Mello-Roos: Excuse for Failing to Pay Annual Tax Wins No Support
For the second time in less than a year, the Fourth District Court of Appeal has ruled against Riverside County landowners whose property was foreclosed upon because of nonpayment of special taxes.
The court ruled that taxes levied under the Mello-Roos Community Facilities Act (Government Code §53311) are special taxes, not special assessments, and that failure of the government to use Mello-Roos bond proceeds as promised does not excuse nonpayment of those special taxes.
Late last year, in a case involving a different landowners in a neighboring community facilities district, the court held that delays in constructing roads and utilities funded by Mello-Roos bonds did not absolve property owners of paying special taxes. Property owners have an obligation to repay bondholders regardless of disputes over how bond proceeds are used, the court held in Community Facilities District No. 88-8 v. Harvill, 99 C.D.O.S. 7309.
Although the court did not cite its decision in Harvill, the latest case is similar. Riverside County formed a community facilities district under the Mello-Roos Act to raise funds for new roads and utility lines in 1987. The district encompassed industrial land along Interstate 215 north of Perris. After a vote of property owners, the county issued bonds on November 1, 1990. Later that some month, the county recorded a notice of special tax lien against all nonexempt property in the district.
In October 1995, a group of property owners sued the county and the district alleging that the county fraudulently induced landowners to vote for district formation and the special levy, and that public improvements were not completed as promised. That case, Greater Perris Valley Industrial Association v. County of Riverside, San Diego County Superior Court Case No. 704058, is pending.
Meanwhile, the owners of two properties, Bainbridge 17 and Dorothy Burghart, failed to pay taxes levied against their properties for the 1995-96 and 1996-97 tax years. The district, acting on behalf of bondholders, commenced foreclosure proceedings in April 1997. The landowners argued that the district was contractually obligated to provide improvements, that the failure to do so violated a 1990 memorandum of understanding, and that nonpayment was excused by the district's failure to complete improvements.
San Diego County Superior Court Judge Herbert Hoffman issued summary judgement for the district. On appeal, the property owners argued that the levies were not special taxes, but were instead special assessments that could not be the subject of foreclosure. The appellate court rejected that argument.
"[T]he statutory scheme expressly set forth in the [Mello-Roos] Act and the undisputed material facts in this matter establish as a matter of law that those charges are special taxes levied under the Act," Justice Gilbert Nares wrote for the unanimous three-judge panel.
"[W]e note the Act refers expressly, repeatedly and unambiguously to the levying of a ‘special tax,' rather than the levying of a special assessment," Nares wrote. The district was entitled to foreclose, he said.
Nares noted that §53325.3 expressly states that such taxes may, or may not, be based on benefits received by real property. He quoted the statute, which says, "… there is no requirement that the tax be apportioned on the basis of benefit to any property. …"
Failure of the district to perform contractual obligations does not excuse nonpayment of taxes, the court ruled. Bondholders who are due payments were not party to the MOUs involving the county, the district and landowners, the court said.
The appellate court also upheld the trial court's award of attorney's fees to the district, and awarded fees on appeal.
The Case:
Riverside County Community Facilities District No. 87-1 v. Bainbridge 17, No. D030175, 00 C.D.O.S. 433, filed December 22, 1999, certified for partial publication January 14, 2000.
The Lawyers:
For CFD No. 87-1: Susan Feller and Ray Sherman, Sherman & Feller, (510) 452-3222.
For Bainbridge: Henry Heater and George Kaelin III, Endeman, Lincoln, Turek & Heater, (619) 544-0123.