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 sdseeker on September 30, 2012 - 5:44pm.

Sales price adjustment for mello roos prepayment
I don't know what impact it has and I accept that likely it could be less than what the payoff cost so unless someone is planning on staying i would not suggest they prepay. My guess is it will depend upon whether it is a buyer's or seller's market. In a buyers market you might only get a small premium but likely will be the first one sold and so maybe you catch the higher pricing by selling earliest in a declining market. However in a seller's market I bet you could get almost full value of the prepayment "if" you can get that reflected in the appraisal or your buyer has plenty of cash for a down payment in case the appraisal does not assign full value to the MR prepayment.

Submitted by AN on September 30, 2012 - 6:31pm.

earlyretirement wrote:
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?

Is $90k/year really that bad if you're making $400-500k/year? Also, what about people who spend less on housing to pay for private school. Lets say you're a couple who can afford a $1.2M house, but you decide to buy a $500k house instead. The difference over 30 years is ~$1.1M. To put 3 kids through private school at $90k/year comes out to be ~$1.1M. So, if you treasure your kid's education more than you treasure your zip code, then that might be what you'd do. I live in a very middle class area and my neighbor sent all 3 of their kids to private schools. That's just one example.

Submitted by cvmom on September 30, 2012 - 6:41pm.

AN wrote:

Is $90k/year really that bad if you're making $400-500k/year? Also, what about people who spend less on housing to pay for private school. Lets say you're a couple who can afford a $1.2M house, but you decide to buy a $500k house instead. The difference over 30 years is ~$1.1M. To put 3 kids through private school at $90k/year comes out to be ~$1.1M. So, if you treasure your kid's education more than you treasure your zip code, then that might be what you'd do. I live in a very middle class area and my neighbor sent all 3 of their kids to private schools. That's just one example.

Agreed. This is pretty much exactly our situation--much smaller house than we could otherwise afford, but lots of $ spent on private grade school, CTY summer camps, etc. We think it is worth it.

Submitted by svelte on September 30, 2012 - 6:59pm.

earlyretirement wrote:

sdseeker wrote:
If anyone doubts their MR will not increase the maximum 2% per year you should read this.

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.

I just pulled out my tax bill from last year and this year.

My MR went up 1.2%.

Submitted by earlyretirement on September 30, 2012 - 8:07pm.

AN wrote:
earlyretirement wrote:
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?

Is $90k/year really that bad if you're making $400-500k/year? Also, what about people who spend less on housing to pay for private school. Lets say you're a couple who can afford a $1.2M house, but you decide to buy a $500k house instead. The difference over 30 years is ~$1.1M. To put 3 kids through private school at $90k/year comes out to be ~$1.1M. So, if you treasure your kid's education more than you treasure your zip code, then that might be what you'd do. I live in a very middle class area and my neighbor sent all 3 of their kids to private schools. That's just one example.

Sure, I guess if you're making $500k a year it would be easier to swallow. But even if you were, that's still a big chunk of change.

Absolutely in no way, shape or form am I saying private schools aren't worth it. I'm a by-product of private schools. I went to a LJCDS esque type school from K-8. Very solid education but I much preferred the public school system and very glad my parents let me go to public schools for high school.

Private schools are great but it can be quite a sheltered bubble atmosphere. At least I found that experience growing up and going to private school.

Again, I'm not knocking parents that send their kids to private schools. I'm just saying that I find living in a great public school district well worth it and don't feel I need to send my kids to private schools.

cvmom wrote:

Agreed. This is pretty much exactly our situation--much smaller house than we could otherwise afford, but lots of $ spent on private grade school, CTY summer camps, etc. We think it is worth it.

CVmom,

That was also the situation with my parents growing up. Smaller, less expensive house but lots of overtime, long hours and sacrifices to send 4 kids to private school.

I am very curious however, CVmom. Do you live in Carmel Valley? If so, the schools are excellent there. I am just curious on parents that live in excellent school districts that still send their kids to private schools.

If I can ask..what is your main motivation? Is it the possible Christian angle if you're sending your kids to Christian private schools? I was always curious about this with some families that live in great school districts.

For example, one of our neighbors sends his child to a private Christian school and when I asked him the reason he said the only reason was because his child started going to preschool there and made many friends and he didn't want to disrupt all the friendships.

svelte wrote:

I just pulled out my tax bill from last year and this year.

My MR went up 1.2%.

Great that they didn't raise it the full 2% last year but do you really think that will stay the trend of not going up the full 2%? I doubt there was ever a year they didn't go up at least 1%..no?

Submitted by cvmom on October 1, 2012 - 12:13pm.

Hi ER, yes we live in Carmel Valley, and no we do not send our kids to a religious school. We initially went the private school route when our first child had challenges in preschool. Advanced academically, but behind socially. Needed a lot of individual attention. So when we went to visit our local elementary schools in preparation for kindergarten, we found they were pretty much one-size-fits-all (a quote: we don't need a gifted program, all of our students are gifted).

At the private school that our kids go to, they have gotten LOTS of individual attention. They are able to accelerate in the areas where they can, which I think is critical to avoid boredom and turning off of the whole school experience. At the same time, they receive individual support in the areas where they need a little extra help. A downside is the "bubble effect" that you mentioned. However, I don't think there is anything wrong with sheltering kids during those early years. I really like knowing, for instance, that recess is VERY closely monitored, and the slightest hint of bullying is immediately dealt with. I think pop culture has very little of value to offer kids when they are young, so it is great that the school really limited their exposure. They can come up to speed with the "real world" later, when their values are more fully-developed. And they feel so much a part of a community...they like being where "everybody knows your name". The principal isn't someone you only see when you are in trouble, it's someone you see literally every day, and who sits in all of the teacher/parent conferences, and knows you very very well.

My first child is now in high school at Canyon Crest Academy. Made the transition to a large public school with no problem, and is doing excellently with all the AP classes etc. that are available there. But also, has a wonderful peer group and able to interact well in social situations. I am not sure that would have been the case without the investment we made in private school.

I am a product of public schools, and I want to support my neighborhood schools. But even more than that, I am selfish. I want my children to have what I believe is the best education I can provide them. And if that means us living quite a bit below our means, that's fine with me.

Submitted by earlyretirement on October 1, 2012 - 5:03pm.

Thanks so much CVmom for taking the time to answer. I really appreciate it. I always love hearing the reasons parents decide to go the private school route when living in good public school districts.

I totally agree with your rational and approach with your situation.

On a side note getting back to Mello Roos taxes. It might be VERY interesting for those of you to note that have CFD #2 (Santaluz) that I just found out that the bond got refinanced last year at a lower interest rate!

I was actually VERY surprised to just get my property tax bill from the City of San Diego and I noticed my CFD actually went down $900+ from last year!

I called in to the administrator to confirm that the bond got refinanced at a lower rate, thereby reducing the annual payments. She said the CFD #2 is still scheduled to be paid off in 2030.

I'm sending off to get an exact payoff balance. The procedures for that are to send in a $500 check to this address below:

David Taussig & Associates
c/o Andrea R.
5000 Birch Street, Suite #6000
Newport Beach, CA 92660

You need to send in a $500 check made payable to the entity listed above. Also, include your Parcel # and request for a payoff quote for CFD #2.

They said they will send in the pay off balance within a week or so. The $500 will be deducted from the pay off amount.

It's refreshing to hear about them taking advantage of the low interest environment and refinancing this bond at a lower rate. Good to know not everyone is as reckless as Poway!

Submitted by svelte on October 1, 2012 - 6:38pm.

earlyretirement wrote:

On a side note getting back to Mello Roos taxes. It might be VERY interesting for those of you to note that have CFD #2 (Santaluz) that I just found out that the bond got refinanced last year at a lower interest rate!

That's what I was talking about back on June 25th!

It's probably going to be happening all over with interest rates where they are.

Submitted by earlyretirement on October 1, 2012 - 6:52pm.

svelte wrote:

That's what I was talking about back on June 25th!

It's probably going to be happening all over with interest rates where they are.

Yep. Great call Svelte. It's great to see them refinancing when interest rates are at such historic lows.

I guess entities all over (except Poway) should be taking advantage of these historic low interest rates. Even with the lower interest rates, it still makes sense to me to pay it off early.

When I asked the administrator what the rates went down from she said on average they were about 5.1% and many of them got refinanced down to 2% to 3% so I don't imagine they can go much lower.

And doing a back check the CFD #4 looks like they've gone up the maximum 2% the past few years.

I was actually wrong that it went down $900 from last year. I was looking at an old property tax bill from the 2010/2011 tax year. It actually went down $550 NOT $900.

Just looking at the past 2 years property tax bills it looks like the CFD #2 was refinanced 2 years ago as well. It's actually gone down the past 2 years in a row.

Submitted by DelSurBird on October 5, 2012 - 2:13pm.

Yep $100K is the approximate amount I got via email from the Dolinka Group. Got the same letter to provide my info and pay $100 bucks to get the exact amount for the MR payoff...I agree the $100K payoff is really high compared to the other payoff amounts I am seeing here. No transparency to all of this is disturbing, which is why I came here checking around to compare the numbers and to find out if there's a watchdog group tracking all of this... apparently not.... is there a possibility the Dolinka Group could be just throwing this number out so people wouldn't be interested in a high $100K MR payoff to protect their special interests...?? Maybe need to rally community support to demand transparency. Think about what this could do to the bond markets...

Submitted by ocrenter on October 6, 2012 - 8:55am.

DelSurBird wrote:
Yep $100K is the approximate amount I got via email from the Dolinka Group. Got the same letter to provide my info and pay $100 bucks to get the exact amount for the MR payoff...I agree the $100K payoff is really high compared to the other payoff amounts I am seeing here. No transparency to all of this is disturbing, which is why I came here checking around to compare the numbers and to find out if there's a watchdog group tracking all of this... apparently not.... is there a possibility the Dolinka Group could be just throwing this number out so people wouldn't be interested in a high $100K MR payoff to protect their special interests...?? Maybe need to rally community support to demand transparency. Think about what this could do to the bond markets...

sorry guy, Dolinka was very straight up with us. the estimate and the actual numbers were identical. why would Dolinka purposely throw out a high number for Del Sur but not 4S/Santaluz/PQ/Stonebridge?

Del Sur MR have always been several steps higher than everyone elses. I think the $100k reflects reality, I'm afraid.

This is just like the latest jobs numbers. if the data that comes out is not your liking, it must have been a conspiracy by the power-to-be.

Submitted by earlyretirement on November 19, 2012 - 11:56am.

Just an update. I went ahead and paid off both CFD's a few weeks ago. The CFD #4 (Poway Unified) came in around $15,000.

And the CFD #2 for Santaluz fortunately came in at the lower end of their previous estimate of $45,000 to $50,000. I had to pay $500 to get an exact payoff and a few days later they emailed me an exact payoff. It came in about $46,000.

It will be a great feeling to be done with these Mello Roos taxes. We definitely will stay in our house for the long run so this seems to be a no brainer.

Submitted by bearishgurl on November 19, 2012 - 4:49pm.

earlyretirement wrote:
Just an update. I went ahead and paid off both CFD's a few weeks ago. The CFD #4 (Poway Unified) came in around $15,000.

And the CFD #2 for Santaluz fortunately came in at the lower end of their previous estimate of $45,000 to $50,000. I had to pay $500 to get an exact payoff and a few days later they emailed me an exact payoff. It came in about $46,000.

It will be a great feeling to be done with these Mello Roos taxes. We definitely will stay in our house for the long run so this seems to be a no brainer.

For you, ~$61K is a little over ten years of paying MR by the month. I guess if you're SURE you'll be there at least that long, then you definitely got a discount by paying it off early.

Not sure if your early payoff will affect your resale value, though.

Submitted by earlyretirement on November 19, 2012 - 10:20pm.

bearishgurl wrote:

For you, ~$61K is a little over ten years of paying MR by the month. I guess if you're SURE you'll be there at least that long, then you definitely got a discount by paying it off early.

Not sure if your early payoff will affect your resale value, though.

Yep. I'm SURE that we will be in the house for at least 15 years. We have the house exactly how we want it and we have accounted for possibly having another child. So it's plenty big for us.

We did the renovations we wanted to do and have the house perfect how we want it. We definitely won't move until the kids are out of high school.

I realize that the majority of people probably aren't in this position to know for sure they won't move but I can say with certainty that we will be here for the long haul. And I didn't do this at all thinking about potential resale value.

Submitted by kkun on November 20, 2012 - 2:07pm.

I wonder why paying off Mello Roos doesn't increase the resale value?

When I was looking for house, the areas without MR clearly had a premium compared to similar home in an area with MR. In some places MR amount is ~$400- $500 per month. So why won't a potential buyer pay the premium for a house for which he doesn't have to make the payment?

One thing I can think off is the standard appraisal process won't assign any value to "MR paid off status" in a MR area. So buyers will have to make larger down payment.

Is there other reason why paid MR status does not increase the house value?

Submitted by bearishgurl on November 20, 2012 - 2:22pm.

kkun wrote:
I wonder why paying off Mello Roos doesn't increase the resale value?

When I was looking for house, the areas without MR clearly had a premium compared to similar home in an area with MR. In some places MR amount is ~$400- $500 per month. So why won't a potential buyer pay the premium for a house for which he doesn't have to make the payment?

One thing I can think off is the standard appraisal process won't assign any value to "MR paid off status" in a MR area. So buyers will have to make larger down payment.

Is there other reason why paid MR status does not increase the house value?

I think your comment about the appraisal process not having any mechanism to take into account paid off bonds on a property in an area where 99.5% of properties are not paid off is true.

I don't agree that properties in areas without MR are commanding a higher price than for a comparable MR-encumbered property. I believe if you ARE seeing a higher price in the older area for a similar sized dwelling, it is because of the better location of the properties there, very often bigger lots, mature landscaping, and, in many cases, much better access to local services. The higher price is NOT because it doesn't have MR.

Simply put, buyers who will not pay MR will not even consider looking in an area that has it. Since the MLS is sorted by zip code and often most of or entire zip codes have MR, these potential qualified buyers will never actually know the MR-pd-off property exists on the market.

Submitted by bearishgurl on November 20, 2012 - 2:30pm.

To be clear, I never intended to imply that ER was "foolish" to pay off his MR. If he knows he will own the property more than ten years from the date he paid it off, then he got a BIG discount by doing so. He will save himself ~$6K for every year he owns it past 10 years, until the bonds are paid off (2033? not sure). So the payoff made sense for him and he was able to do it :=]

Submitted by kkun on November 20, 2012 - 2:31pm.

Bearishgirl- Your argument makes sense. It's more driven by the buyer perception, information gap, etc. Otherwise from a pure financial sense paid off MR should add value (by an amount equal to NPV of the MR payments stream, in a prefectly rational market)

Submitted by bearishgurl on November 20, 2012 - 3:15pm.

kkun wrote:
Bearishgirl- Your argument makes sense. It's more driven by the buyer perception, information gap, etc. Otherwise from a pure financial sense paid off MR should add value (by an amount equal to NPV of the MR payments stream, in a prefectly rational market)

Even in a "rational market," (however that differs from today's market), buyers who won't pay MR won't shop where it exists. And I don't think appraisers would or could add value to a property where the bonds were paid off if that is not the "norm" for the area. It could be compared to wasting money on $12K windows in a $300K-ish neighborhood where all other comparable properties have $4K windows. The over-improving owner isn't likely to recover at least $8K of his window investment upon sale.

Submitted by earlyretirement on November 20, 2012 - 5:48pm.

bearishgurl wrote:
To be clear, I never intended to imply that ER was "foolish" to pay off his MR. If he knows he will own the property more than ten years from the date he paid it off, then he got a BIG discount by doing so. He will save himself ~$6K for every year he owns it past 10 years, until the bonds are paid off (2033? not sure). So the payoff made sense for him and he was able to do it :=]

Yes BG. I think everyone has to look at their specific situation. It won't make sense for everyone but in our case it does. We will be in our house for the foreseeable future, our house is completely paid off and we definitely will stick around.

One of the bonds actually wasn't scheduled to be done until at least 2041. And it seems like there are a few cases where the bonds could possibly get extended out further.

That wasn't appealing to me. Also, in reading some things online it seemed like the possibility to prepay could be denied in the future. So I wanted to take advantage of it while I could. In my case it will definitely be worth it.

I'm already well diversified in the stock market, real estate and other investments so the money was just sitting around not earning much interest at all.

Submitted by 12345R on November 22, 2012 - 12:57am.

I’ve been following this thread for a while and I wanted to share my experience since I found the previous posts to be very useful. My residence is in the Torrey Highlands subdivision (south of 56), corresponding to Poway CFD #10 and Poway CDF #10 Impv Area A. The combined annual tax amount is $5300 for both CFDs.

I called up Dolinka Group in Irvine and was quoted a ballpark payoff range of $60 to $70k. Next, I sent in $200 to Poway USD to process the prepayment calculations. After one month, I received an exact quote of $64.5k, pretty close the middle of the ballpark range. For those now looking into getting a ballpark quote, I was recently informed by an associate at Dolinka Group that they were instructed by Poway USD not to provide ballpark figures. If this happens to you, I would try to find out more information on this policy from the PUSD contact Kari Zipp.

Researching CFD #10 on the californiataxdata.us website shows the bond maturity date listed as 2038. The linked document Special Tax Bonds 2007 states “special taxes are payable until 25 years after the last bond series is issued but in no event later than Fiscal Year 2045-46.” I assume this is to cover underfunding due to MR delinquency or lower than projected home value assessments in the future. The effective interest rates for my two CFDs are 5.6% (CFD 10, over 33 years) and 7.2% (CFD 10 IA A, over 19 years), not taking into account the annual 2% max rate escalators.

While the MR payoff break-even period of 12 years is slightly longer than the 10-11 years I have seen in this thread, I’m pretty close to pulling the trigger and paying it off. My long term plan is for my two young kids to graduate from PUSD high school and (Activating Tiger Parent Mode) go to Stanford, haha.

Submitted by DelSurBird on December 6, 2012 - 1:38pm.

earlyretirement wrote:
bearishgurl wrote:
To be clear, I never intended to imply that ER was "foolish" to pay off his MR. If he knows he will own the property more than ten years from the date he paid it off, then he got a BIG discount by doing so. He will save himself ~$6K for every year he owns it past 10 years, until the bonds are paid off (2033? not sure). So the payoff made sense for him and he was able to do it :=]

Yes BG. I think everyone has to look at their specific situation. It won't make sense for everyone but in our case it does. We will be in our house for the foreseeable future, our house is completely paid off and we definitely will stick around.
One of the bonds actually wasn't scheduled to be done until at least 2041. And it seems like there are a few cases where the bonds could possibly get extended out further.
That wasn't appealing to me. Also, in reading some things online it seemed like the possibility to prepay could be denied in the future. So I wanted to take advantage of it while I could. In my case it will definitely be worth it.
I'm already well diversified in the stock market, real estate and other investments so the money was just sitting around not earning much interest at all.

Can you please provide the link to where you read it online that the prepayment of Mello Roos could be denied in the near future?
12345R wrote:
I’ve been following this thread for a while and I wanted to share my experience since I found the previous posts to be very useful. My residence is in the Torrey Highlands subdivision (south of 56), corresponding to Poway CFD #10 and Poway CDF #10 Impv Area A. The combined annual tax amount is $5300 for both CFDs.
I called up Dolinka Group in Irvine and was quoted a ballpark payoff range of $60 to $70k. Next, I sent in $200 to Poway USD to process the prepayment calculations. After one month, I received an exact quote of $64.5k, pretty close the middle of the ballpark range. For those now looking into getting a ballpark quote, I was recently informed by an associate at Dolinka Group that they were instructed by Poway USD not to provide ballpark figures. If this happens to you, I would try to find out more information on this policy from the PUSD contact Kari Zipp.
Researching CFD #10 on the californiataxdata.us website shows the bond maturity date listed as 2038. The linked document Special Tax Bonds 2007 states “special taxes are payable until 25 years after the last bond series is issued but in no event later than Fiscal Year 2045-46.” I assume this is to cover underfunding due to MR delinquency or lower than projected home value assessments in the future. The effective interest rates for my two CFDs are 5.6% (CFD 10, over 33 years) and 7.2% (CFD 10 IA A, over 19 years), not taking into account the annual 2% max rate escalators.
While the MR payoff break-even period of 12 years is slightly longer than the 10-11 years I have seen in this thread, I’m pretty close to pulling the trigger and paying it off. My long term plan is for my two young kids to graduate from PUSD high school and (Activating Tiger Parent Mode) go to Stanford, haha.

Interesting to hear that Dolinka Group has been instructed by PUSD not to give out ballpark figures for the MR payoff. To think about this, if everyone pre-payed their MR, the bondholders will not get good returns on their investments because we will be reducing the principle of the bonds to reduce the number of years/interest payouts to the investors. This will put the PUSD bonds under an unfavorable light to prospective investors…. Reduced or diminished returns to bondholders in combination with PUSD irresponsible behavior to use capital appreciation bond to borrow $105 million in 2011 that won’t begin to payoff the principle off until 2033. The cost to the taxpayers will be $982 million to pay off. Who is getting the bad end of the deal here? Who is looking out in the best interest of the taxpayers? This is a disaster in the making for PUSD if everyone prepaid our MR, they wouldn't be able to get bondholders to invest in their bonds.

ocrenter wrote:
DelSurBird wrote:
Yep $100K is the approximate amount I got via email from the Dolinka Group. Got the same letter to provide my info and pay $100 bucks to get the exact amount for the MR payoff...I agree the $100K payoff is really high compared to the other payoff amounts I am seeing here. No transparency to all of this is disturbing, which is why I came here checking around to compare the numbers and to find out if there's a watchdog group tracking all of this... apparently not.... is there a possibility the Dolinka Group could be just throwing this number out so people wouldn't be interested in a high $100K MR payoff to protect their special interests...?? Maybe need to rally community support to demand transparency. Think about what this could do to the bond markets...

sorry guy, Dolinka was very straight up with us. the estimate and the actual numbers were identical. why would Dolinka purposely throw out a high number for Del Sur but not 4S/Santaluz/PQ/Stonebridge?
Del Sur MR have always been several steps higher than everyone elses. I think the $100k reflects reality, I'm afraid.
This is just like the latest jobs numbers. if the data that comes out is not your liking, it must have been a conspiracy by the power-to-be.

Ha, conspiracy? Who do you think the Dolinka Group is looking out for, in the best interest of PUSD, bondholders or the taxpayers?

Submitted by earlyretirement on December 6, 2012 - 9:25pm.

DelSurBird wrote:

Can you please provide the link to where you read it online that the prepayment of Mello Roos could be denied in the near future?

I can't remember off the top of my head the exact place that I read it. There was tons online but check out one of the links on this thread that had the detailed bond information.

I saw a few things but I mainly made special note of this clause:

""PREPAYMENT OF ANNUAL SPECIAL TAXES

Notwithstanding the foregoing, no prepayment will be allowed unless the amount of Annual Special Taxes that may be levied on Taxable Property, net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in each future Fiscal Year and such prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board. Such determination shall include identifying all Assessor's Parcels that are expected to become Exempt Property".

There is a lot of technical jargon with these types of bonds. I NEVER like wording like "as reasonably determined by the Board". What the Board considers "reasonable" and I consider "reasonable" are probably two totally different things.

Also, I agree with the comment about it not being good for the bondholders if everyone prepaid their Mello Roos ahead of time. However, I don't think this is common. I'd be curious to know the % of people that prepay them but I get the distinct feeling that the % is VERY VERY low.

Submitted by sdnerd on December 7, 2012 - 1:30pm.

For those of us that did prepay... what are your plans for taxes? Going to write off the prepayment?

Large chunk of money which would certainly kick in AMT but....

First installment of property taxes are due in a few days, and I'm debating whether or not to eat the late payment and not pay anything until next year to have a bigger write off & net win.

Submitted by outtamojo on December 7, 2012 - 1:40pm.

sdnerd wrote:
For those of us that did prepay... what are your plans for taxes? Going to write off the prepayment?

Large chunk of money which would certainly kick in AMT but....

First installment of property taxes are due in a few days, and I'm debating whether or not to eat the late payment and not pay anything until next year to have a bigger write off & net win.

I was wondering almost the same thing -if you prepay the MR on a rental how would you do the taxes?

Submitted by xgliu128 on June 2, 2013 - 7:52am.

Hi, I have 2 questions related to 4s ranch mello roos. maybe general mello roos rules/considerations.

1. seems large portion of mello roos might be tax deductible now, at least CA FTB removed the section to enforce mello roos is not tax deductible.
http://www.sfgate.com/business/article/C...

so will paying mello roos tax and getting tax benefits have a much better advantage than paying off mello roos upfront now?

2. how mello roos for the bond is calculated between homes built in 2012 and homes built in 2005?
say a bond issued in 2005, and the cost is split by 50 homes built before 2005; and after another 50 homes are built in 2012, is the cost now shared evenly across all 100 homes and be recalculated?

Submitted by ocrenter on June 2, 2013 - 8:27am.

xgliu128 wrote:
Hi, I have 2 questions related to 4s ranch mello roos. maybe general mello roos rules/considerations.

1. seems large portion of mello roos might be tax deductible now, at least CA FTB removed the section to enforce mello roos is not tax deductible.
http://www.sfgate.com/business/article/C...

so will paying mello roos tax and getting tax benefits have a much better advantage than paying off mello roos upfront now?

2. how mello roos for the bond is calculated between homes built in 2012 and homes built in 2005?
say a bond issued in 2005, and the cost is split by 50 homes built before 2005; and after another 50 homes are built in 2012, is the cost now shared evenly across all 100 homes and be recalculated?

in regard to question #1. it depends on whether you are on the hook for AMT. If you are paying AMT yearly, your property tax is not deductible. Therefore, there's no benefit in having a larger property tax payment.

as for question #2. cost is not recalculated. you are still looking at the same payoff and the cost is still increasing at 2% a year.

Submitted by xgliu128 on June 2, 2013 - 2:16pm.

Thanks Ocrenter.

Then 2005 home owner still has to pay 25 more years, same as 2012 home owner, till 2037?

if 2005 home owner wants to pay off mello roos in 2013, will the pay-off amount count his already paid 8 years mello roos?

Submitted by earlyretirement on June 2, 2013 - 8:04pm.

xgliu128 wrote:
Thanks Ocrenter.

Then 2005 home owner still has to pay 25 more years, same as 2012 home owner, till 2037?

if 2005 home owner wants to pay off mello roos in 2013, will the pay-off amount count his already paid 8 years mello roos?

OCRenter makes some great points.

You need to see when the particular CFD in question is slated to be paid off. I've spoken to some people in that area that were just told that they had to pay Mello Roos for 30 years. But what they weren't told is that it doesn't start until the development is finished! Every CFD is different so research the CFD and check out the details.

Yes, the pay off quote will account for payments already made. Both entities that I dealt with were pretty straight forward about everything. Once you pay the fee to get the payoff the communications are pretty good.

On one of them that I prepaid (CFD #2 for Santaluz) it was kind of a pain because I had made the full payment to pay it off that I was quoted. But then after paying it off and them cashing the check they told me that there was some confusion as it was in between the cycles of the tax payments.

Something to do with the City of San Diego coordinating things with the County. Ultimately even after paying off the CFD #2 I had to send in a separate check for about $2,000 that they ended up sending me a refund check for a few weeks later. A bit confusing but ultimately it ended up working out. (I dealt with Chuck Wilcox with the City of San Diego who was really great with communications).

You may want to wait until the full cycle ends to prepay the Mello Roos taxes. For example, on my CFD #4 for PUSD I paid off the total they gave me but they told me it didn't include this last cycle that just ended.

To make things easier it may just be worth it to prepay it off after the cycle completes and starts over.

On the CFD #2 it immediately showed $0 on my property tax bill online. But on my CFD #4 it is still showing what I was being charged but they say it will drop off on the next cycle to $0.

I don't regret paying all CFD's off completely. I know we will keep the house and won't sell it. Even when the kids are out of the house we plan to keep the house and will probably rent it out. Under our circumstances, pre-paying off the CFD was a no brainer and a solid investment.

As well, besides the 2% annual increases, it looked like they can extend out these CFD payments beyond the scheduled termination date. I liked the fact once you paid it off it forever releases you of ALL CFD obligations.

Also, for the CFD #2, I got a formal stamped certificate from the City of San Diego canceling the obligation. The name at the top says, "Notice of Cancellation of Special Tax Lien". Signed by the City Clerk.

For the CFD #4 , I didn't get a similar certificate. They said they don't issue them. But in emails with Kari Zipp from the PUSD Planning Department, she did confirm that my Mello Roos obligation forever ended with my payment. She also referred me occasionally for questions she didn't know the answer to Justin at the Dolinka Group who was helpful.

Just make sure for the CFD #4 you verify ahead of time when you make the payment that it will cancel out the current tax year. When I asked them why it wasn't showing $0.00 on my property tax bill online they told me, "It is the policy of the PUSD not to remove any Special Taxes that are currently on the Property Tax Roll (i.e. FY 2012/2013) and was calculated based on this assumption.

The Mello-Roos will no longer appear on the FY 2013/2014 (mailed in October 2013) and any subsequent property tax bill".

Submitted by ocrenter on June 3, 2013 - 7:13am.

earlyretirement wrote:

As well, besides the 2% annual increases, it looked like they can extend out these CFD payments beyond the scheduled termination date. I liked the fact once you paid it off it forever releases you of ALL CFD obligations.

ER mentioned a very important point. With PUSD engaging in what can only be described as simply very creative financing, it is quite likely that they'll try to extend CFD obligations when the sh#$%$ hits the fan in a few years.

Just don't do what this guy in Stonebridge did:

substation view

So the owner pays off part of the MR. But then needs to sell in less than a year. The lot is a deficient lot due to the view of the substation in the backyard.

I would have simply spent some money to plant in some mature trees that would block off the substation view.

MR pay off is for folks that are done with all of the necessary home improvements and they are in for the long haul. It is not for everybody.

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