New Construction in SF: Mello-Roos, Developer Contracts, Defects

A new condo in Mission Bay, Transbay or on Treasure Island comes with three things a resale does not: a parcel inside a special tax district, a contract written by the developer's lawyers, and an HOA budget the developer set. None of that makes it a bad buy, but the worksheet from the true cost of owning needs extra lines.

Where Mello-Roos districts are in San Francisco

Mello-Roos is shorthand for a community facilities district (CFD): under a 1982 state law, a city can levy a special tax on every parcel inside a defined area to pay for infrastructure and services built there. In SF the districts track the big redevelopment and plan areas: Mission Bay, the Transbay area, Treasure Island and Yerba Buena Island, Hunters Point Shipyard and Candlestick Point, and Central SoMa parcels whose developers annexed into Special Tax District No. 2018-1 (formed in 2019) in exchange for extra height and density. Boundaries are parcel-specific, so confirm the parcel, not the neighborhood.

Two documents settle it: a closed unit's tax bill, where each CFD is its own direct-charge line below the value-based tax, and the Notice of Special Tax a seller inside a CFD must give you before you sign (Government Code sections 53340.2 and 53341.5), stating the maximum annual tax, its escalator and its term. If the notice arrives after you sign, the statute gives you three days after hand delivery or five after mailing to cancel in writing; check the current text.

What a CFD special tax costs

A special tax is a fixed-dollar charge per unit or square foot, set by the district's rate and method of apportionment, usually with an annual escalator, levied for decades. It is not a percentage of value, so nothing that works on assessed value helps: Prop 13's 1% limit and 2% growth cap, the $7,000 homeowners' exemption (worth roughly $80 a year) and an assessment appeal all act on the value-based tax, which in SF ran at a combined 1.18268325% in 2025-26, and voter-approved special taxes sit on top.

Expect a few hundred to several thousand dollars a year for a condo; as of 2026-10-25, read the notice and the direct-charge lines rather than any figure here. Add one twelfth to your monthly worksheet, and expect a large supplemental tax bill, because the roll value of an unfinished building is a fraction of your price.

The developer's contract is not the SFAR form

Have a real estate attorney read it inside the review period (when you need an attorney). Register your own agent on the first visit: many sales offices pay buyer-side compensation only to an agent registered then, and if you work with one of this site's agents, that developer-paid commission is how the site is paid. Price moves less than on a resale because every closed price becomes a comp for the remaining units' appraisals, so credits, upgrades, parking and prepaid dues are where the give is. Parking and storage are often sold separately, so make the price sheet state the space, and check closed prices in the comps tool before trusting it.

The DRE public report and the developer's HOA budget

A developer selling California condos must obtain a Public Report from the Department of Real Estate and give you a copy, against a signed receipt, before you are bound (Business and Professions Code section 11018.1). It covers deposit handling, the budget and assessments, special taxes and restrictions.

First-year dues are a developer projection, often set low: nothing has worn out, the master policy has no claims history, and a low number qualifies more buyers. The median HOA fee on SF-metro listings was $502 a month in 2025 (Realtor.com data reported by Hoodline); full-service towers run well above that. Check who pays assessments on unsold units, the reserve contribution as a share of the budget (Fannie Mae wants at least 10%), and when board control passes to owners, since dues often reset after turnover. How to read HOA documents covers the reserve math.

Preferred-lender and affiliated-title incentives

The credit "if you use our preferred lender and title company" is legal, with conditions. RESPA Section 8 forbids paying for referrals of settlement business, but a builder may offer an incentive for using an affiliated lender if it is a real discount, you are free to decline it, and you receive an Affiliated Business Arrangement disclosure. Section 9 adds that when you pay for the owner's title policy, the seller cannot require a particular title company, on pain of three times the title charges.

Every lender owes you a Loan Estimate within three business days, so get three outside estimates the same day as the preferred lender's and compare rate, Section A fees and credits with the builder credit netted in. Freddie Mac puts the saving from multiple quotes at roughly $600 to $1,200 a year on typical loan sizes; a quarter point on a $1.2 million loan is about $3,000 a year. Builder credits count toward Fannie Mae's interested-party contribution caps (3%, 6% or 9% of price by down payment), and an unfinished building needs a lock measured in months, ideally with a float-down; see rate locks and points.

Financing a building that is still selling out

Conventional loans need the project, not just the unit, to pass Fannie Mae or Freddie Mac review. For a new project that means a presale test, substantial completion and limits on developer control, plus the general rules: no pending litigation over safety or structure, commercial space capped at 35%, at least 10% of the budget to reserves. Fannie Mae Lender Letter LL-2026-03 retired the Limited Review for applications dated August 3, 2026 or later, so established projects now need a Full Review (projects of ten or fewer units can qualify for a waiver), and a higher reserve minimum is announced for applications dated January 4, 2027 or later; as of 2026-10-25, get current thresholds from your lender. Until the project passes, units are non-warrantable: financeable through a portfolio lender or the preferred lender at a higher rate and larger down payment.

Fill, liquefaction and flood

Most of the new-construction map sits on filled land the California Geological Survey zones for liquefaction: Mission Bay, SoMa and the Embarcadero, the southeastern waterfront and the islands. The zone shows on the Natural Hazard Disclosure and does not block a loan, but earthquake insurance is rated by location and construction, so run the CEA calculator for the address and read earthquake insurance. Parts of the waterfront and the islands also fall inside FEMA special flood hazard areas, which the NHD must flag; inside one, a federally regulated lender must require a flood policy.

Defects and warranties under SB 800

California's Right to Repair Act (SB 800, Civil Code sections 895 to 945.5) sets construction standards and a mandatory pre-litigation process: written notice to the builder, a chance to inspect and repair, then a lawsuit. Most claims carry an outside limit of ten years from completion (section 941), with shorter windows for specific components and a one-year minimum fit-and-finish warranty; check the statute and your warranty booklet for the exact clocks.

So inspect anyway: hire your own inspector for the pre-close walkthrough and again before the one-year warranty ends, while repairs are still the developer's cost. A building-wide defect is an HOA matter, and pending defect litigation over structure or habitability generally makes the project ineligible for Fannie Mae and Freddie Mac loans until it resolves; Civil Code 4525 requires sellers to pass along the association's defect notices.

If you may rent the unit later: Costa-Hawkins exempts new construction from SF's rent increase limits (which cover buildings with a certificate of occupancy before June 13, 1979), but since Ordinance 296-19 took effect in January 2020 every residential unit in the city has just-cause eviction protection.

What to shop for right now

• Lender vs preferred lender (savings: high). Three same-day outside Loan Estimates, builder credit netted in.
• New-construction inspector (savings: medium). Pre-close walkthrough plus an 11-month warranty inspection.
• Escrow and title (savings: medium). Affiliated company against one outside quote.
• Flood insurance where required (savings: low). NFIP quote beside one private quote.