Mello-Roos and district financing: the taxes hiding on title

The Mello-Roos Community Facilities Act (Gov. Code §§ 53311–53368.3) lets local agencies form Community Facilities Districts that levy special taxes — not ad valorem, not Mitigation Fee Act fees — to finance infrastructure and services, usually securing bonds. For an acquisition, an existing CFD is effectively senior, escalating debt attached to the parcel; for a development, a new CFD or an Enhanced Infrastructure Financing District (Gov. Code §§ 53398.50–53398.88) can be the cheapest way to fund backbone infrastructure.

• Read the RMA: the Rate and Method of Apportionment fixes the maximum tax, escalators (commonly 2%/yr), the levy formula by land-use class, and the term (often through bond maturity, sometimes services-in-perpetuity).
• Get the § 53340.2 notice: sellers of property in a CFD must furnish the prescribed Notice of Special Tax; demand the current levy and the district's bond status alongside it.
• Model effective tax rate: lenders and buyers commonly test total tax burden (ad valorem + special taxes + assessments) against value — above ~2% effective, exit pricing and agency-loan sizing feel it.
• Foreclosure covenant: CFD bonds carry covenants to foreclose delinquent parcels on an accelerated judicial track — a delinquency on a large parcel is not a wait-it-out item.
• Prepayment: most RMAs include a prepayment formula; on stabilized acquisitions compare the prepayment cost against capitalizing the tax at your cap rate.

Developer-initiated CFDs: with landowner consent (a two-thirds landowner vote where fewer than 12 registered voters), a CFD over your own project can bond-finance streets, utilities, parks and processing-heavy infrastructure — converting equity-funded improvements into tax-exempt, parcel-secured financing that transfers with the land. Common on larger sites; occasionally viable for mid-size infill where a city runs a program.

EIFDs: tax-increment financing without redevelopment agencies — a district captures participating agencies' property-tax increment (never schools') to fund infrastructure and affordable housing, with bonds now issuable without a separate landowner election. For a developer, an EIFD is usually the city's tool that your project benefits from; the diligence is whether promised increment-funded infrastructure is real and scheduled.

• Underwriting watch-outs:
• New CFD formation runs months and requires the agency's goals/policies compliance — start alongside entitlement, not after.
• Capitalized special taxes reduce supportable rents/prices — the market prices total housing cost; a CFD is not free money.
• Successor-agency (former RDA) sites carry their own tax-increment history — see the redevelopment-dissolution materials in the library when buying in former project areas.

Resales require the Notice of Special Tax; residential leases and sales into a CFD carry statutory disclosure norms, and public-report (DRE) processes for subdivisions incorporate them. Build the disclosures into your sales/leasing packets — cure costs and rescission exposure for missed notices land on the developer.