Paying off Mello Roos

User Forum Topic
Submitted by paranoid on February 27, 2012 - 7:39pm

Interest rate is historic low now. MR in places like 4S ranch has a 40-year life, and has a rate close to 10% (my rough guestimate). MR can be increased by 2% every year. So my question is: is it worth it to pay off completely your MR now? This saves alot of money if you intend to stay for a long time. What do you guys think?

Submitted by bearishgurl on April 9, 2012 - 10:42am.

ocrenter wrote:
Heres the thing, the difference between a house with no MR and a comparable with MR would not be $840k vs $800k. Similar sized and upgraded and updated homes in established neighborhoods without MR are often times $100-150k above newer homes in MR communities. This differential of course is because of not just lack of MR, but also because of higher % of distress. In these situations, the MR payoff would be fraction of that price difference. Knowing that one can pay off the MR should open people up to buy in MR communities, not stay away from it. Insistence on steering clear from MR with complete disregard to the premium you would have to pay otherwise simply close you off from potential opportunities.

I disagree with the emphasized statement, ocrenter. The properties in established areas tend to have a bigger lot, often a MUCH bigger lot. That land in conjunction with its location is what causes the properties in "established areas" have more value than the ones in newer-developed areas. It has nothing to do with the absence or presence of MR. The MR communities in SD County are situated within developer-formed CFD's on land left over from the "prime land" which was already built upon. It wasn't built on prior to a CFD formation and the resultant infusion of bond $$ for infrastruction because it was impractical for a developer to do so, mainly due to lack of roads and utilities at the ready.

I agree that the level of distress on a tract directly correlates to the presence of MR there and the amount of MR each parcel is encumbered with.

edit: another factor that adds value to an "established area" over a newer "MR-encumbered area" is mature landscaping. You can't buy this with any amount of money so its value depends upon the value a particular buyer places upon it.

Submitted by bearishgurl on April 9, 2012 - 10:30am.

sdrealtor wrote:
I think you need to re-read what he wrote and check your math. He wrote maybe $10,000 to $20,000 more for paid off MR on a house with $5400 annual MR (payoff = $58,000). And I think thats a fairly big maybe. His opinion is very much in line with mine that paying them off wont get you close to a dollar for dollar return. A 2 to 4X the annual MR payment seems like a reasonable boost in value for paid off MR but I wouldnt expect more. Paying them off could be a wise choice if you stay long term but most likely wouldnt if you wanted to boost resale value only.

Overall, I agree with this statement but not even sure one can recover ANY prepaid MR upon sale, due to 99.9% of the recent surrounding sold comps reflecting sale prices taking into account the MR encumbrance.

Submitted by bearishgurl on April 9, 2012 - 10:35am.

sdrealtor wrote:
I dont agree. It screams there is a price to pay to live in a new house in prime area of SD. Personally my MR goes toward improvements to the San Dieguito schools. I think thats a good investment and I am happy to pay the $800 every year. I donate more than that to other charities every year any way. To me this is a tax deductible (at least for now) contribution I make. Unlike the things I give to charities which make me feel good, I actually get some benefit from this.

The emphasized portion of this statement assumes that ALL *new* subdivisions built since 1987 in SD County are situated in "prime areas." NOTHING could be further from the truth, IMO.

Because a property has a MR encumbrance does NOT mean it is located in a "prime" area or even a "desirable" area. It only means its subdivision was built since 1987 with the use of MR bond $$.

Submitted by UCGal on April 9, 2012 - 12:27pm.

sdrealtor wrote:
I dont agree. It screams there is a price to pay to live in a new house in prime area of SD. Personally my MR goes toward improvements to the San Dieguito schools. I think thats a good investment and I am happy to pay the $800 every year. I donate more than that to other charities every year any way. To me this is a tax deductible (at least for now) contribution I make. Unlike the things I give to charities which make me feel good, I actually get some benefit from this.

How is paying interest on a long term loan (Mello Roos) beneficial to your community.
Doesn't paying it off give that same fund the $$ now - so they can make improvements now? And save you the interest payments over the years.

If your goal is stay in the home long term, I see a lot of argument for paying off the MR early and saving the interest payments. Even if it doesn't translate to an appreciation. It does translate to lower carrying cost for the years you're there... and that has value.

Submitted by flu on April 9, 2012 - 12:41pm.

Just curious. Anyone considered this in CV?

Submitted by sdrealtor on April 9, 2012 - 1:18pm.

They get the money now. MR just take care of the debt service. I agree its worth paying off if you are staying long term. To me MR is not so much a part of value but rather an amenity (i.e. money for new schools and infrastructure) with a carrying cost. I get something from that money just like I get something from my HOA fees. Some people value those things and others dont. Its more of a carrying cost. Its a kin to buying a house with a big lot. You pay for the big lot and there is some value for that. However, there is an additional carrying cost to a bigger lot in watering, maintaining, landscaping etc for the bigger lot.

Submitted by svelte on June 25, 2012 - 6:58am.

If you are considering paying off the MR early, make sure you take into account something like this happening:

http://www.nctimes.com/news/local/san-ma...

It has now happened twice in San Marcos. I'm glad to see the city is looking after the homeowners, it's the right thing to do.

Submitted by Upvote_Anything on July 30, 2012 - 10:24pm.

Great discussion.

Did anybody actually pay off the MR? How did that go? Thanks in advance!

Submitted by sdnerd on July 31, 2012 - 11:19am.

Upvote_Anything wrote:
Great discussion.

Did anybody actually pay off the MR? How did that go? Thanks in advance!

Finished paying mine off ~2 weeks ago (4S Ranch).

Painless, but took longer than expected. Factor in a good month to get the payoff numbers. Timing can be important...

I was told the payoff amount of one of my bonds was about to increase 2%, and the other nearly 40% (yes, 40%).

My total was just over $60K. I took out a 5 year, tax deductible 1.9% loan to pay it off.

The net is I have 5 years of slightly higher monthly payments (for the loan) vs a 28 year MR payment that increases 2% annually (avg of $7,500/year MR over that period).

Submitted by earlyretirement on September 14, 2012 - 7:05pm.

Now that I'm done traveling on vacation and back in San Diego, I'm going to move forward with paying off our Mello Roos taxes.

We definitely will stay in the house for the long-term until the kids are out of the house (15+ years). So it seems like a no brainer to get it paid off.

For those of you that paid it off, on your annual property tax bill with the city, does it still show the CFD on it and just have $0 next to it? Or is it completely vanished from your bill?

I was curious how they have it on the property tax bill once you pay it off. I've never known or spoken to anyone personally that has pre-paid it off ahead of time. But I was really curious how it lists on your annual property tax with the city of San Diego.

I'd appreciate if anyone knows.

I'm going to pay mine off here in the next month or so. I'll report back how the experience went.

Submitted by 4slive on September 15, 2012 - 10:54pm.

I did paid-off last year. I just checked my property tax bill, it shows .00 next to CFD items.

Submitted by earlyretirement on September 16, 2012 - 9:27pm.

4slive wrote:
I did paid-off last year. I just checked my property tax bill, it shows .00 next to CFD items.

Great! Thanks so much 4slive. I really appreciate that. I was always curious about that. It's good to know about that. Thanks for taking the time to share the info.

Submitted by sdseeker on September 19, 2012 - 4:33pm.

I just paid my Stonebridge estates Mello Roos today. The annual amount due on my tax bill was approximately $5100. According to the bond agency (or whomever it is that keeps all of this information) this would continue until at least Fiscal year 2034 but could be extended to 2051 if Poway School District issues new bonds. Also it is subject to the 2%/year increase which is all but guaranteed to be added each year. Well guess what, the PUSD is about to issue new debt so had I waited my payoff (Or conversely the term I would have to pay the MR) would be increased. I had to get the payment in by 9/21 to avoid having a higher payoff amount. The payoff was just shy of $57,000. No doubt if I sell in the next 10 years it will be hard to recoup all of this as has been pointed out. On the other hand it gives a pretty solid ROI even if the MR payment period had ended 2034 but looks even better since in all likelyhood the MR will stick with the property for another 30-40 years and increase 2%/year.
I cannot be sure this is a good decision but I will sleep a little better tonight knowing I am out from under this "forever" tax.

Submitted by ocrenter on September 19, 2012 - 10:00pm.

sdseeker wrote:
I just paid my Stonebridge estates Mello Roos today. The annual amount due on my tax bill was approximately $5100. According to the bond agency (or whomever it is that keeps all of this information) this would continue until at least Fiscal year 2034 but could be extended to 2051 if Poway School District issues new bonds. Also it is subject to the 2%/year increase which is all but guaranteed to be added each year. Well guess what, the PUSD is about to issue new debt so had I waited my payoff (Or conversely the term I would have to pay the MR) would be increased. I had to get the payment in by 9/21 to avoid having a higher payoff amount. The payoff was just shy of $57,000. No doubt if I sell in the next 10 years it will be hard to recoup all of this as has been pointed out. On the other hand it gives a pretty solid ROI even if the MR payment period had ended 2034 but looks even better since in all likelyhood the MR will stick with the property for another 30-40 years and increase 2%/year.
I cannot be sure this is a good decision but I will sleep a little better tonight knowing I am out from under this "forever" tax.

Very good info.

How did you find out PUSD is about to issue new bonds? Is there a link? Or was it at a board meeting? Thanks

Submitted by sdseeker on September 20, 2012 - 12:42pm.

I was told about the new bonds coming by Dolinka Group who handles all the payoff info for PUSD. For those who are interested they also confirmed that once you make the payoff you are out from under the Mello Roos even if they do issue new debt. However in my case 9/21 is the cutoff date and after that I was told the payoff amount would increase. I guess that would be the result of extending the period for the MR beyond the current 2034.

Submitted by earlyretirement on September 21, 2012 - 10:40am.

sdseeker wrote:
I was told about the new bonds coming by Dolinka Group who handles all the payoff info for PUSD. For those who are interested they also confirmed that once you make the payoff you are out from under the Mello Roos even if they do issue new debt. However in my case 9/21 is the cutoff date and after that I was told the payoff amount would increase. I guess that would be the result of extending the period for the MR beyond the current 2034.

I wasn't too impressed with this Dolinka Group. They are the entity whose phone number is on the property tax bill. I called them several times over several days and no one ever answered the phone. It always went to voicemail.

Finally about 4 days later someone called me back and said he would email me the details to pay it off.

He did email me this below which I'm cut and pasting. (He also gave me a general pay off quote of $15,000 to $20,000 for the CFD #4 Poway Unified). I get charged about $1,000 a year on my annual property taxes.

And he said that as it stands now the CFD #4 for PUSD doesn't end until 2041 and might get extended for further into the future. I imagine they will do the maximum % increase each year as well.

They did confirm once you pay it off it releases you from further obligation if they extend the bond. I'm leaving on a business trip but once I get back I'm planning on paying this off.

I also called to pay off my CFD#2 which is the main Mello Roos for Santaluz. That quote is $400 if you want to get the exact quote.

They gave me an estimate of $45,000 to $50,000 to pay it off completely but said once I want an exact quote to call back and then I need to pay the $400 and then they will apply it towards the pay off. (I get charged $4,600 per year on my annual taxes). And that bond isn't set to finish until 2030. It wasn't clear with me if they were able to extend this bond.

Again, I assume they will raise it the maximum % they are allowed to each year. But even without any % annual increase, it seems like a no brainer to pay this off as we plan to stay in our house 15 years until the kids are at least out of high school.

This is what they sent me below:

_______________________________________________

Prepayment of Annual Special Tax Lien Procedure

1. All requests for prepayment amounts must be received by the Poway Unified School District ("School District") in writing no less than 30 days prior to the date in which the party wishes to prepay and must include the following information:

a. The name of the party wishing to prepay;
b. The address of the property;
c. The development the property is within;
d. The valid Assessor's Parcel Number;
e. The Tract and Lot number; and
f. The Annual Special Tax the party is wishing to prepay (i.e. infrastructure or schools).
g. A payment of $100.00 for each prepayment to be calculated. The check(s) are to be made payable to “Poway Unified School District” and
is/are to be included with the written request.

All prepayment requests are to be sent to:
Poway Unified School District
c/o Kari Zipp
13626 Twin Peaks Road
Poway, CA 92064

2. The School District will forward the request for prepayment to Dolinka Group, LLC. Dolinka Group will provide the requesting party with the prepayment
amount within thirty (30) days and send a letter informing the requesting party of such amount. A copy of the response will also be sent to the School District.

3. All parties wishing to prepay must send a check in the prepayment amount made payable to "Poway Unified School District" in writing and send to the School District at the address listed above. The prepayment should include a copy of the letter requesting the prepayment and a copy of Dolinka Group's response to the request.

4. When the School District receives the prepayment, the School District will send a copy of the prepayment check and accompanying paperwork to Dolinka Group so the parcel can be removed from the Special Tax levy for the following Fiscal Year. The School District will then send the prepayment to the Fiscal Agent to be deposited for the purpose of calling bonds or to be used by the School District at a later date to construct facilities. The School District will also record a "Notice of Cancellation of Special Tax Lien" on the property at the County of San Diego Recorder's Office.

Submitted by ocrenter on September 21, 2012 - 10:50am.

ER, Dolinka's estimates is pretty much on target with my MR. So doubt you'll get any surprises going with the estimate until you are ready to do the payoff.

I agree, the more I look into it, especially given PUSD's recent funny business with bonds, the MR payoff makes a lot of sense for long term home owners.

Submitted by earlyretirement on September 21, 2012 - 11:04am.

ocrenter wrote:
ER, Dolinka's estimates is pretty much on target with my MR. So doubt you'll get any surprises going with the estimate until you are ready to do the payoff.

I agree, the more I look into it, especially given PUSD's recent funny business with bonds, the MR payoff makes a lot of sense for long term home owners.

Thanks ocrenter. Hopefully it's on the lower end of their estimate rather than the higher end. :)

I just sent off the letter to PUSD this morning requesting the pay off quote and mailed the $100 so looking forward to getting that.

Yes, I just figured this totally makes sense for any homeowners that are confident they will be in their house long-term. We definitely won't be moving, already did the renovations on the house and have it perfect how we want to live in it for the foreseeable future.

The only wildcard I can think of is if we have twins or triplets when we go for our 3rd child next year. LOL. In that case I guess I'd have to turn my home office into another bedroom. ;)

Submitted by ocrenter on September 21, 2012 - 1:33pm.

earlyretirement wrote:
ocrenter wrote:
ER, Dolinka's estimates is pretty much on target with my MR. So doubt you'll get any surprises going with the estimate until you are ready to do the payoff.

I agree, the more I look into it, especially given PUSD's recent funny business with bonds, the MR payoff makes a lot of sense for long term home owners.

Thanks ocrenter. Hopefully it's on the lower end of their estimate rather than the higher end. :)

I just sent off the letter to PUSD this morning requesting the pay off quote and mailed the $100 so looking forward to getting that.

Yes, I just figured this totally makes sense for any homeowners that are confident they will be in their house long-term. We definitely won't be moving, already did the renovations on the house and have it perfect how we want to live in it for the foreseeable future.

The only wildcard I can think of is if we have twins or triplets when we go for our 3rd child next year. LOL. In that case I guess I'd have to turn my home office into another bedroom. ;)

btw, they should have told you the interest rate on the MR as well. for mine we were looking at 5% and 7.5%. Which again makes the decision to pay it off a relatively easy one as well.

Submitted by earlyretirement on September 21, 2012 - 2:32pm.

ocrenter wrote:

btw, they should have told you the interest rate on the MR as well. for mine we were looking at 5% and 7.5%. Which again makes the decision to pay it off a relatively easy one as well.

I didn't ask them the rate but I recall seeing it online on some website before and yes the interest rates were high.

I'm sure the % of people that pre-pay these off is very very low. But I also think many people only have the mentality about worrying about today and not thinking about 10+ years from now. I've always been the type that likes to think further down the road into the future.

I can't imagine a scenario where the taxes and fees are going to get any lower or better for the PUSD.

I'm not one of these people that don't think you don't get some value out of these Mello Roos taxes. If I didn't have any kids then I'd feel differently I'm sure but having kids, I feel it's well worth it being in the PUSD.

I'd be spending a whole lot more sending my kids to a private school vs. PUSD schools. If I lived in another area within the SDUSD, I'd definitely have to send my kids to private school which would cost a fortune.

Submitted by ocrenter on September 21, 2012 - 2:42pm.

earlyretirement wrote:

I'd be spending a whole lot more sending my kids to a private school vs. PUSD schools. If I lived in another area within the SDUSD, I'd definitely have to send my kids to private school which would cost a fortune.

average private school would be approx $6k per year, x 12 = $72k.

I'll just pay the MR, thank you very much... =)

Submitted by earlyretirement on September 21, 2012 - 11:38pm.

ocrenter wrote:

average private school would be approx $6k per year, x 12 = $72k.

I'll just pay the MR, thank you very much... =)

Exactly. And most private schools are much more than that. $72k X 3 kids = $216,000.

It's getting obscene the University tuition rates now. I started saving up the day the kids were born. It's a bit sickening thinking you will spend hundreds of thousands of dollars in 4 year degrees for a few kids.

My hope is that Poway Unified stays one of the top school districts. Personally I think they will always do well. I've been impressed with the amount of parent involvement, volunteerism, donations, etc. That makes all the difference in the world.

Submitted by Essbee on September 21, 2012 - 8:57pm.

I honestly thought that private schools are more like $30K per year. (I guess I'm thinking Francis Parker, La Jolla Country Day, and Bishops).

Where exactly are these $6K per year private schools? Because I'm spending almost that much on 3 hours per day of preschool!!

Submitted by earlyretirement on September 21, 2012 - 11:37pm.

Essbee wrote:
I honestly thought that private schools are more like $30K per year. (I guess I'm thinking Francis Parker, La Jolla Country Day, and Bishops).

Where exactly are these $6K per year private schools? Because I'm spending almost that much on 3 hours per day of preschool!!

Yeah, some of them can be astronomical. I think ocrenter was referring to some Christian schools like Maranatha near 4SRanch - http://www.maranathachristianschools.org...

That seems to be between $7,300 to $9,000 per year for Elementary through high school. I don't know much about that school but it looks beautiful from the outside.

Cambridge School - Kindergarten through 7th grade is $13,400 per year.

http://www.cambridgeclassical.org/files/...

La Jolla Country Day School ranges between $17,600 to $27,600 per year.

http://www.ljcds.org/page.cfm?p=1982

Francis Parker ranges from $20,500 to $26,000 per year.

http://www.francisparker.org/page.cfm?p=521

Bishop's School is $28,900 per year.

http://www.bishops.com/admissions.aspx?i...

Absolutely ocrenter's figures seem to be the most affordable private schools but absolutely some of them are as much as universities per year.

But I assume he was figuring a bit of a discount for multiple kids. I went to private schools growing up and I had siblings and I know these schools many times offer a multiple sibling discount.

Trust me...I looked at all the options when deciding where to live and how all the schools are. When it came down to it, that was a HUGE factor in where to live and what the schools were like in the various districts and public vs. private.

Private school would possibly be an option if I only had 1 child. But with 2 and most likely 3 after next year who in the world wants to spend up to $75,000 to $90,000 a year on private GRADE schools?

Submitted by ocrenter on September 22, 2012 - 7:27am.

I was just looking at few parochial elementary schools. I figured that would be the base.

Submitted by DelSurBird on September 30, 2012 - 10:49am.

Great discussion going here. With the funny PUSD bond business going on, is there a website or watchdog group I can follow and get more info? With the interest rates projected to drop further, I am wondering if there are plans for a CFD 14 and 14A bond refi in the near future? Would a refi reduce the amount for the total MR payoff?

My MR is approx $5700/yr and the total payoff is approx $100K ($50K each bond) for a $540K house on a 4000 sqft lot newly built in 2011 (info from SD Tax collector - havent paid the fee to get the actual amount for MR payoff). This seems high for a MR payoff compared to the other numbers I am seeing here....but may make sense since I am the first homeowner of this house. i would like to hear from other homeowners in my area how their MR payoff numbers compare. Thanks!

Submitted by ocrenter on September 30, 2012 - 1:41pm.

DelSurBird wrote:
Great discussion going here. With the funny PUSD bond business going on, is there a website or watchdog group I can follow and get more info? With the interest rates projected to drop further, I am wondering if there are plans for a CFD 14 and 14A bond refi in the near future? Would a refi reduce the amount for the total MR payoff?

My MR is approx $5700/yr and the total payoff is approx $100K ($50K each bond) for a $540K house on a 4000 sqft lot newly built in 2011 (info from SD Tax collector - havent paid the fee to get the actual amount for MR payoff). This seems high for a MR payoff compared to the other numbers I am seeing here....but may make sense since I am the first homeowner of this house. i would like to hear from other homeowners in my area how their MR payoff numbers compare. Thanks!

wow, that's extremely high, so far seem like PQ, Stonebridge, and southside 4S are all around $50-60k. $100k is quite extreme...

Submitted by sdseeker on September 30, 2012 - 2:51pm.

I suspect that quote of $100k is in error. I purchased new in 2010 in Stonebridge and my MR was $5100. My payoff made 2 weeks ago was just about $57k.

Submitted by sdseeker on September 30, 2012 - 3:00pm.

The insiders guide to Mello Roos. Fascinating reading.
http://www.orrick.com/fileupload/1180.pdf

This is a bit technical but will really disclose the ugly underbelly of
MR. You will see how they are crafted to take advantage of a lack of transparency to the tax payer. If anyone doubts their MR will not increase the maximum 2% per year you should read this. You will also see how they have ability to issue new debt and extend the duration. I know I may not recoup my payoff if I sell anytime soon but I sleep pretty well having eliminated this crazy uncertain annual cost. YMMV.

Submitted by earlyretirement on September 30, 2012 - 4:45pm.

Wow. Are you sure it would be a $100,000 payoff on a $540,000 house? That seems quite high. I'm still waiting on an exact payoff on my house.

My house value is double the value of yours and my estimated payoff is around $69,000. But of course there have been 9 years of payments already on it.

Still, $100k payoff seems quite high for that value.

sdseeker wrote:
The insiders guide to Mello Roos. Fascinating reading.
http://www.orrick.com/fileupload/1180.pdf

This is a bit technical but will really disclose the ugly underbelly of
MR. You will see how they are crafted to take advantage of a lack of transparency to the tax payer. If anyone doubts their MR will not increase the maximum 2% per year you should read this. You will also see how they have ability to issue new debt and extend the duration. I know I may not recoup my payoff if I sell anytime soon but I sleep pretty well having eliminated this crazy uncertain annual cost. YMMV.

Thanks for taking the time to repost that link sdseeker. I TOTALLY agree with you that there is a clear lack of transparency with regards to taxpayers.

The sad thing is most tax payers don't seem to want to take the time to care about this issue. Heck, most people don't even know the APR on their credit card so I don't think they even know the first thing about how MR works.

Absolutely I agree with you they will raise the taxes the full 2% maximum each year. No way they will leave money on the table.

Taking a closer look at this, I don't think it makes sense NOT to payoff the MR early if you plan to be in the home for the long term.

Just taking a look it doesn't look like many people prepay their MR early. I looked at tons and tons of houses online and looked at the taxes on them, and I've never come across a house that had prepaid the CFD or at least saw $0.00 on the property tax statement.

Has anyone that has prepaid their MR off then sold their house? I'd be interested to hear how it affected the resale value on their house.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.