Home › Forums › Financial Markets/Economics › Paying off Mello Roos
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ucodegen.
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September 24, 2013 at 6:24 AM #765758September 24, 2013 at 7:32 AM #765759
earlyretirement
Participant[quote=ocrenter]
agree with ER.
“potential extension into 2043” = we got you until 2043.
no question about it.
the blocking of prepayment may be because they are already counting on the 2033-2043 payments, if you prepay, they don’t get “their” money.[/quote]
Ha, ha. Yep OCR. Even when I was paying mine off, I inquired with them regarding the possibility of getting extended (CFD #4 PUSD). It went until 2041 but he also was very clear to mention, “it could also get extended”. I asked him to explain under which circumstances it could get extended.
His response was something like, “It’s a bit complicated to go into”. LOL.
No thanks! Guys, you have to realize that these entities will do WHATEVER they need to do to try to extend out these CFD’s. They take comfort in the fact that the vast majority of taxpayers have NO CLUE nor seem to care about this. They just pay the figure on the tax bill each year like dolts.
That’s why you saw a situation of taxpayers paying up to double of what they were supposed to pay under that KPBS investigative report. It’s a good example that people are clueless and they don’t have any idea what is going on.
The vast majority of people out there are NOT like us wise Piggs. The masses are clueless and where these CFD’s (and their administrators) thrive and have job security is the fact that no one knows anything about these things.
If you have followed this closely you will see that the CFD’s and administrators are waking up to the fact that we’re sharing information now on prepaying off CFD’s. They never imagined people would be doing these to the levels they are. They don’t like it.
I don’t have the paperwork in front of me but when I was doing the due diligence to pay it off, there was all kinds of technical legal jargon and verbiage in the legal documents that I do believe the CFD’s will use to try to claim that allowing more people to pre-pay off their CFD’s ahead of time will be a detriment to the future budget and they will ban it.
The only people that will be off the hook are those of us that saw the writing on the wall and pre-paid it off ahead of time. And it’s kind of a catch 22 because the more people that pre-pay it off ahead of time means their budgets in the future will probably be light.
After all, I don’t expect these CFD’s to be doing wise things with my $61,000+ that I prepaid ahead of time. That money is in their coffers now and it doesn’t seem like there is any oversight anyway administering and spending these funds. So you MUST imagine by the time these CFD’s were originally set to expire….they probably will be short….. and how will they cover that shortfall?????
Probably being “forced” and extending the CFD’s out further….
September 24, 2013 at 7:07 PM #765782joec
ParticipantA lot of interesting info in this thread and enjoyed all the info on CFD bonds.
I think a lot of people don’t pay them off because, for 1, they don’t have the cash, 2) they rather just keep the cash themselves since no one knows what will happen and if they will stay in the home long term.
If you are very wealthy, it’s worth considering, but some downsides I see is that you would lose the tax break that everyone is taking when paying these yearly. The tax break is pretty big for high income folks (45%?) Another thing is the time value of money. $5000 30 years from now even if increased 2% a year is not the same as $5000 today which is worth a lot more.
There’s little to no inflation now (according to the fed, but tons of inflation in things like education/healthcare, etc…)…
That said, similar to a mortgage, the CFD could be worth a lot in saving high income people a lot of taxes and if inflation were to come back, the mortgage and the CFDs won’t be as bad in 20-40 years neither.
All that said, you really have to just do the math to see if it makes sense for your situation.
No plans to pay here since we don’t have the money and could use more funds for business instead.
September 24, 2013 at 9:23 PM #765783ltsddd
Participant[quote=ocrenter]When I paid the MR off, we still had 22 years to go on the MR. Total cost over the 22 years would have been $150k. With the payoff at $58k, and one of the MR at 7.5% the calculation came out in favor of payoff as we essentially “earn” $92k by paying the $58k upfront.[/quote]
Excellent thread.
OCR,
Did you take into account the tax deductibility of the MR (let’s put aside the debate on whether or not it’s allowed or legal for now) – I assume you didn’t? Would your conclusion be any different as to whether or not it’s advantageous to pay off MR? Using your example above and let’s assume you’re in the 30% tax bracket, by paying off your MR you earned roughly $45K instead of $92K. I am pretty sure that even with the most conservative investment vehicle, you should not have any problem doubling your money in that 22 years period. Personally, I would have hung on to that cash.September 24, 2013 at 9:28 PM #765784ocrenter
Participant[quote=joec]
If you are very wealthy, it’s worth considering, but some downsides I see is that you would lose the tax break that everyone is taking when paying these yearly. The tax break is pretty big for high income folks (45%?) Another thing is the time value of money. $5000 30 years from now even if increased 2% a year is not the same as $5000 today which is worth a lot more.
[/quote]
People hitting that AMT yearly would not be able to deduct their property tax, including the MR. Judging by the income survey, that includes a lot of piggs.
September 24, 2013 at 9:44 PM #765785Participant[quote=ltsdd][quote=ocrenter]When I paid the MR off, we still had 22 years to go on the MR. Total cost over the 22 years would have been $150k. With the payoff at $58k, and one of the MR at 7.5% the calculation came out in favor of payoff as we essentially “earn” $92k by paying the $58k upfront.[/quote]
Excellent thread.
OCR,
Did you take into account the tax deductibility of the MR (let’s put aside the debate on whether or not it’s allowed or legal for now) – I assume you didn’t? Would your conclusion be any different as to whether or not it’s advantageous to pay off MR? Using your example above and let’s assume you’re in the 30% tax bracket, by paying off your MR you earned roughly $45K instead of $92K. I am pretty sure that even with the most conservative investment vehicle, you should not have any problem doubling your money in that 22 years period. Personally, I would have hung on to that cash.[/quote]This would all be exactly right and accurate if the government didn’t devise a way to allow for double taxation known as the AMT.
September 24, 2013 at 10:56 PM #765786Participant[quote=ocrenter][quote=joec]
If you are very wealthy, it’s worth considering, but some downsides I see is that you would lose the tax break that everyone is taking when paying these yearly. The tax break is pretty big for high income folks (45%?) Another thing is the time value of money. $5000 30 years from now even if increased 2% a year is not the same as $5000 today which is worth a lot more.
[/quote]
People hitting that AMT yearly would not be able to deduct their property tax, including the MR. Judging by the income survey, that includes a lot of piggs.
This would all be exactly right and accurate if the government didn’t devise a way to allow for double taxation known as the AMT.[/quote]
LOL. Exactly. Darn AMT will get you every time! Your accountant can be skillful but no way some of us can find loopholes to avoid AMT!
Death and taxes and all….
A depressing read:
http://www.kiplinger.com/article/taxes/T056-C000-S001-how-can-i-avoid-the-amt.html
[quote=joec]
I think a lot of people don’t pay them off because, for 1, they don’t have the cash, 2) they rather just keep the cash themselves since no one knows what will happen and if they will stay in the home long term.
If you are very wealthy, it’s worth considering, but some downsides I see is that you would lose the tax break that everyone is taking when paying these yearly. The tax break is pretty big for high income folks (45%?) Another thing is the time value of money. $5000 30 years from now even if increased 2% a year is not the same as $5000 today which is worth a lot more.
There’s little to no inflation now (according to the fed, but tons of inflation in things like education/healthcare, etc…)…
That said, similar to a mortgage, the CFD could be worth a lot in saving high income people a lot of taxes and if inflation were to come back, the mortgage and the CFDs won’t be as bad in 20-40 years neither.
All that said, you really have to just do the math to see if it makes sense for your situation.
No plans to pay here since we don’t have the money and could use more funds for business instead.[/quote]
Joe,
Yep. Lots of people don’t pay them off because they don’t have the cash. True. But even if they have the cash, most people VASTLY over estimate their investment abilities. Most people I know think they are stock gurus and in an upmarket like now they think they are Warren Buffett Jr.! (A few years ago….um not so much).
I saw grown men need some Depends adult diapers during the financial collapse! LOL. I saw grown men weeping and scared at the amount of paper losses they had. So I’d say spare me the details of “I can easily GUARANTEE to double my money in X years”. Sorry but there is no such thing as guaranteed ROI with NO RISK for the most part.
As you mentioned, no it doesn’t make sense for everyone. You just have to look at your personal situation, how long you will stay in the property, etc.
Well, we already covered the AMT lesson so scratch your idea on that for a large % of the people that probably have the cash to pay it off to begin with. As OCrenter mentioned….we get raped in AMT.
But to be sure, paying it off isn’t for everyone. You just have to look at your individual situation. But in my experience, people will always find excuses why they shouldn’t pay them off. Typically mostly related to them thinking (or explaining to me) how they will make much better returns somewhere else. When I ask them if it’s GUARANTEED with NO risk…. well the answer is always no.
September 24, 2013 at 10:58 PM #765788ParticipantER, a depressing read indeed!
Line 1 recommended taking standard deduction?! Just to avoid the AMT? For real??? Talk about the medicine being worse than the disease itself.
The best part was line 25: Intangible Drilling Costs!!! My CPA didn’t tell me about that loophole!!! I’m on the phone so he can submit that amendment STAT! 🙂
September 24, 2013 at 11:25 PM #765789Participant[quote=ocrenter]ER, a depressing read indeed!
Line 1 recommended taking standard deduction?! Just to avoid the AMT? For real??? Talk about the medicine being worse than the disease itself.
The best part was line 25: Intangible Drilling Costs!!! My CPA didn’t tell me about that loophole!!! I’m on the phone so he can submit that amendment STAT! :-)[/quote]
Yeah, it’s sad isn’t it ocr? Talk about a “parallel” universe! LOL. Yes, very very depressing.
Yes, the medicine is definitely worse than the disease itself but at least with the ATRA (American Taxpayer Relief Act) from 2012 there were some great changes including the index for inflation.
This AMT was intended for wealthy people but it was starting to affect people that clearly were NOT wealthy. So at least some changes were made last year with the indexing and also raising the exemptions. (Hey every little bit helps!).
In 2013 about 4 million people I believe will be estimated to pay about $26 BILLION in AMT. Without the modification of ATRA it would be something like 25 million Americans having to pay AMT! And over 50 million by 2025 or so.
So I guess things could be worse! You know the old saying…. “I could complain about my taxes but who would listen?”. LOL.
More positive read: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3968
PS. ocr – there is usually drilling going on but it’s usually the IRS doing the “drilling” and I guess it’s not so “intangible”. It hurts me every time! LOL.
September 24, 2013 at 11:31 PM #765790ParticipantAlso, I believe I posted this earlier in this epic thread but I’ll repost it as clueless included it in part of a message to me and I hope he/she posts more details about their CFD #99-1 experience.
This is what I think is in most CFD’s and probably how they will justify stopping to end CFD pre-pay offs in the future.
“Notwithstanding the foregoing, no prepayment will be allowed for Assessor’s Parcels eligible for prepayment pursuant to the first paragraph of this Section G (the above paragraph) or pursuant to the paragraph immediately above 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.”
The key phrase I believe they will use is, “and such prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board”.
September 25, 2013 at 1:41 AM #765791CA renter
Participant[quote=earlyretirement]Also, I believe I posted this earlier in this epic thread but I’ll repost it as clueless included it in part of a message to me and I hope he/she posts more details about their CFD #99-1 experience.
This is what I think is in most CFD’s and probably how they will justify stopping to end CFD pre-pay offs in the future.
“Notwithstanding the foregoing, no prepayment will be allowed for Assessor’s Parcels eligible for prepayment pursuant to the first paragraph of this Section G (the above paragraph) or pursuant to the paragraph immediately above 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.”
The key phrase I believe they will use is, “and such prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board”.[/quote]
Last one out’s a rotten egg!
In other words, if you have the money to pay them off, and plan to live in your house “indefinitely,” it’s probably wise to pay them now rather than later. Again, in some cases (like yours, ER), paying these bonds off is a complete no-brainer.
September 25, 2013 at 6:55 AM #765792Participant[quote=CA renter]
Last one out’s a rotten egg!
In other words, if you have the money to pay them off, and plan to live in your house “indefinitely,” it’s probably wise to pay them now rather than later. Again, in some cases (like yours, ER), paying these bonds off is a complete no-brainer.[/quote]
Ha, ha. Bingo. Exactly CA renter. You guys don’t have MR up there…no? Nice not to have to think about? We’ll have to get together for a coffee or lunch again soon. Enjoyed our last visit.
September 25, 2013 at 7:12 AM #765793Participant[quote=earlyretirement]
…most people VASTLY over estimate their investment abilities. Most people I know think they are stock gurus and in an upmarket like now they think they are Warren Buffett Jr.! (A few years ago….um not so much).
[/quote]ER,
Most people on this board should be savvy enough to be able to get a return of 3% annually on their investments, no?September 25, 2013 at 7:23 AM #765794Participant[quote=earlyretirement]Also, I believe I posted this earlier in this epic thread but I’ll repost it as clueless included it in part of a message to me and I hope he/she posts more details about their CFD #99-1 experience.
This is what I think is in most CFD’s and probably how they will justify stopping to end CFD pre-pay offs in the future.
“Notwithstanding the foregoing, no prepayment will be allowed for Assessor’s Parcels eligible for prepayment pursuant to the first paragraph of this Section G (the above paragraph) or pursuant to the paragraph immediately above 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.”
The key phrase I believe they will use is, “and such prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board”.[/quote]
Faced with the very likely event of extension to 2043, I would still try to see if the Board is willing to allow prepayment. As CAR pointed out, last one out is the rotten egg. The board will likely approve on first of the few requests. Then realize they can’t afford to grant prepayments any more and deny away in the future. Very well worth a try at least.
September 25, 2013 at 7:26 AM #765795Participant[quote=ltsdd][quote=earlyretirement]
…most people VASTLY over estimate their investment abilities. Most people I know think they are stock gurus and in an upmarket like now they think they are Warren Buffett Jr.! (A few years ago….um not so much).
[/quote]ER,
Most people on this board should be savvy enough to be able to get a return of 3% annually on their investments, no?[/quote]Where are you getting the 3%? Yes, if the MR is at 3% i would not prepay. If I’m not subject to AMT yearly I would likely not repay.
Neither is the reality. Thus the prepayment.
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