Buying or refinancing a Mills Act home in Mission Hills can feel exciting and confusing at the same time. The property taxes look unusually low, yet your lender still asks for extra documents and explanations. You want the tax savings to stick and the loan to close on time without surprises. In this guide, you’ll learn how the Mills Act works in San Diego, how taxes are calculated, what underwriters review, and the checklists that keep your deal moving. Let’s dive in.
Mills Act basics in Mission Hills
The Mills Act is a California program that lets cities enter a recorded 10‑year rolling contract with owners of locally designated historic properties. In exchange for maintaining and preserving the home, the property is assessed under an income method that often lowers annual taxes compared with normal market assessments. For a statewide overview, see the California Office of Historic Preservation’s summary of the program (Mills Act overview).
In the City of San Diego, a home must be locally designated by the Historic Resources Board before the City will enter a Mills Act contract, and applications are accepted in a limited annual window with a required 10‑year workplan (City of San Diego Mills Act program). Reported tax savings vary by parcel, but examples commonly fall in the 20 to 70 percent range depending on the assessor’s calculations and the prior assessed value (San Diego Mills Act savings overview). Mission Hills includes several historic districts with many early 20th century homes, so you are likely to encounter active or potential Mills Act properties here (Mission Hills Historic Districts).
How the tax math works
Under a Mills Act contract, the county assessor values the property using a statutory capitalization of income method that relies on imputed market rent, allowable expenses, and a state rate. The assessor then compares this “restricted value” to other required benchmarks and enrolls the lowest value for the tax roll as of the January 1 lien date. That is why tax bills often fall when the contract takes effect (Revenue & Taxation Code §439.2).
The key point for your loan is this. The appraised market value still drives loan‑to‑value, while the restricted value drives your tax bill. Your lender will consider both when reviewing payment capacity and setting your tax escrow.
What underwriters look for
Underwriters and appraisers must be told about recorded restrictions and evaluate any effect on marketability. Lenders typically provide the appraiser with the recorded contract and expect commentary in the appraisal about the Mills Act covenant and comparable sales. Fannie Mae’s guidance reinforces this disclosure and appraisal review practice (Fannie Mae disclosure to appraisers).
Expect your lender to reconcile the appraisal’s market value with the Mills Act tax bill. Some lenders will also ask about monitoring or enforcement history and whether any near‑term actions could change taxes.
Documents your lender will request
Gather these items early to speed up underwriting:
- Recorded Mills Act Agreement. The recorded contract that applies to your parcel, including the approved workplan and renewal/cancellation clauses (City of San Diego Mills Act program).
- Local historic designation evidence. Historic Resources Board decision or certificate that shows the local designation.
- Current property tax bill. The latest bill and any supplemental bills so escrow amounts are accurate. If unsure, contact the County for the enrolled value (San Diego County tax bills).
- Appraisal that addresses the restriction. Provide the appraiser the recorded contract and any monitoring history.
- Preliminary title report. Confirm the Mills Act contract is shown and check for other encumbrances.
- Compliance and monitoring history. Any recent City monitoring reports, correspondence, or notices.
Risks that can change your payment
- Nonrenewal or cancellation. If a party serves nonrenewal, the contract phases out over time and the assessor can adjust the value using statutory rules, which can raise taxes during the nonrenewal period (Revenue & Taxation Code §439.3).
- Cancellation fees for breach. Many local programs authorize a cancellation fee if the contract is cancelled after a hearing for breach. A common municipal practice is a fee equal to 12.5 percent of current fair market value, plus revaluation without the restriction. Always review the specific San Diego contract language that applies to your parcel (see representative municipal practice here: Mills Act program example).
- Special assessments still apply. Mills Act status affects assessed value, not special assessments. Community Facilities District or other special charges still appear on the parcel’s assessment listing and should be reviewed (San Diego special assessments search).
Buyer checklist for Mission Hills
- Request from the seller: the recorded contract, HRB designation, latest tax bills, workplan, and recent City monitoring reports or notices.
- Make sure your appraiser receives the contract and any enforcement history before the inspection.
- Ask your lender how they will handle tax escrow and whether reserves are needed.
- Contact City program staff early to confirm contract status and any pending actions.
Seller checklist before you list
- Assemble the recorded contract, HRB designation, proof of monitoring fee payments, and permits for completed restoration work.
- Clarify which workplan items will transfer to the buyer and disclose any open approvals or notices.
- If you have served a notice of nonrenewal, disclose the timeline and expected tax impact.
Tips for a smooth closing
- Share the recorded Mills Act Agreement and tax bills with the lender and appraiser at offer acceptance.
- Flag the contract in title and confirm no outstanding monitoring fees or pending hearings.
- Set expectations on taxes and reserves so debt‑to‑income and escrow calculations are accurate.
Local insight for Mission Hills
Mission Hills’ historic districts mean Mills Act opportunities are common, whether you are purchasing a classic Craftsman or selling a Spanish Revival. The City’s application window and workplan requirements reward owners who plan ahead. If you prepare documents early and coordinate with your lender and the City, you can keep underwriting straightforward and preserve the tax benefit.
Ready to talk strategy for your Mission Hills home? Reach out to Scott Harden for tailored guidance, local insight, and a smooth, concierge experience from contract to closing.
FAQs
Does a Mills Act contract transfer to a new owner?
- Yes. The recorded contract runs with the land, so the benefits and obligations pass to you when you buy.
How much can I save on property taxes under the Mills Act?
- Savings vary by parcel. In San Diego, examples commonly range from about 20 to 70 percent depending on the assessor’s calculation and the prior assessed value.
Will my lender finance a Mills Act property?
- Generally yes. Lenders and investors accept loans on these homes when the recorded contract is reviewed, the appraisal addresses the restriction, and title is marketable.
Can I remodel a Mills Act home?
- You can make approved changes that follow the workplan and preservation standards. Coordinate with the City before major alterations to avoid enforcement issues.
What happens if the City cancels the contract for breach?
- Cancellation usually follows a public process, may trigger a one‑time cancellation fee, and typically leads to higher taxes after revaluation. Verify there are no pending actions before you buy.
