New Credit Guidelines for 2011

New Credit Scoring Rules to Make Qualifying for Loans Tougher in 2011

Lynnette Khalfani-Cox
Nov 30th 2010 at 3:00PM

If you thought it was hard to qualify for loans and obtain credit in 2010, wait until 2011, when lenders start using freshly updated, more rigorous versions of two popular credit-scoring systems.

Fair Isaac, creator of the widely-used FICO score, recently rolled out an enhanced version of one of its key credit scores, the FICO 8 Mortgage Score. This new score may make it tougher for many consumers to secure home loans.

Meanwhile, another credit score growing in popularity, the VantageScore, is also undergoing significant modification and will be available to lenders starting in January 2011.

Both credit-scoring systems have been revamped to better account for consumer behavior in the wake of the housing crisis and the Great Recession. Specifically, the two scoring systems have fine-tuned their predictive powers, and now aim to help lenders determine who is likely to engage in a strategic default on a mortgage.

A strategic default occurs when a homeowner who appears to have the ability to pay for their home nevertheless decides to stop making mortgage payments, yet continues to keep up with other financial obligations, such as credit card bills or auto loans.

Homeowners who are under water – meaning they owe more on their homes than the properties are worth – are those who most commonly engage in strategic defaults, mainly because they feel it's not worth it to continue making house payments on an asset that has greatly depreciated.

According to a 2010 Experian-Oliver Wyman Market Intelligence Report, strategic defaults rose 53% in the first half of 2009, to 355,000 cases. Full-year statistics for 2009 aren't available. But previous data from Experian found that 588,000 strategic defaults occurred in the U.S. in 2008, double the level that took place in 2007.

The tricky issue for lenders is that many of these mortgage defaults seem to come out of nowhere, often from borrowers who previously had pristine credit scores.

Enter the world of credit scoring – to help banks better manage their lending risks.

While the fine details of the FICO and VantageScore systems remain a closely guarded secret, some important facets of each are known.

The Recession-Era Credit Scoring Model

When the VantageScore originally debuted in 2006, it was based on an analysis of 21 million credit files over a two-year period. To come up with its new credit score, which is dubbed VantageScore 2.0, the company examined a larger set of credit data across a longer period of time.

VantageScore 2.0 is based on an analysis of 45 million active credit reports. Those 45 million credit files came from 15 million anonymous consumers whose credit histories were examined across all three major bureaus: Equifax, Experian and TransUnion. VantageScore's updated scoring system also now covers overlapping, three-year time periods before and after the recession (from 2006 to 2008, and 2007 to 2009).

As a result, the overhauled VantageScore 2.0 has been dubbed as a "recession-era credit scoring model."

"We've recently experienced a variety of economic scenarios, including an increase in foreclosures in the housing market and changing payment hierarchy among consumers," said Barrett Burns, President and CEO of VantageScore Solutions. "Building VantageScore 2.0 using a blend of consumer behaviors from 2006-2009 produces greater score stability over time."

For consumers, what is perhaps most important about the new VantageScore is that it places more emphasis on some areas of your credit behavior, and less emphasis on other areas.

For example, the single biggest change with VantageScore 2.0 is that shopping around a lot for credit or opening a slew of credit accounts could hurt you far more than it had in the past. Under VantageScore 2.0, recent credit activities – such as filling out new applications for credit – now account for 30% of your score. By comparison, under VantageScore 1.0, inquiries and recent credit activities comprised just 10% of your score.

Likewise, your balances and the length of your credit history are of less significance with VantageScore 2.0. They account for just 9% and 8%, respectively, of your score. In the old VantageScore model, they accounted for 15% and 13%, respectively, of your score.

Preventing Foreclosures, Saving Lenders $1 Billion

For its part, FICO rolled out the FICO 8 Mortgage Score in October 2010.

FICO officials say that this new score is anywhere from 15% to 25% more accurate in predicting defaults than its predecessor. FICO officials also say their new mortgage score will help prevent 115,000 foreclosures in America, saving lenders more than $1 billion.

"The FICO 8 Mortgage Score's broad availability means that all U.S. lenders and servicers can now easily access scores that are fine-tuned for mortgage performance," said Jordan Graham, executive vice president of Scores and president of Consumer Services at FICO. "Moreover, by combining this superior predictive performance with the FICO Economic Impact Service, lenders are able to adjust policies and strategies quickly based upon forward-looking economic modeling. This is what we mean by the FICO analytic advantage: the ability to use the most advanced predictive analytics to compete and win in this highly challenging environment."

And with such a "challenging" lending environment, as lenders start to adopt both VantageScore 2.0 and the FICO 8 Mortgage Score, you can expect it to get a lot tougher to qualify for loans, especially mortgages.

"To do the best job of evaluating risk and increasing profits, lenders need updated credit scoring analytics that incorporate mortgage credit performance since the subprime mortgage meltdown," said Craig Focardi, senior research director at TowerGroup. "The availability of mortgage credit scores across all three credit reporting agencies will enable lenders to upgrade their loan underwriting and account management practices."

In the meantime, if you're in the market for a loan or credit of any kind, now is the time to shore up your credit rating.

As I explained in my book, Perfect Credit, and here in a previous WalletPop column on understanding and raising your credit scores, anyone can improve their credit just by knowing several key strategies.

FICO scores range from 300 to 850 points. The VantageScore ranges from 501 to 990 points. Even though I work diligently to manage my credit wisely, I was shocked to find recently that my VantageScore was a perfect 990. That's practically unheard of. My FICO score, based on my Equifax report, was 798; my hubby's came in at 805.

If your credit isn't where you'd like it to be, and you were thinking about making a financial New Year's resolution, a good goal would be improving your credit rating in 2011.

Declutter Ideas if You're Selling Your House or Just Need to get Organized

Get Rid of Clutter In Your Home--and Make Some Money While You're At It

Aaron Crowe
Dec 23rd 2010 at 5:00P

                            Clutter has taken over the American household. And I don't mean just the serious clutter that A&E features in TV shows about hoarders and storage lockers.

The size of the average American home has grown by 53% in the past 30 years, up by 800 square feet to about 2,300 square feet. If that isn't enough room, they can move their stuff to a storage facility and pay someone to keep it safe for them.

If you're home isn't filled with clutter, congratulations. You've won the war and can rest easy. For the rest of us, it's a nagging headache that makes things difficult to find and opening a closet a nightmare.

The average U.S. household has approximately 35 unused items sitting around the house with a resale value of $670, says a survey that WalletPop wrote about earlier this year. Instead of putting off cleaning the attic until the new year, now is as good a time as any to start and make some money off that unused stuff.

There are many more ways to go about doing it than having a garage sale, giving things to charity or throwing things away. Some of your clutter can be sold, or at least traded for something that you'll use. And for the clutter that can't: There are plenty of online sites that will take your stuff for free.

Here are seven ways to get rid of the clutter in your home:

Sell Your Electronics

Everyone has at least a few old electronic devices around the house. Giving them to a recycler is an easy way to get rid of them, but selling or trading them is even better.

Gazelle pays cash for used gadgets, including everything from Blu-Ray players to laptops, digital cameras and cellphones. It has a handy chart that tracks how much an item has sold for in the past and what it is likely to sell for in the future, based on data such as when a new model will come out.

ReCellular buys and sells refurbished cellphones, paying an average of $30 per phone, with the range between $5 and $300. The company says that in 2009, Americans retired an estimated 130 million cellphones, and that less than 10% of them are recycled. ReCellular pays the shipping for a phone to be sold or recycled. For phones without cash value, it has more than 40,000 drop-off centers where they can be recycled for free.

NextWorth gives a Target gift card for old electronics. BuyMyTronics.com stands out for taking even broken items. Many websites will recycle your gadgets for free if they're not worth any money, but you'll likely have to pay for shipping.

For Apple products, TuneCycle pays cash for items that are either working or broken. Apple also has a recycling program and offers 10% off a new iPod if you trade it in on the same day that you make the purchase.

Sell Home Improvement Items

If you've just done a home remodeling job and have extra items such as an old sink, oven or cans of paint, you can post your listing for free at DiggersList, a site that brings together homeowners, contractors and suppliers. The service is available in 40 cities.

Sell Books

Unfortunately, too many used bookstores have gone out of business in recent years, leaving few places to either trade in or sell your old books. Cash4Books.net makes it easy by not only buying books, but paying for shipping and PayPal fees. It then sells them at McKenzie Books, which can give potential sellers an idea of what it's looking to buy. Amazon is another place to sell books, along with other items such as electronic gadgets.

For college students with too many textbooks filling their closets, BlueRectangle.com buys textbooks.

If you'd rather trade books so you can get new books to read, websites such as PaperBackSwap.com allow members to get books for free after earning enough "credits" by giving away books. When giving away a book, you'll have to pay for postage. One thing to note: I once belonged to one of these types of websites, and after a few months I found it too difficult to get the books I wanted because everyone was going after the same popular books.

Sell Vintage Items

While digging through that mountain of clutter, you might get lucky and come upon something that you haven't seen for years that might be worth something. How much is that potential antique worth? To find out, try WhatSellsBest.com to see what it's selling for on eBay.

Swapping or Giving It Away

If you want stuff in return, and it's stuff your child will use, then ThredUP is for you. But you don't actually have to swap to use its services; you could just be a "sender" and give used children's clothing and toys to "buyers." They pay the shipping and ThredUP's fee ($15.70) for $50 worth of stuff that you put in a box.

Beyond Craigslist--where you can sell or give items for free--there's Freecycle, which encourages giving as well as receiving stuff. There are also neighborhood clothing exchange parties to swap clothes with your neighbors.

If you don't mind getting your friends involved, Facebook is another online place to offer your old stuff for free, or for sale. Jessica Dolan, a home organizer in Pennsylvania, told WalletPop that she uses Facebook to sell stuff, especially since eBay raised its fees.

For books, CDs, movies and video games, swap them at swap.com. The more popular the item you have, the larger the chance you have for getting something great back. Swapping The Jungle Book movie, for example, will get you 106,030 items to choose from in return.

Free Pickup at Your Home

If you don't get a flier in the mail every month from some charity asking you to donate your used clothing and other items, you can find them online and schedule a pickup. The Lupus Foundation of America, for example, can set up home pickups online.

Garage Sale

Now you have help with the most common way of making a profit off of your clutter. Websites such as GrandSlamGarageSales.com can help with a kit to turn running garage sales into a business.

Attn: Playa Vista Dog Owners or Wanna Be Dog Owners!

Free Dog Training at PETCO in January

Julia Scott
Jan 5th 2011 at 10:10AM

Stop by PETCO for a free dog training lesson every Saturday and Sunday in January 2011. The 30-minute lesson focuses on house training your dog. The idea is to get all those Christmas puppies (and older dogs who haven't learned their lesson) housebroken!

Check your local store to see what time the class is being held. The furry freebie is tied to PETCO's National Adoption Weekend, Jan. 15-16, 2011. Folks who adopt will get a free small bag of Blue Buffalo dog or cat food and a 16 pound jug of PETCO cat litter.

Caveats: The free dog or cat food and cat litter are only available while supplies last.

Life Insurance Tip for Couples with Kids

Get Life Insurance Free (And Hope You Don't Need It)

Jennie L. Phipps
Dec 31st 2010 at 5:00PM

MassMutual, one of the largest life insurance companies in the world, is offering $50,000 worth of free life insurance to working families with children.

Called the Lifebridge program, the 10-year term life policy is issued in the name of one parent or guardian. If that parent dies during the term, the money is placed in a trust to be used for the education of the children. Covered expenses include books, tuition, fees, and room and board. The types of schools covered include pre-school, private school, trade school or college. The children have until 10 years after the death of a parent or until they are age 35 -- whichever is later -- to use the money.

The New Tax Laws

The New Tax Deal: Are You a Winner Or a Loser?

Kelly Phillips Erb 

 Dec 20th 2010 at 9:00AM 

 

After months of "will they or won't they?" Congress finally committed. On December 16, 2010, the House pushed through H.R. 4853 -- The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 -- virtually without changes. President Obama signed it into law the next day.

The tax deal, negotiated between President Obama and Congressional GOP leaders, received a lot of press. With all the grandstanding, it's hard to tell who the real winners and losers are under the deal. Here's our take:

WINNERS: High-Income Taxpayers. In addition to an extension of the Bush-era tax rates, high-income taxpayers also benefit from a temporary repeal of the PEP (personal exemption phase-out) and "Pease" limitations. Under PEP, personal exemptions for high-income taxpayers were reduced as adjusted gross income (AGI) increased, while the Pease provision reduced itemized deductions at the top of the brackets. With the repeal, high-income taxpayers hold onto their exemptions and the full value of their itemized deductions for two more years.

LOSERS: Low-Income Taxpayers. While low-income taxpayers do benefit from the overall cut in taxpayer rates, the absence of the Making Work Pay Credit, which was not extended, will hit those in their wallets the most. Taxpayers making less than $20,000 (or married couples filing jointly making less than $40,000) will see a drop in their take-home pay of more than $200 compared to last year, since the Making Work Pay Credit was a higher tax break at a flat rate than the payroll tax break based on a percentage of wages.

LOSERS: Taxpayers Subject to Alternative Minimum Tax (AMT). On one hand, the bill contains a two-year patch for the AMT retroactive to January 2010, which will save more than 20 million taxpayers from the clutches of the higher tax this year and the next. On the other hand, more than 20 million remain subject to the tax (and more to follow in 2012), which still isn't indexed for inflation.

WINNERS: Individual Taxpayers. It's not just high-income taxpayers that catch a break with the extension of the Bush-era tax rates. Brackets remain low across the board, which means the 10% bracket remains in place at the bottom while rates for taxpayers at the higher end will be capped at 35%.

LOSERS: Homeowners Who Don't Itemize. In a bill that seemed to extend or renew nearly every credit from the Bush era, conspicuously absent was the property tax deduction for non-itemizers. The deduction was inexplicably left out of the bill.

LOSERS: Generation Y. Generation Y, or the so-called "Echo Boomers" because they are the children of baby boomers, find themselves in the odd position of benefiting from the payroll tax cuts in 2011 while also likely paying the price for it come retirement. In 2011, wage earner contributions to Social Security taxes are reduced by 2%, making contributions just 4.2% of wages to the cap ($106,800 in 2011). That amount is likely to be a significant savings for many taxpayers -- but at what cost? For those worried about the rate of depletion currently in the Social Security trust fund, cutting contributions while not modifying distributions only raises those concerns.

WINNERS: Taxpayers Who Die in 2011 and 2012. If the best year to die under the federal estate tax code was 2010 (when it was repealed for one year), 2011 and 2012 are looking like decent runners up. For the next two years, the top estate tax rate falls to 35%, the lowest since the 1930s, and the exemption rises to $5 million per person. That effectively repeals the tax for married couples who, with planning, can exempt up to $10 million from federal and gift tax.

LOSERS: Small Businesses. Small-business owners made some headway under the tax deal with lower capital gains rates and increased expensing options but lost out on the "wish list" at the top of many this year: a repeal of the expanded 1099 reporting requirements. The new reporting requirements are expected to increase administrative costs for small businesses in particular; Congress had promised some relief but offered none under the new law.

LOSERS: Fiscal Conservatives. The cost of the tax deal is a whopping $858 billion over two years. With little in the way of offsets, the new law adds to the federal deficit at a time when fiscal conservatives have retaken Congress. As the deficit continues to soar, they hope this tax deal won't come back to haunt them in 2012.

WINNERS: Investors. The bill extends the current tax rates on long-term capital gains and dividends for two more years. This is good news for investors who will see a top rate of 15% and a remarkable 0% for some taxpayers.

LOSERS: Moderate Democrats. Democrats lost a number of seats in the House in November. Adding insult to injury, many Democrats felt that their own President had turned on them when he negotiated a tax deal that seem to leave them out. With just a few days left in the lame duck session, it's clear that any power they once yielded is long gone.

WINNERS: Tax Pundits. This latest deal has given tax pundits a great deal to talk about over the last few months. Now, with a merely temporary extension, we have something to talk about in two more years.

All totaled, there are likely more winners than losers (at least by the numbers) in the tax deal. Whether that pans out won't be felt so much in January 2011, when the tax provisions were otherwise set to expire, as they will in November 2012 when voters have their say.

Big Plans for The Howard Hughes Hangers in Playa Vista!

Howard Hughes complex in Playa Vista is getting a $50-million makeover

The new owner of the aircraft giant's former headquarters, including the hangar where the Spruce Goose was built, plans to turn it into an office campus for media, entertainment and tech firms.

October 14, 2010| By Roger Vincent, Los Angeles Times

 

The decaying former headquarters of aviation giant Howard Hughes will be turned into an office campus for creative tenants as part of a $50-million makeover of the famous operation at Playa Vista.
The complex includes the enormous hangar where Hughes built his infamous Spruce Goose airplane but is now used mostly as a sound stage for movie and television production. The seven-story structure will be upgraded to contain five sound stages that could be used simultaneously, new owner Wayne Ratkovich said.

Ratkovich, a Los Angeles developer who specializes in renovating historic buildings, expects to complete a $32.4-million purchase of the former Hughes property Friday . His company, the Ratkovich Co., and his financial partner, Penwood Real Estate Investment Management, are buying the 28-acre parcel out of foreclosure from a consortium of lenders led by KeyBank.
The property is occupied by 11 buildings, including the hangar, most of them from the years around World War II when Hughes operated his Hughes Aircraft Co. in the area south of what is now Marina del Rey. It was there that Hughes set out to build a seaplane capable of carrying 750 fully armed soldiers nonstop from Honolulu to Tokyo.
Among his many challenges was the fact that no plane that big had ever been built, and he couldn't use materials considered crucial to the war effort, such as aluminum, to make it. He decided to use wood and settled on birch, which made the popular nickname "Spruce Goose" irksome to him.
The plane, officially dubbed Hercules, sported a 320-foot wingspan, weighed 200 tons and flew only once — for about one minute — in 1947.
The airplane has been gone since then and now resides in a McMinnville, Ore., museum. But the vast redwood hangar where it was built is still in demand as a sound stage and generates about $1.3 million a year in rent from filmmakers, Ratkovich said. Much of director James Cameron's 3-D epic "Avatar" was shot there.
In a nod to Hughes' storied seaplane, Ratkovich will call his new development the Hercules Campus. He plans to divide it into three smaller complexes connected by landscaping. Targeted tenants include media, entertainment and technology companies, Ratkovich said.
"We want those kind of firms that are looking for unconventional space," he said. "That's what these buildings represent."
Los Angeles architect Brenda Levin, who worked with Ratkovich on his transformation of several other historic properties, is designing the new campus.

What is the Community Enhancement Fee in Playa Vista?

Many of the people who originally purchased homes in Playa Vista from the developer didn't realize, in the huge amount of paperwork that they signed, that they had agreed to pay what is called the Community Enhancement Fee or CEF.  

Pursuant to the Community Enhancement Fee Agreement, which encumbers each lot/unit within Playa Vista Maintenance Association, the Community Enhancement Fee (‘CEF’) is to be paid to PVCS in connection with each property transfer. The fee is three-quarters of a percent (.0075%) times the Purchase Price (or total consideration) for each transaction resulting in a resale transfer. If your property is sold a statement of account must be requested from Merit Property Management by your escrow officer.  

The CEF is paid at the close of escrow and it is determined through the purchase process who will be responsible for the Fee, the buyer or the Seller.  In a hot market a smart Listing agent will negotiate for the Buyer to pay for the CEF and will include it in the purchase contract.  In a slower market it can be harder to get this fee paid for by the Buyer and the Seller will need to cover the fee.  If the CEF is not discussed in the purchase agreement it will be the responsibility of the Seller to pay and it will be taken out of the Sellers proceeds by Escrow and paid directly to PVCS.  If there are no proceeds from the sale, the Seller will have to come in with the funds in order to close escrow.  Escrow should not close without this fee being paid.  If for some reason it does PVCS can legally come after both the buyer and the seller for payment of the fee and can use all legal means available to them to collect the debt.  Much better to get this settled in escrow.  I've seen this come back to haunt homeowners who have used agents that were unaware of this requirement.
 
In case you were wondering what the Community Enhancement Fee pays for I have included a summary of the benefits:

In addition to funding cultural and social programs in Playa Vista (movies at moonlight, concerts in the park, bagels and brew, the fall festival, holiday party, etc.), these fees pay for Playa Vista’s community intranet (PlayaLink), operation of the Playa Vista Shuttle Bus and other programs that focus on enhancing the quality of life in Playa Vista through community events.


Some residents of Playa Vista think that all of the wonderful events in Playa Vista are either paid for by Playa Capital (the Master Developer) or by their Master Association Fees. As you now know, unfortunately they are not!   Hopefully, now that you know how these wonderful events and services are paid for you will go and get your monies worth!  If you can't hang out to chat at Bagels and Brew or the Holiday Party make sure you stop by and get some food to-go!  If you can't make a concert or a movie.... invite your friends and family to enjoy it in your stead.  One way or another you will have paid for all of the events and services in Playa Vista.  Have fun and use them!  Hope to see you on the Beach Shuttle this summer......

What are the HOA Dues in Playa Vista?

Many people who come to Playa Vista to purchase a home are confused about the HOA's.  It is one of the many reasons it is important to use an Agent that is familiar with all of the different ins and out of buying in this unique Los Angeles neighborhood.  In case you aren't using an agent familiar with Playa Vista let me help you out. 

There are two HOA's in Playa Vista.  One is a Master Association known as Playa Vista Parks and Landscape (PVPAL) which is managed and administered by Merit Property Management.  The Master Association is currently $216 per unit (all properties pay the same amount whether you are in a 700 sq. ft. 1bd/1ba or a 3,500 sq. ft. home in Icon).   The Master Association covers many community amenities including but not limited to:

-The CenterPonte Club.  A 26,000 sq. ft. facility that has a lap pool, jacuzzi, 24 hr. gym, screening room,  conference room, business center, reading room, and banquet rooms.
-Basic cable (includes one cable box (more can be rented for a small fee) Movie Channels and HD can also be added for a small extra fee to the Cable Company which is Time Warner)
-High-speed internet access thru Time Warner.
-Residential Alarm Monitoring (each Playa Vista home is equipped with a basic alarm system.  A set up fee will be charged when you change service over and you will also need to purchase a permit thru the Los Angeles Police department for around $25.  You can get a move in package from the Centerpointe Club with all of the needed information for making these arrangements)
-24 hr. Security Patrol that monitors the CenterPointe Club, Parks and Neighborhood Street.  Individual Sub Association property is not patrolled by the Master Association Security Patrol. 
-3/4 of a percent of your Master Assoc. HOA goes towards the conservancy of the Wetlands.
-Maintenance of the CenterPointe Club, community pools, community parks, sports fields, landscape, and streets.
-Property Management Fees and administrative expenses
-Reserve Account that pays for major upkeep or Capital items or repairs (major repairs like re-roofing the CenterPointe Club, Saftey Net at the Baseball fields, security upgrades, gym upgrades or replacement of equipment,  pool upgrades and repairs etc.).

Each individual Building will have its own Homeowners Association.  Each building is different and are represented by several different Property Management companies.  The HOA's for individual buildings can range from $250 to $900.  It all depends on the buildings, their ammenities (some have pools, gyms, jacuzzi's, fountains, multiple entrances and elevators, etc), and how conservative the building is about building Reserves.

Your Building HOA usually pays for:

-Reserve Account
-Water and Trash
-Building maintenance (elevators, alarm systems, security cameras, controlled entry systems, gates, garage, window washing, vent cleaning, systems upkeep, etc.)
-Common area landscaping
-Common area cleaning and maintenance
-Hazard Insurance (covers Building and Individual units does not include contents insurance or general upkeep and maintenance of systems like AC/Heat.)

Playa Vista Mello Roos for 2008-2009

Here is a sample of what your Mello Roos would be on a purchase in Playa Vista.  Keep in mind that Mello Roos are not based on the purchase price or assessed value of your home.  It is based on the square footage and does not change when you sell your house or if the property value is reassessed.  Mello Roos can and have changed since the first homeowners moved in at Playa Vista.  Currently the Mello Roos are about 20% less than they were in 2002.  While Mello Roos have gone down it is also possible for them to go up depending on interest rates and other factors.   Here is a published chart for what Mello Roos were in 2008-2009,  You can anticipate that, currently, your Mello Roos will be at or below the amounts listed on this chart.  It is a good reference when you are purchasing a home.  As always, if I am representing you as a buyer we will get an exact amount from the seller on any property we consider for purchase.   The middle numbers on the chart represent the square feet of the property.

Understanding Mello Roos

What Exactly Is Mello-Roos? 

Many prospective homebuyers in California are becoming increasingly aware of the term Mello-Roos when looking to purchase new and used homes. For those that are unfamiliar, Mello-Roos is simply a special tax assessed to homeowners in a community as repayment for bonds used to fund the infrastructure within their community. To home buyers, Mello-Roos often carries a negative connotation, one where the monthly payment for a home will be significantly more than one in a non Mello-Roos community. But is this a fair assessment? We will attempt to answer this question in order to educate any potential homebuyers about Mello-Roos.

Advantages of a Mello-Roos District to Home Buyers

• New schools, parks, recreation centers, etc can be built and funded using the revenue generated from the Mello-Roos income.
• More housing inventory will be created when undeveloped locations are built up.
• Generally speaking, low crime rates and highly desirable new schools are common in Mello-Roos communities.

Disadvantages of a Mello-Roos District to Home Buyers

• Cost of housing may be increased because of the tax, possibly limiting the amount of prospective buyers when it comes time for resale.
• Maintenance of the improvements could be more costly than anticipated.

Quick Mello-Roos Q & A Q: Where Is Mello-Roos Most Commonly Found?
A: In Orange County, CA most cities with new construction will have at least one community with Mello-Roos; however, the southern portion of Orange County is where it is most prevalent. Likely cities might include: Irvine, Mission Viejo, Aliso Viejo, Tustin, Laguna Hills, Rancho Santa Margarita, Coto De Caza, and San Juan Capistrano. In Los Angeles County you will find Mello Roos in Playa Vista and in Northern LA County in place like Stevenson Ranch.

Q: What Year Homes Have Mello-Roos?
A: Almost always, Mello-Roos is found in areas with newer neighborhoods and subdivisions built between 1994 and the present.

Q: How Long Does Mello-Roos Typically Last?
A: The length of the Mello-Roos tax varies from subdivision to subdivision. Fifteen years from the original build date is about average. The payment very rarely extends beyond 30 years or is shorter than 7 years.

Q: How Much Is It Typically?
A: Depending on the year of construction, it can range anywhere from $25 to over $300 per month; the actual tax is usually collected annually or semi-annually.

by Todd Foust and Charmaine Ngo of Realty Times.

What are Mello Roos?

Mello-Roos

From Wikipedia, the free encyclopedia

Community Facilities District Act (more commonly known as Mello-Roos) was a law enacted by the California State Legislature in 1982.^[1] The name Mello-Roos comes from its co-authors, Senator Henry Mello (of the Monterey area) and Assemblyman Mike Roos (of Los Angeles). The Act enabled “Community Facilities Districts” (CFDs) to be established by local government agencies as a means of obtaining community funding.

History

When California Proposition 13 passed in 1978, it restricted the ability of local governments to raise property taxes by no more than an inflation factor. The budget for services and for the construction of public facilities therefore could not continue unabated. As a result, new ways to fund public improvements in respective locales were considered.^[1]

Districts and taxes

A Mello-Roos District is an area where a special property tax on real estate, in addition to the normal property tax, is imposed on those real property owners within a Community Facilities District. These districts seek public financing through the sale of bonds for the purpose of financing public improvements and services.^[2] These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax paid is used to make the payments of principal and interest on the bonds.
Mello-Roos is deductible in some cases but not in others.^[3]

New communities

Many communities requiring new schools and infrastructures such as public parks and roads impose Mello-Roos. While property tax is assessed as a percentage of the value of the home, Mello-Roos is independent and could rise or lower and is not subject to Proposition 13