If you are planning on buying a home in Orange County, you may be subject to Mello-Roos. Here’s how it works:
A Mello-Roos Community Facilities District(CFD) is Formed.
Mello-Roos is a method of financing government entities(cities, counties, school districts and other special districts) to fund cost of public improvements. Before government entities can form a CFD, they must either obtain permission from area landowners or hold an election of registered voters within the proposed CFD.
The Municipality Sells Bonds on Behalf of the CFD.
These bonds are sold to private investors who purchase them for tax-free interest income. The money raised through the bond sales becomes the debt obligation of the CFD.
Bond Proceeds are Used to Pay for Public Improvements Within the CFD
The types of improvements which can be funded by a CFD are much broader than those types of improvements which can be funded by traditional assessment districts. For example, schools, police stations, fire stations and libraries can be constructed with CFD bond proceeds, as well as roadways, water lines, and other traditional types of public improvements. CFD’s can also be formed for purposes of public facility maintenance.
Money is Repaid to Bondholders Through the Mello-Roos Special Tax
The service for the bonds is repaid by the levy of a special tax on property within the CFD. The amount of the special tax is determined by each CFD’s Special Tax Formula, and may vary between property types. The special tax revenue is used to pay back the investment, repay the principal and interest to bondholders. Taxation and repayment continues each year for the life of the bond issue, typically 20 to 40 years.
If you have any other questions regarding Mello-Roos just let us know by filling out the form below.
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This entry was posted on Tuesday, January 26th, 2010 at 2:08 pm and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.