Paying off Mello Roos

[paranoid]

Sdnerd, I know somebody who just paid off his mr this week. MR payoff amount is recalculated every quarter, I.e. The current cutoff time is march 1 and the next cutoff date is june 1. A 2% increase will surely occur in the July 1 tax bill for 2012-2013 year.

[all]

The collection of the special tax that backs the core CFD #6 must stop no later than 25 years after the final bond is issued, or FY 2045/2046. The annual 2% increase is optional, but I checked the numbers since 2003 and the tax went up 2% every year. I assume PUSD won’t leave any money on the table and they will be collecting until 2045 with regular 2% increases.

It looks like they assumed the rate of inflation higher than 2% since the payoff amount increases every year. It is either $16K + 2%/year or your share of the debt, whichever is greater.

The bonds pay 5-6% and without thinking much about it I assumed the cost to me is close to that and after adjusting for tax deduction it did not seem that bad. After the recent deductibility discussion and this thread I feel paying off MR makes more sense than getting a rental or a fancy new car.

[enron_by_the_sea]

Don’t forget that if you can pay off Mello Roos with a HELOC then HELOC interest is tax deductible while Mello Roos is not!

——————
Disclaimers

1. If you are hit with (Federal) AMT then it does not help
2. Most people can not get HELOC unless they put more than 20% down (due to 80% CLTV rule). For those cases it is better to put only 20% down and pay off Mello Roos out of pocket. You still get extra tax deduction due to extra Mortgage interest paid .. (which might go away in “tax reform of 2013”!) This route does not get affected by AMT!

Based on what I am reading, if you live in a high MR McMansion, you are sure to live there forever, if you fall in high tax bracket and if you have extra 50K lying around; this looks like a very attractive investment!

[ocrenter]

[quote=enron_by_the_sea]
——————
Disclaimers

1. If you are hit with (Federal) AMT then it does not help[/quote]

??? you mean it would help to pay off the mello roos using a HELOC, right?

[enron_by_the_sea]

[quote=ocrenter][quote=enron_by_the_sea]
——————
Disclaimers

1. If you are hit with (Federal) AMT then it does not help[/quote]

??? you mean it would help to pay off the mello roos using a HELOC, right?[/quote]

Precisely. If you are under AMT, you can’t deduct HELOC interest (but you can still deduct mortgage interest). So it might be better to do a cash-out refi instead to raise CLTV up to 80% and then use the cash-out money to pay off Mello Roos.

[ocrenter]

[quote=enron_by_the_sea][quote=ocrenter][quote=enron_by_the_sea]
——————
Disclaimers

1. If you are hit with (Federal) AMT then it does not help[/quote]

??? you mean it would help to pay off the mello roos using a HELOC, right?[/quote]

Precisely. If you are under AMT, you can’t deduct HELOC interest (but you can still deduct mortgage interest). So it might be better to do a cash-out refi instead to raise CLTV up to 80% and then use the cash-out money to pay off Mello Roos.[/quote]

Thanks for the clarification. Love that AMT, it is the gift that keeps on giving… Too bad I’m not successful enough to pay the Romney tax rate…

[temeculaguy]

Is there a way to find out what the bond is actually paying in interest as opposed to trying to calculate it yourself. I’ve read numerous articles where mello-roos districts have refinanced and lowered the cost to residents. Could some of what looks like mello-roos be a community service district fee, which can’t be paid off as it is for ongoing maintenance or services that other residents of a city do not get. For over 50k, you’d want to make sure that you are getting out of the entire bill, not just part. You’d also want to make sure there aren’t plans to refi on the part of the municipality as the buyers of certain muni bonds don’t pay tax, thus they have a lower yield. I’m kinda shocked they are paying 9%, that’s more Greece pays.

Here’s an article from about 5 years ago when rates were much higher and a municipality refi’d the mello roos for just a .9 interest rate bump.

http://www.theacorn.com/news/2006-05-18/Business/045.html

The article indicates the city in the article discovered by accident they could refi the mello roos bond, perhaps sending the mello rood district officials this info could save you even more, their rate should be less than a heloc.

If they end up doing it, I expect some mention in whatever news coverage they receive, it’s good for my social life

[ocrenter]

[quote=temeculaguy]Is there a way to find out what the bond is actually paying in interest as opposed to trying to calculate it yourself. I’ve read numerous articles where mello-roos districts have refinanced and lowered the cost to residents. Could some of what looks like mello-roos be a community service district fee, which can’t be paid off as it is for ongoing maintenance or services that other residents of a city do not get. For over 50k, you’d want to make sure that you are getting out of the entire bill, not just part. You’d also want to make sure there aren’t plans to refi on the part of the municipality as the buyers of certain muni bonds don’t pay tax, thus they have a lower yield. I’m kinda shocked they are paying 9%, that’s more Greece pays.

Here’s an article from about 5 years ago when rates were much higher and a municipality refi’d the mello roos for just a .9 interest rate bump.

http://www.theacorn.com/news/2006-05-18/Business/045.html

The article indicates the city in the article discovered by accident they could refi the mello roos bond, perhaps sending the mello rood district officials this info could save you even more, their rate should be less than a heloc.

If they end up doing it, I expect some mention in whatever news coverage they receive, it’s good for my social life[/quote]

Over 9% would have made the payoff an absolute no brainer. Not so with my MR. One of the CFD interest rate is at 5.5%. When I called the 800 number managing my MR, they were able to provide the interest rate and the approx payoff.

[all]

[quote=temeculaguy]Is there a way to find out what the bond is actually paying in interest as opposed to trying to calculate it yourself. I’ve read numerous articles where mello-roos districts have refinanced and lowered the cost to residents. Could some of what looks like mello-roos be a community service district fee, which can’t be paid off as it is for ongoing maintenance or services that other residents of a city do not get. For over 50k, you’d want to make sure that you are getting out of the entire bill, not just part. You’d also want to make sure there aren’t plans to refi on the part of the municipality as the buyers of certain muni bonds don’t pay tax, thus they have a lower yield. I’m kinda shocked they are paying 9%, that’s more Greece pays.
[/quote]

The interest rate on the bond does not match the interest rate residents are paying. CFD#6 has three special tax bonds (2002, 2007 and 2010 series) and the most recent one starts with 1.2% in 2011 and goes up to 5.375 in 2036.

It looks like PUSD can issue bonds as needed at whatever cost/value they can negotiate and pay them off with money collected from the residents. I am not sure if PUSD’s ability to issue bonds is limited by the amount they are projected to collect from the residents, or some magic number specified in the original Bond Indenture that I can’t find on CaliforniaTaxData website.

[sdnerd]

[quote]

The interest rate on the bond does not match the interest rate residents are paying. CFD#6 has three special tax bonds (2002, 2007 and 2010 series) and the most recent one starts with 1.2% in 2011 and goes up to 5.375 in 2036.

It looks like PUSD can issue bonds as needed at whatever cost/value they can negotiate and pay them off with money collected from the residents. I am not sure if PUSD’s ability to issue bonds is limited by the amount they are projected to collect from the residents, or some magic number specified in the original Bond Indenture that I can’t find on CaliforniaTaxData website.[/quote]

Perhaps I’m missing something, but the way I interpret everything thus far:

Right now they charge me $5,600/year.

They can, have, and presumably will continue to increase this amount annually by 2% until the last possible second. Behind the scenes they can pile on more debt, etc.

So my final annual payments will be approximately $9,500/year after factoring in annual 2% increases.

Temecula’s question is a good one.. whether or not that payout amount truly removes that entire bill (there’s not some fixed school fee/etc that would still remain).

Perhaps I’ll call again today and try to clarify.

[all]

[quote=sdnerd]
Perhaps I’m missing something, but the way I interpret everything thus far:

Right now they charge me $5,600/year.

They can, have, and presumably will continue to increase this amount annually by 2% until the last possible second. Behind the scenes they can pile on more debt, etc.

So my final annual payments will be approximately $9,500/year after factoring in annual 2% increases.

Temecula’s question is a good one.. whether or not that payout amount truly removes that entire bill (there’s not some fixed school fee/etc that would still remain).

Perhaps I’ll call again today and try to clarify.[/quote]

I guess PUSD board could decide that they don’t need the money?

Once you pay it off you should be free of any future obligations. Here is what I received from the CFD administrator two years ago:

When the School District receives the prepayment, the School District will then send a copy of check and accompanying paperwork Dolinka Group so that the
parcel can be removed from the Special Tax levy for the following Fiscal Year.
The School District will then send the prepayment to Joni D’Amico at Zions Bank to be deposited for the purpose of calling bonds, or to be used by the School District at a later date to construct facilities.

And from the annual report:

With respect to an Annual Special Tax obligation that has been prepaid, the Assistant Superintendent shall reasonably indicate in the records of CFD No. 6 that there has been a prepayment of the Annual Special Tax and shall reasonably cause a suitable notice to be recorded in compliance with the Act within thirty (30) days of receipt of such prepayment of Annual Special Taxes, to indicate reasonably the prepayment of Annual Special Taxes and the release of the Annual Special Tax lien on such Assessor’s Parcel, and the obligation of such Assessor’s Parcel to pay such Annual Special Tax shall cease.

[sdnerd]

[quote=captcha]
I guess PUSD board could decide that they don’t need the money?
[/quote]

That would certainly be a historic moment. 🙂

Thanks for the other information. I received a call back today, and it confirms what you said.

At least in my case, the payoff completely removes the entire enchilada. ~$60K kills $5,600/yr(+2% annual) in its entirety.

[temeculaguy]

Something stinks in denmark. The math doesn’t work. With all the taxpayer watchdog hype going on, I wonder if any of these watchdog agencies would look into this, that district at appears to be raping people. They pay between 1% and 6% and charge 9%, not to mention their ability to raise the rate to the residents while enjoying a fixed rate? They also charge a fee to give out info that probably takes them a few minutes at a computer? I’m not a conspiracy theorist but something is wrong with this picture. I’ll bet a nickel the district barely understands it, this is screaming for an audit if you can find an auditor that understands the premise that borrowing 60k per parcel at 2-6% does not amount to 5600 a year with possible rate hikes.

[ocrenter]

[quote=temeculaguy]Something stinks in denmark. The math doesn’t work. With all the taxpayer watchdog hype going on, I wonder if any of these watchdog agencies would look into this, that district at appears to be raping people. They pay between 1% and 6% and charge 9%, not to mention their ability to raise the rate to the residents while enjoying a fixed rate? They also charge a fee to give out info that probably takes them a few minutes at a computer? I’m not a conspiracy theorist but something is wrong with this picture. I’ll bet a nickel the district barely understands it, this is screaming for an audit if you can find an auditor that understands the premise that borrowing 60k per parcel at 2-6% does not amount to 5600 a year with possible rate hikes.[/quote]

I called the managing company and asked about the possibility of rate reduction/refi by the CFD distric, what was said was that some of the bonds carry penalties against refis for up to 10 years. Hence the jacked up outrageous interest rate. As for the fees, apparently there’s some serious mega calculation they got to do to figure out the actual repayment. Go figure.

[sdrealtor]

LOl and that serious mega calculation requires any more than pushing a button. Two words….Turbo…Tax

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