Buying real estate in California has many issues. Some of the misunderstood issues in my experience are CC&Rs, HOA, and Mello-Roos. Many home buyers in the Sacramento and Placer counties don’t know about these issues until they make an offer on a property. Often the cost of CC&Rs, HOA, and Mello-Roos can create real problems with the transactions. It is the best practice to learn about the CC&Rs, HOA, and Mello-Roos before making an offer or looking for homes in that community.
Mello-Roos
What is Mello-Roos?
Mello-Roos was signed into law in 1982 as a way to gain funding for new communities after Proposition 13 inhibited the raising of property taxes in California. Though it isn’t technically a property tax, it is an additional tax that is applied to properties in newly developed areas.
What is the Mello-Roos funds used for?
The money is used to build the necessary facilities, utilities, roads, and the like for new towns. This keeps the cost of development for the new town on the shoulders of the persons living there.
Because Mello-Roos is independent of the property tax that is protected by Prop 13, communities in need of new facilities like schools, public parks, and even roads can impose Mello-Roos to raise the tax income from that community to fund the construction and maintenance of those facilities.
How does Mello-Roos work in California?
Mello-Roos in California allows a local county or city government or school district to sell bonds in order to finance a specific project or service. Projects permitted under California law range from infrastructure improvements to police and fire services, schools, parks, and childcare facilities.
Mello-Roos administered as a bond
The Mello-Roos “special tax” is administered as a bond. This bond is connected to the properties in the affected area and are bought and sold with the individual houses. So when buying a house, be sure to check to see how much the previous owner still owes on the bond. Some of Mello-Roos tax does not expire at all and are essentially just additional property taxes.
Does Mello-Roos impact a mortgage application?
Mello-Roos impacts a mortgage application in the debt to income ratio qualification of the borrower. Mello-Roos is counted as a monthly obligation of the borrower. The PITI or principal, interest, taxes, and insurance calculation of the mortgage application process the Mello-Roos as added to the normal property tax.
What is Mello-Roos impact on property values?
Many home buyers can fail to meet the qualification of a mortgage due to the addition of a Mello-Roos tax. This will limit the pool of buyers for the property and have a direct impact on the selling price. The impact of Mello-Roos is similar to what higher interest rates have on a mortgage. Mello-Roos make the mortgage payment higher. The higher the monthly mortgage payment, the fewer people will qualify for the loan at the listed price. In a buyer’s market the house seller will most likely have to lower the price to match a qualified buyer to the selling price.
Can Mello-Roos have a positive impact on property values?
If the Mello-Roos money is used to build the necessary facilities, utilities, roads that increase the quality of life for the residents of the community, it will increase property values. How long this effect will last is very hard to assess.
Is there a difference between Mello-Roos and special assessment?
Special assessment taxes are bonds financed by property owners to improve things like streetlights, sidewalks, sewers, and other infrastructure items. Mello-Roos taxes are assessed into your property taxes as a way to finance things related to community assets like schools, libraries, parks, etc.
How much is Mello-Roos typically?
Mello-Roos is limited to fewer than 2 percent of your total home value. But home values on resale could be different and full understanding of the Mello-Roos tax when buying is very important. The Mello-Roos tax is assessed against the land, but is not based upon the value of the property. Therefore, the possible increased value of the property does not affect the amount of the tax when the property is sold. The amount of the tax may not exceed the original maximum amount provided in the Resolution of Formation.
CC&R
What are CC&R’s?
What does cc&r stand for? CC&R stands for Covenants, Conditions, and Restrictions. And they can have a big impact on Sacramento real estate. CC&R’s create rules for a housing community. The CCR&R’s are agreements on the part of the buyer to do or not do certain things. The buyer automatically agrees to these by purchasing the property. Some CC&R’s are easy to understand why they cause some life style changes.
In legal terms, restrictive covenants “run with the land.” In other words, they apply to the property itself, and not the specific owner who makes the agreement. So, their limitations are legally binding for anybody who subsequently buys the property.
Covenants, Conditions, and Restrictions what are the penalty for violating them?
Covenants, Conditions, and Restrictions have different ways to enforce the violation. The main difference between them is the punishment that can be doled out when an infraction occurs. Look for the governing documents to understand the CR&Rs.
The covenant part
If a buyer violates a covenant, they have broken an agreement, and the seller can sue for damages or get an injunction to prevent any future violations.
The condition part
If a buyer violates a condition, the seller may have the right to demand that the buyer forfeit the title of the property.
The Restrictions part
Restrictions are those regulations that are set forth by the government with regard to zoning, building, and health codes. These regulations are imposed and enforced wherever your property is, but there can be additional restrictions in certain areas.
Who enforces the CC&R’s in California?
Any homeowner in the CC&R community could bring action to enforce the violation. Because recorded CC&R’s are a contract, any homeowner may enforce the terms of that contract against another homeowner. The CC&R area does not need a functioning HOA to enforce the restrictions. But the enforcement would most likely end up in court to enforce the terms of the CC&R.
How do you get out of CC&R’s?
One of the most common ways to evade the requirements of a restrictive CC&R is to simply ignore them. CC&R’s can become unenforceable if they expire or if there is a history of the CC&R being violated or if there is no individual or group benefiting from them. But CC&R’s are legal and the owner of a property with a CC&R should get legal advice from a competent lawyer before violating or evading a CC&R.
How do I find CC&R’s for my property in California?
You should get a copy of the CC&R’s from escrow when in the inspection period of the contract. I always let my clients know about the CC&R’s and get a copy for them to read before the inspection period of the purchase contract expires. The buyer can get an extension of the inspection period if the seller or escrow does not provide them with a copy. It is that important to know about the CC&R’s and to understand what the buyer is committing to when buying the property.
HOA
What are Home Owners Associations or HOA?
A homeowners association (HOA) is an association of the property owners in a single family home subdivision, planned community, or condominium. The HOA makes and enforces rules for the properties within its control. When a person purchases property within an HOA’s jurisdiction they automatically become members.
Homeowners’ associations are corporations with formal bylaws. There is usually a governing board which hires a property management company to handle maintenance and enforcement issues. Look for the hoa’s governing documents when buying a home in a HOA.
HOA and CC&R together
Homeowners’ associations, or HOA’s, are formal legal entities created to maintain common areas. They have the authority to enforce deed restrictions. Most condominium and townhome developments and many newer single-family subdivisions have HOA’s, which are usually created when the development is built. Covenants, Conditions & Restrictions (CC&R’s) are issued to each homeowner, and HOAs are established to ensure that they are adhered to in order to maintain the quality and value of the properties involved.
What do HOA’s do?
Most Homeowners’ Associations are very good at what they do and strive to make life in their community as pleasurable as possible. They can standardize the look and feel of a community. They can also do property and common area maintenance. They pool resources to improve quality of life issues like common pool, sporting area and security issues to name a few things an HOA can do.
HOA’s are constantly among the nicest and best kept neighborhoods in California. They are nice because they have standards that are expected to be met by the residents. Coffee Real Estate helps home buyers find the best home them. Condominium have homeowners association fees (HOA fees) which are monthly dues that go toward community amenities, building maintenance and repairs.
Do HOA’s have required dues?
HOA’s also require dues to be paid. They are known as HOA fees. It is very important to understand both the HOA fees and financial health. It is important to understand how expensive the fees are and how often they are paid. The monthly payments might be so high that you won’t be able to afford to live there, even if you think you could afford the house. HOA fees do impact the affordability of the home.
How restrictive are HOA’s?
Some homeowners association can be very restrictive about what members/home owners can do with their properties. Some examples of HOA rules that the residents must abide by are a dog owner would be very unhappy to find out that the association does not allow dogs, especially if they already purchased the house. HOA’s may also have restrictions on how many cars you can park in front of your house (usually you just can’t park on the street), so be sure of the rules before locking yourself into a house under an HOA.
HOA rules have been known to dictate no car repair, no flag poles and many other mandates. But most are about the upkeep of the property. For example cutting the lawn, front yard looks, condition of repair, how often to paint the home and other visible issues.
Here are questions to ask about any HOA property you are thinking of buying?
- Can you rent your property?
- Can you do an Airbnb in the HOA?
- Does the association allow a satellite dish?
- Can you have pets?
- If you can have pet are there any restrictions?
- Am I allowed to change the color of my home?
- Can I display seasonal decorations?
- Can a camper, boat or other recreational vehicle be parked in the yard?
- Is a commercial vehicle allowed?
- Is it possible to have a fence installed?
- Is it allowed to have a group meeting at the home?
Check the HOA’s Financials before you buy
But there are some HOA’s that are not well managed. It is a good idea to find out how well they manage the money from the dues they collect, and find out how many times the dues have been raised. If the dues are frequently raised and the association is still short on funds, consider looking elsewhere for a new home.
Also take note of the reserve funds, which is money allocated for the repair of big-ticket items like sidewalks or other common areas. An HOA should have a healthy reserve fund to be prepared for unforeseen repairs.
How can an HOA help a property owner?
1. The HOA manages the common areas.
The HOA is the group that manages the common areas. This can include the landscaping, the pool area, playgrounds, barbecue areas, and community centers.
2. The HOA could maintain the home’s exterior.
Some HOA’s can care for the exterior of homes within the community. This includes repairing or replacing siding, power washing, and maintaining the home’s roof and fence.
3. The HOA mediates problems between neighbors.
A homeowner’s association is also useful when problems arise between neighbors. The association can act as a mediator if you notice another resident violating a rule or regulation. Contact the homeowner’s association and they’ll contact the neighbor and deal with the issue.
HOA’s also enforce the CC&R’s, rules, and city ordinances.
HOA’s enforce deed restrictions including, but not limited to, exterior home maintenance, commercial use of properties, control of trash and blight. Membership is mandatory for all property owners within the development.
Homeowners associations have the authority to enact and enforce maintenance and design standards in addition to those established by City ordinances.
Do HOA’s have an impact on a mortgage application?
HOA dues have impacts a mortgage application in the debt to income ratio qualification of the borrower. The HOA dues are counted as a monthly obligation of the borrower. The PITI or principal, interest, taxes, and insurance calculation of the mortgage application process the HOA dues as added to the normal property tax.
What is HOA’s impact on property values?
Many home buyers can fail to meet the qualification of a mortgage due to the addition of HOA dues. This will limit the pool of buyers for the property and have a direct impact on the selling price. The impact of HOA dues are similar to what higher interest rates has on a mortgage. HOA dues make the mortgage payment higher. The higher the monthly mortgage payment, the fewer people will qualify for the loan at the listed price. In a buyer’s market the house seller will most likely have to lower the price to match a qualified buyer to the selling price.
Is the value of the property off set by the value of the HOA?
Many times the value that the HOA brings to the property is worth the due. I have had clients tell me it is like buying a country club. The pool, tennis courts or other assets of the HOA is well worth the price of the HOA dues. I live in a community with a lake HOA. It is worth every penny of the HOA dues. It brings a very nice quality of life to our home ownership.
How to begin looking for a home can create problems. Each person has their own priority of what is important. For some it is where to buy a home in Sacramento or in Placer County. Others, it is the must haves of the house the wants, needs and must have list. Coffee Real Estate works with home buyers to find the right home for them. Let’s begin the process today.
