Pardee Homes Drops Mello Roos in new development in Moorpark (Ventura)

[BobbyD]

Thanks to House Of Cards for this. Hopefully this will catch on in San Diego!

Pardee homes, Party is over.
PARDEE HOMES development in Moorpark just dropped their Mello-Roos for any homes closed after Jan. 1st 2007. This a significant blow to those people who had already purchased homes, as they are obligated to pay between $4,900 to $6,000 a year for 30 years. The resale value of homes with Mello-Roos versus those without will be significantly different. Some quotes in today Ventura-Star:

The house was unfinished, but Ann and Rusty Colemon closed the deal for their new Moorpark Highlands home anyway in December. In exchange for signing before the end of the year, they say builder Pardee Homes offered them nicer fixtures and no mortgage payments until the house is finished.
But if they had waited a few days for a special assessment to be waived, they would have saved about $150,000.

“We would have waited to close if we’d known,” Ann Cole-mon said. “It’s very hurtful that they had this knowledge and did not disclose this to us.”
The Colemons are among dozens of 2006 homebuyers in the Moorpark Highlands neighborhood who are upset about Pardee Homes’ new incentive for buyers there. As of Jan. 1, Moorpark Highlands purchasers won’t have to pay the monthly charge known as a Mello-Roos assessment, which funds community improvements in the tract. Instead, Pardee will cover the cost.
Those who bought before Jan. 1, however, still must pay the assessment, which they said can run between $4,900 and $6,000 annually depending on a home’s size, for more than 30 years.

New home developers traditionally try and not reduce prices in their developments during slow times, because they will affect the resale value of everyone that has purchased before them. The list price shown on the tax rolls remains unaffected, but there will be a significant divide between homes in the developments with Mello-Roos and without.

Moorpark Highlands was the first new home development I visited in my home shopping experience back in March of 2006. Back then, the sales staff barely acknowledge the visitors, never getting off their stools to hand out brochures and fliers. I visited the houses with great interest as, relative to the market at the time, 650-700k seemed like a pretty good deal for a new home. After looking at the houses I asked the sales staff a few questions, “Do you work with real estate agents?” (Absolutely not, was the reply), “If I am interested in buying a home, what is the next step?” (Throw a couple forms at me and send me on my way). Now, I didn’t exactly expect them to fellate me when asking about purchasing their homes, but I would expect a sales person to do some salesmanship to people showing interest in their homes.

I went home and crunched the numbers and rapidly came to realize that between HOA dues ($250+), landscape tax (~$1,500), and Mello-Roos ($4,500-6,000) it would be a better value to buy a $800k resale home (yearly it came out the same amount) or save the money and buy a 650k resale home. But I thought Pardee must really be selling a lot of houses because the sales staff was doing so little. Arrogance is prevalent during the good times. About once a month I went by the development and it seemed foot traffic was still ok, sales staff still unmotivated, and in general nothing changed. But watching their website and emails, someone at the head office was clearly getting nervous. You will now see a 3% broker coop being offered (trying to draw buyers off the existing home sales market by giving a broker split to real estate agents), and many incentives, financing, giveaways, and offers coming in your mailbox. One only has to look to Florida, Las Vegas, and Phoenix to see what happens when a developer gets motivated to move homes. Previous buyers are left out in the cold, with new buyers getting upgraded houses, lots, and financing which ultimately makes their houses worth more when going to sell them again.

Last November was the final time I visited Moorpark Highlands, It was during a weekend where they were giving away a free refrigerator and television with each purchase. At Shenandoah I actually had one sales person mention that she was trying to give away a TV and that we should buy. It might be a small thing, but at least their was SOME sort of salesmanship going on (even if it was only one person) after several months and many visits. Personally, I think with the market being as soft as it is, the position of the houses in Moorpark (not a great area), and how far the development is from job centers relative to price, I think the next step is a list price reduction. If you look at the history they have gone from offering nothing to offering broker coop, adding upgrades, giveaways, “creative” financing, and dropping Mello-Roos, it seems their are running out of room of things to do to move homes.

Maybe another trip to Moorpark is in order, I will keep you updated.

Posted by House Of Cards at 7:00 AM

[PerryChase]

Interesting to watch the psychology of the market. So during the boom times, builders will pass along more fees to the homeowners because they know that people will pay just about any price. When times are slow, builders have less pricing power and must absorb the development costs. At least in housing, higher costs do not lead to inflation — as long as there are still profits to be made.

[Diego Mamani]

Good post Bobby D!
Strictly speaking, the builder is not dropping the M-R. Rather, Pardee is paying for it in one lump sum (instead of the homeowner paying over many years).

This is another way of reducing the effective price that is not captured by the data.

[barnaby33]

This links to the previous thread.
Josh

[VanMorrisonFan]

What is the typical sales price in this development? If the developer absorbs the Mello-Roos Fees of $150,000, what does that represent as a percent of the purchase price of the home? Just curious.

[Cow_tipping]

Mello roos typically is 30-50K. You have it financed just like your loan. The payments over 30 years total to 150K.
Just what I think.
Cool.
Cow_tipping.

[IONEGARM]

Mello-Roos seems to be more like a property tax which is due the same time your property tax is due.

Real Estate Headquarters for SFV and Conejo Valleys

[BobbyD]

Mello-Roos is a form of financing that can be used by cities, counties, and special districts (such as school disricts). Mello-Roos Community Facilities Districts (referred to as “CFDs”) raise money through special taxes that must be approved by 2/3rds of the voters within the district. A CFD is formed to finance major improvements and services within the district which might include schools, roads, libraries, police and fire protection services, or ambulance services. The taxes are secured by a continuing lien and are levied annually against property within the district.

A builder who develops a new housing tract development typically has to make certain improvements and put in the infrastructure to support the developments. If they do not foot the bill for all of these costs, they will work with the city/county to use CFDs to fund these costs.

In almost all cases, Mello-Roos special taxes are levied as part of the annual property tax bill. You should be able to find your Mello-Roos special tax as a line item on that bill. In rare cases, a Mello-Roos district will send out its own bill. To find out more about this bill, you will need to contact the agency directly.

Here is a link to learm how Mello-Roos or CFDs are formed:
http://www.californiataxdata.com/A_Mello_Roos/Formation.asp

Hope that helps explain Mello-Roos.

[Anonymous]

BobbyD,
I purchased a home in the Pardee Moorpark Highlands project. I have been involved with the sales process of buying a home since Feb 2005 when I signed up on Pardee’s interest list. I had the very 1st pick of a home. Since day one, the Mello-Roos issue has been a cluster from the beginning. The sales force was clueless of any information, they told us to contact the city or gave us a third party number to call regarding the Mello-Roos. I couldn’t believe how uneducated they were with this being one of the main issues buying in this development. I was aware that this project was Mello-Roos Community and did my research before buying and was ok with it.

The issue regarding Mello-Roos came to the forefront a few months back when Pardee gave new homebuyers a 5yrs paid Mello-Roos while current homeowners and those in enscrow were given 3yrs. The 10 to 12 current homeowners sent a letter to Pardee’s President Mike McGee and the decision was changed and Pardee would give 5yrs for all homebuyers. However, there was a catch, the paid Mello-Roos was not transfered if the home was re-sold within the 5yr period. The homeowners don’t have any issue paying the Mello-Roos, just as long as everyone pays for it.

On Thursday, January 4th, a few homeowners overheard that Pardee would be paying the full Mello-Roos for new homeowners. We notified the sales office that we wanted to talk to someone from Pardee or we would notify the media and picket the sales office. Pardee refused to talk to us, on Saturday and Sunday approx. 100-150 people picket the sales force and handed out “buyer beware” flyers. The Ventura County Star and Moorpark Acorn showed up and published our stories. We wanted to educate buyers on how Pardee treats it’s valued customers, the people who have been there from the beginning. I realize the realestate market has slowed and Pardee needs to sell homes, but don’t use the Mello-Roos to as the vehicle to provide the incentive.

Below is a copy of the letter we sent to Mike McGee with 100+ homehowner signatures.

I thought I would share this with you.

Bill Busch
Moorpark Highlands Homeowner

Michael V. McGee January 6, 2007
President and CEO
Pardee Homes
10880 Wilshire Boulevard, Suite 1900
Los Angeles, CA 90024

Dear Mr. McGee

Re: Pardee Homes payment of Mello-Roos for new home buyers in Moorpark Highlighlands

On Thursday January 4 2007, it was brought to our attention that Pardee would be paying the Community Facilities District (CFD) Assessments/Mello-Roos, No. 2004-1, Zone 3 (Moorpark Highlands) for prospective homebuyers. We do not agree and find it unethical that Pardee would offer a new homebuyer in the same CFD “no Mello-Roos”, while current homeowners would potentially have to pay Mello-Roos until 2044/45.

In the Community Facitilies District Subsidy Agreement dated September 2005, Pardee committed to pay the amount of the CFD Assessments for five (5) year period commencing on the close of escrow for all the Moorpark Highlands releases. On January 4, 2007, we were told that this commitment has been modified for new home buyers This decision has left loyal Pardee homeowners upset with this unethical decision.

We are upset because our commitment to purchase a home in the Moorpark Highlands CFD extends back to January 2005. The Builder Assessment and Tax Disclosure Agreement stated that “all prospective purchases” in the CFD No. 2004-1, Zone 3, would have pay a Mello-Roos/Special Tax, the amount of which is based on the square footage of the home. Your recent action has resulted iin selected lots being burdened with the assessment over the long term. If we had known that only our specific lots were subject to Mello-Roos we would have never agreed to such irrational terms. We are concerned about the re-sale value of our homes iin comparison to a prospective homebuyer selling their home absent any Mello-Roos. Those of us who in good fath closed escrow prior to January 4th, 2007, have been denied an equal opportunity to have this Mello-Roos stigma tax removed from our properties. We perceived this as a deliberate division in the community. Should we choose to sell our home, we will be handicapped by this tax assessment while our neighbor will not.

We have stood by Pardee for up to two (2) years during this entire building process and have referred friends and family to buy a Pardee Home – and this is how Pardee treats thier loyal homeowners? A slogan printed on a Pardee notepad states that Pardee Homes wants their customers “to feel they can trust the organization and its people”. The division in this community you are deliberately creating is in direct opposition of what your company supposedly stands for.

To resolve this issue, the current homeowners and those in escrow request fair and equitable treatment. Specifically, we are requesting Pardee Homes to pay off our Mello-Roos assessment too! We are fighting to preserve the future value of our homes, to maintain equity in this community, and preserve the neighborhood you promised us.

We are confident that the City of Moorpark shares our concern of an unethical treatment that appears to be affecting their residents in Moorpark.

We would appreciate a timely response and resolution to this issue. We expect Pardee to do the right thing.

Sincerely,
The Undersigned Pardee Homeowners

cc: Jim Bizzelle, VP of Community Development, Pardee Homes
Patrick Hunter, Mayor, City of Moorpark
Amy Brandt, President and CEO, WMC Mortgage Corp.

[IONEGARM]

Bill,

I would also think an effective strategy would be to have 1 person sit out in front of each the Shenandoah, Magnolia Lane, and Cherry Hill offices with a sign to educate any buyers coming in. This will really hurt their sales and since they are at the highest cost point in the development (paying all the interest for the already completed homes) I don’t think they would have much choice but to give in.

p.s. May I post your letter to my blog?

Real Estate Headquarters for the SFV and Conejo Valleys

[lendingbubblecontinues]

“We expect Pardee to do the right thing.”

As far I can see, Pardee (a business) is doing the right thing (making business decisions) and, therefore, there is no problem here.

Guess what? Picketing to hurt Pardee’s sales can backfire. At some eventual lower price point, the “scabs”, buyers in this case, will cross the picket lines. Can you really afford devestatingly lower comps??

Caveat Emptor.

[PerryChase]

william_busch, how would you feel if Pardee would just reduce the selling prices of their houses by 150k? Actually, Pardee is trying to protect the value of your property by doing these round-about price cuts (incentives).

What is the right thing to do in a declining market? Builders need to continue to sell houses.

Gasoline may cost $2.50 today but if, tomorrow, gas drop to $2.00, am I entitled to a refund?

I remember, in 1990, homeowners in some developments had “for sale” sign on every garage to protest price cuts. Not a pretty sign for prospective buyers driving by.

[NeetaT]

Mello Roos seems to be a skimming operation. My assertion comes from what I’ve read about it.

[BobbyD]

Bill,

Thank you for providing more details on this story and sharing your personal experience with Pardee in this situation. I think that we can all empathize with how you must feel. I would be equally as upset as you are if I was in your shoes.

As a friend of mine says, “never be surprised when someone acts in their own best interest”. Which is what Pardee has done to serve their financial gains. It is indicative of a market in flux.

My best to you and the others in this unfortunate situation.
Bob

[Anonymous]

Bob, thank you again for letting me share my position on this topic. First I wanted to let IONEGARM know he has permission to post the letter that was addressed to Pardee’s President, Mike McGee.

Also, in response to lendingbubbleco’s comments; I take full resonsibility of purchasing my home from Pardee. I love my house, the area is great and it has been a real pleasure getting to know all my new neighbors. It’s funny you refer to “Let the buyer beware” in your post script. That is exactly what was on our flyer that we gave to prospective homebuyers. Pardee has done and is still doing a horrible job with the Mello-Roos disclosure. It was my understanding and all the other homebuyers in the community would have a Mello-Roos. This doesn’t just mean that every home will be assessed an addt’l 4500k-6000k on there tax bill, it also stated that every home would have a “Senior Tax Lien” on their home until the bonds issued are paid off (up to 2044/45). Our issue is that our home would have this tax lien and our neighbor will not. When we decide to sell our home, the individual who buys it, assumes the tax lien. Our neighbor, would potentially get to sell his home free of this lien.

The other issue we have is that time and time again, we asked if we could payoff the Mello-Roos up front and possibly roll it into our loan. The sales force said this is not an option. The rumor mill has heard rumblings of Pardee giving buyers this option. If this is the case, then I have a “LOST OPPORTUNITY” compared to a new buyer. If you polled the current homeowners, I can gurantee that all but a few would have considered the option to either pay this tax in full or roll it into our loan. Let me repeat myself, I am not opposed to paying this tax assessment, however I was told by Pardee everyone in the community would be subject to the same assessment. Pardee needs to make a decision… is our community a Mello-Roos Community or not.

I wanted to make a quick comment to Perrychase. In the news article, the reference of $150k is in regards to total cost of Mello-Roos payments over the life of the term. This is actualy incorrect, the figure is closer to $200k. If the Net Present Value of this cashflow was calculated today, the figure is more like $75k-$85k depending on home size. Myself and current homeowners will be the first people to say that when Pardee started giving new homeowners free home upgrades, backyards, computers or whatever we did not have a single issue with this. I am happy these people were able to negotiate and get a good deal. If PardeeWhen Pardee started to tamper with the Mello-Roos, the sales force specifically told us, what we do for one, we would do for everybody.

Here is an example of what a builder that “did the right thing”. William Lyon Homes is a development less than a 1/2 mile away. The homes are in comparible size to Paree’s, they are priced approx $70k to$85k higher, however they do not have a Mello-Roos. At the beginning of the year William Lyon Homes slashed prices by approx. $75k accross the board. They went back to their 1st Phase Homebuyers and gave them money back. This is something that they did not have to do, but “did the right thing”? Pardee’s direct response to the price cut is the “no Mello-Roos” offer… approx. worth $75K.

Also, the reference to “picketing” the sales office is misleading. We are not telling people to not purchase a home or this is not a desirable community. We are simply trying to educate people about how Pardee misinformed us and failed to disclose specific information.

I’ll keep you posted, we plan to educate more buyers this weekend.

[Author]

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