new home from them, either as a monthly or a yearly amount.
Required Disclosures When Selling Your Home
When selling a property with CFD assessments, it is mandatory that you disclose this to your buyers. If you are using a Realtor to assist with your home sale, they will typically order a Natural Hazards Report (NHD) with tax disclosures, which is sufficient to meet this requirement. If you are selling by owner, then you’ll need to make sure that any CFD assessments are disclosed as well.
Income Tax Deductions
Most homeowners consider their entire property tax bill to be deductible from their income tax returns, when in fact not all CFD assessments are considered to be tax deductible. According to the California Franchise Tax Board, you cannot deduct real estate taxes assessed for local benefits and improvements most of the time. However, you can deduct the CFD assessments if they are for maintenance, repair, or interest charges related to those benefits. Examples of deductible amounts would be those paid for maintenance, repair, or interest expense related to sidewalks, streets, sewer lines, water mains, public parking facilities, and other similar improvements.
Mello Roos, CFD and Foreclosure
When the CFD assessments remain unpaid for 90 days or more, the CFD has the right to foreclose on the property, with any collection costs and penalties being payable by the property owner. Your regular property taxes in California cannot trigger a foreclosure until they are delinquent for 5 years.
