Tuesday, Jul. 01, 2008

Modesto, Patterson homes in peril for late fees

High delinquency pushes cities to pursue foreclosure

Hundreds of homeowners in Modesto and Patterson are late paying special property taxes, forcing the cities to begin a speedy foreclosure process for houses in newer subdivisions.

The cities went through the same procedures last year when clusters of homeowners didn't pay Mello-Roos taxes they owe for growth-related effects such as roads and parks.

Neither city has a choice in turning to foreclosures.

Bonds tied to the taxes require them to foreclose on the homes when 5 percent of the total amount owed becomes delinquent. Delinquency rates in both cities are higher than 8 percent this year.

Normally people have 18 months to catch up on Mello-Roos taxes. But because the delinquency is higher this year, the fees are due immediately and the foreclosure process quickens.

People who don't have to pay Mello-Roos taxes usually have five years to break even on their county property taxes.

April property taxes officially become delinquent today.

More than a fifth of what Patterson residents owe in Mello-Roos charges hasn't been paid, City Manager Cleve Morris said. That has cost the city about $1 million this year.

Individual homeowners owe about $2,000 a year in Patterson.

Modesto has two Mello-Roos taxing districts. Both are recording delinquencies that exceed the 5 percent foreclosure threshold, said Tina Rocha, who oversees the taxes.

In Fairview, a south Modesto subdivision, 15.3 percent of what homeowners owe is late. That comes to $53,064. Each homeowner owes about $900 annually in that neighborhood.

Northeast Modesto's Village I subdivision has a Mello-Roos delinquency rate of 8.8 percent, costing the city $185,423. Homeowners there must pay an average of $1,200 a year.

Morris and Rocha said banks stepped in last year to keep the cities from foreclosing on the properties. They expect the same reaction this year because lenders don't want government liens placed on the houses.

"It's unfortunate, but we want to work with the homeowners as much as we can," Morris said. "It's for the homeowners, so they don't end up losing their homes."

Morris and Rocha said the cities are not in danger of defaulting on their bond payments or dipping into their reserves.

Mello-Roos trouble is urgent for Modesto and Patterson because of their bond requirements. Other cities with similar fees are confronting different problems.

Lafferty Homes, a developer, owes Oakdale $75,000 in Mello-Roos charges, Finance Director Albert Avila said. He said most individual homeowners in Oakdale are keeping current on their Mello-Roos fees and the city likely won't have to pursue foreclosures.

Merced is seeing slower growth than it expected for Mello-Roos districts that were set up to pay for police, fire and parks services. As a result, the city is holding off on hiring police officers to patrol the new subdivisions.

Patterson must deal with a less pressing Mello-Roos conflict in a second taxing district that pays for public safety. Homeowners are late paying for a fee that goes to the city's Fire Department, leaving the city $100,000 short in its annual budget for a fire station that serves newer neighborhoods. Morris said the city is making up the difference from its general fund. It doesn't plan to issue foreclosure notices for the $320 public safety fees.

The term Mello-Roos refers to Henry Mello and Mike Roos, the two California legislators who wrote the 1982 law that allowed cities to set up taxing districts to pay for major public improvements over time.

Bee staff writer Adam Ashton can be reached at aashton@modbee.com or 578-2366.