In high-value California markets, property taxes—and the way they adjust after purchase or construction—can change your cash flow, your refinance math, and even your lien priority. Getting them wrong risks busted DSCR tests, surprise supplemental bills, and—worst case—tax default that can jump ahead of your deed of trust. Understanding the mechanics up front protects your deal.

This guide distills the essentials that matter most to investors and brokers using hard money.

Prop 13 basics: what gets taxed—and when it resets

California’s property tax system is anchored by Proposition 13. Let’s have a look:

  • The general property tax rate is limited to 1% of a property’s assessed value, plus any voter-approved debt and special assessments in that tax area (so your effective rate is often slightly above 1%).
  • Assessed value typically resets to fair market value upon a change in ownership or when new construction is completed—key triggers for investors acquiring or rehabbing assets.

The State Board of Equalization’s overview (Pub 29) is the best primer on how assessment, appeals, and billing work statewide.

Supplemental assessments: the “surprise” bill after you close or build

California doesn’t always wait until the next July 1 tax roll to reflect your new value. When you buy a property or complete construction, the county issues a supplemental assessment that “catches up” the taxes for the remainder of the fiscal year (and sometimes a second bill for the next year). This bill is in addition to your regular annual bill.

Counties publish calculators and explanations (e.g., Placer County) to estimate what that supplemental hit might be, but the headline is simple: if your new value is higher than the seller’s old assessed value, expect a one-time tax catch-up.

Investor takeaway: Underwrite supplemental taxes as a line item on acquisitions and heavy rehabs; don’t assume the seller’s low tax base will carry forward.

Due dates & penalties: your calendar for cash flow

California “secured” property taxes are billed in two installments:

  • 1st installment: due November 1, delinquent after December 10
  • 2nd installment: due February 1, delinquent after April 10

These dates are posted by county tax collectors (e.g., Los Angeles, San Diego). If a delinquent date falls on a weekend/holiday, it typically rolls to the next business day.

Investor takeaway: Build these dates into your hold and rehab schedules; missed payments rack up penalties quickly and can trigger lender covenants.

Special assessments: Mello-Roos & friends

Beyond the 1% general levy, many California parcels—especially in newer subdivisions or master-planned areas—carry Mello-Roos (Community Facilities District) special taxes that fund local infrastructure/services. These are on top of the base tax. The State Treasurer’s debt guide explains how CFDs levy special taxes to repay bonds and sometimes fund services.

Assessors also note that voter-approved debt and special assessments (1915 Act, lighting/landscape districts, etc.) can push the effective rate above 1%.

Investor takeaway: Always check the tax bill for CFD/assessment lines. Mello-Roos can materially change DSCR and flip/hold margins.

Lien priority: taxes beat your deed of trust

Here’s the rule that matters most to lenders and borrowers using leverage: real property tax liens and many special assessments are senior to deeds of trust—they come first, regardless of recording date. The California DRE reference text states this plainly: tax and assessment liens are superior to any mortgage or deed of trust.

If taxes go unpaid long enough, counties can move to tax-defaulted sale (the “power to sell”) under Revenue & Taxation Code §3691 and related procedures laid out by the State Controller. A tax sale can wipe out junior interests.

Investor takeaway: Property taxes aren’t optional. They’re senior. Private lenders will escrow for them, monitor them, and—if necessary—advance them to protect lien position.

Prop 19: transfers and reassessment (what investors should expect)

While Prop 19 is often discussed for homeowner base-year transfers and limited parent-child exclusions, the key investor-relevant impact is reassessment rules on change in ownership: expect a reset to market value when you buy (which is why supplemental bills exist). County assessor pages outline the limited exclusions tied to principal residence/family farm scenarios; these generally don’t apply to typical investor transactions.

How property taxes shape hard money underwriting

Hard money is about speed and collateral—but taxes are central to the credit box:

  1. Payment reserves/impounds
    Many private lenders collect monthly tax impounds or require proof of timely payment, especially on longer bridges. Expect covenants that allow the lender to advance taxes if you don’t.
  2. DSCR and cash-flow math
    For rental holds or bridge-to-DSCR exits, underwriters load current annual taxes plus special assessments—and often pro forma taxes at the new assessed value, not the seller’s old base. That can change DSCR materially.
  3. Supplemental risk
    Lenders scrutinize supplemental exposure post-close or post-rehab. Savvy structures may include a reserve/holdback, or at least evidence the borrower budgeted for it.
  4. Title & tax status checks
    Closing teams pull tax certificates to verify amounts due, installment status, and any delinquency. Because tax liens are senior, cures happen before funding.
  5. Mello-Roos compliance
    Deals in CFD areas require lenders to underwrite the full tax burden (base + CFD). The Treasurer’s guidance makes clear these are recurring special taxes, not one-off fees.

Practical checklist for investors & brokers

Use this before you sign a term sheet or purchase contract:

At LOI/offer stage

  • Pull the current tax bill and read every line item (base 1% levy, voter debt, CFDs).
  • Ask title/escrow for a tax status report (any delinquency or installment due inside your escrow window?).
  • Estimate pro forma taxes at your purchase price/ARV (not the seller’s assessed value).
  • If new construction or substantial rehab is planned, budget for supplemental assessments.

During underwriting

  • Confirm whether the lender impounds taxes and how advances/penalties are handled.
  • If you’re modeling a DSCR refi exit, include CFD/Mello-Roos lines and county-posted delinquent dates to avoid late-payment penalties in your hold period.

Pre-close

  • Calendar Nov 1 / Dec 10 and Feb 1 / Apr 10 immediately (adjust if a delinquent date falls on a holiday/weekend). County sites publish this clearly.
  • Verify the mailing address for tax bills (your LLC’s correct address or your servicer’s impound address).

Post-close

  • Watch for supplemental bills 60–180 days after closing or completion of construction—they come by mail and are easy to miss.
  • If a cash crunch hits, contact your lender early—they may advance taxes to protect priority, then add to your payoff.

Case study (San Diego 4-plex)

  • Acquisition: $1.6M; seller’s assessed value only $750k (very low base).
  • Reality: Investor’s pro forma taxes modeled at ~1.1% of $1.6M (~$17,600) plus a small CFD line—DSCR penciled at 1.20x using pro forma, not the seller’s bill.
  • After light rehab: County issued a supplemental bill reflecting the new value mid-year—already reserved from closing.
  • Outcome: No penalty shocks, lender remained in first-position without advancing taxes, and the DSCR refinance cleared easily.

What Lending Bee looks for (briefly)

Lending Bee structures California bridge loans with transparent tax treatment—reviewing the parcel’s tax profile (base levy, voter debt, CFDs/Mello-Roos), confirming due dates during the hold, and checking for supplemental exposure on value-add deals. We’re not here to surprise you with impounds at the 11th hour; the goal is to set clear expectations so your exit, DSCR refi, or sale stays on track.

Red flags to avoid

  • Assuming the seller’s tax bill = your tax bill. It won’t after reassessment.
  • Ignoring special taxes in newer communities—CFDs can turn a “deal” into a thin hold.
  • Missing December 10 / April 10—penalties add up fast; in extreme cases, tax default can lead to county sale under the “power to sell.”
  • No plan for supplemental bills after completion or change in ownership.

Bottom line

In California, property taxes are predictable if you know the rules:

  • Prop 13 caps the base rate at 1% of assessed value plus local add-ons.
  • Your assessed value resets at purchase or completion, triggering potential supplemental bills.
  • Special taxes (Mello-Roos, assessments) commonly apply and must be underwritten.
  • Tax liens are senior—missed bills can jeopardize your position and your lender’s.

Handle these correctly, and you’ll keep your hard money deal on schedule—and your long-term hold or refi math intact. Talk to our loan officer to learn more.

Not legal or tax advice. For your specific situation, consult your attorney/CPA.