Appraisal · Fannie Mae Selling GuideSpecial assessment districts (MUD, Mello-Roos): what the lender and appraiser look at

Many new communities are built with infrastructure paid for by local districts that can assess homeowners – for utilities, roads, sewer, schools, police and fire protection or libraries. Fannie Mae's Selling Guide (B4-1.4-09) describes two kinds. Special assessment districts, also called special tax districts or municipal utility districts, usually provide water or other utilities where existing providers don't reach; they assess owners for operating costs and debt service, and because their budgets assume continued development, a district can become financially distressed and impose additional assessments on existing homeowners if building stops short. Community facilities districts levy a special tax that backs tax-exempt bonds for public improvements; the assessment becomes an ongoing obligation like property taxes, and the lien and the duty to pay pass with title to the buyer, with laws generally requiring full disclosure to purchasers. Fannie Mae expects the lender to know whether a property is in such a district and to tell the appraiser about any assessments. The appraiser reports special assessments, notes any financial difficulty of the district that affects value or marketability, and considers the market's reaction using comparable sales affected the same way. If a district's distress is so severe that there's no market data to support a reliable value, the loan isn't eligible for delivery to Fannie Mae until an active market develops.