Understanding Mello-Roos When Considering a Purchase

The process of real estate development has become a much more complex one in many parts of the country. The idea of buying some land and building a few homes is a bit na've these days. The larger the development, the more a real estate developer has to account for societal issues. These issues can range from everything to new roads, schools and noise pollution in the area. While the developer and relevant municipality will negotiate the financing on much of this, they tend to pass off much of the cost to people moving into the new development.

Mello-Roos are typically assessed by the municipality, city or state the new development is located in. They are often considered a special tax and are paid along with your property tax bill. This special tax is essentially a way for the government to both fund and maintain the public services required by the new population created by people moving into the area. As you know, the government tends to collect a lot of money in taxes, but doesn't use it particularly efficiently. This is a way for them to counter the problem.

Mello-Roos are particularly nasty because they are considered a government tax issue. If you fail to pay your Mello-Roos, the delinquency can be turned into a tax lien on your property. Tax liens are truly nasty things, to wit, they essentially give the government the power to foreclose on your home and sell it. Your only option is to get caught up on the payment to avoid such a situation.

Mello-Roos are not the creation of the federal government. They are localized issues, so their amount and how they are handled are different in each state. Regardless, they can be thousands of dollars a year. You need to understand what you are on the hook for before buying into a new development, particularly if you are squeezing into the financing. Failure to do so could lead to a nasty surprise down the line.