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Real Estate 101: The Nitty-Gritty of CDDs

aaron-burden

If you have been scoping out homes, townhouses, or condos no doubt you will have seen some interesting additions when it comes to fees associated with certain properties in the fine print. There are HOA’s, which most people recognize as a Home Owners Association. Then there is “CDD”, followed by a “Yes” or “No,” possibly followed by the CDD fee amount and term.

So, what exactly is a CDD?

CDD is an acronym that stands for “Community Development District.” Many planned neighborhoods here in Northeast Florida are designated CDDs. The official legislation for CDDs took place with Florida’s Community Development District Act of 1980. This legislation provided developers a new way to finance and manage new communities.

What does a CDD do?

Basically, the CDD, run by a board chosen by the developer, takes out tax-free municipal bonds to finance infrastructures such as roads; water and sewer facilities; streetlights; and even such things as parks and recreational facilities. Then, this bond is repaid over a period of time, usually 20-30 years, by residents in the community in their annual property tax bill.

Does the CDD fee amount stay consistent?

There are two parts of a CDD fee: (1) Long-term assessments that repay the capital improvements made by the CDD; and (2) Annual assessments, which cover the ongoing operations and maintenance of the community. Long-term assessments are paid at a fixed rate, while annual assessments may fluctuate slightly from year to year.

Can CDD fees be paid off early?

Yes! Anyone can pay off the long-term assessments (the CDD bond) portion of the CDD fee early. However, as long as you live in a CDD community with a functioning CDD, you CANNOT pay off the annual assessments portion of the CDD, as this portion covers the ongoing operations and maintenance of the community. When looking at purchasing real estate and there happens to be a CDD associated with it, it’s best to check how much time is left on the fixed CDD assessment. When selling your property in one of these communities you can potentially add value to your sale by paying off CDD bonds early.

Who benefits from CDDs and how?

County politicians (Yay!), developers (Woohoo!), and last but certainly not least, residents (The crowd goes WILD!). For county politicians, CDDs increase property values (and property taxes) and create infrastructure with little cost to the government. For developers, CDDs save money on the front end by not having to pay all the costs of developing infrastructure. Most importantly, for residents, the initial costs of the property in these areas should be lower due to the deferred infrastructure costs. The idea is affordable housing in comfortable neighborhoods.

Now, go forth and prosper with all your Community Development District knowledge!