Friday, August 5, 2011

Florida CDD's Can Be a Real Dealbreaker

Last week I was looking for a house for a new client, and after doing a search of the multiple listed new homes we found one he really liked.  It’s a duplex and it has everything he hoped for.  But it came with something he didn’t want, a CDD.  Maybe you know what that is, and maybe not—but read on, I think you will agree it’s something to be aware of and in Florida it may come with your new home.

The home he liked is in development called Gran Paradiso which is in the netherlands of Venice and Northport, it’s one of those developments on Rt 41 that got started, but has never been finished.  Today Gran Paradiso offers a brand new finished property for sale, the promise of a clubhouse and other high end amenities and if you visit you’ll find a whole network of roads with curbs and lots of vacant land.  Obviously it’s a good idea whose time has never come. 

But the home for sale is sweet and new and amond other things it comes with a CDD, and there’s the rub.  CDDs are special entities used to fund roads, water, wastewater plants and other projects necessary to build homes, shops and industry.  This concept of a “bond” called a CDD was invented about 50 years ago, They were first used in Florida in 1980, and there are now something like 575 CDDs around the state.

When funding infrastructure in new communities, there are a number of options. A city or county could pay for the utilities, but in today’s economy a request for the installation of water and sewer systems and more would likely be rejected by existing residents who would not benefit from them.

Alternatively, a developer could bear the cost and add the infrastructure expenses to the prices of homes he would build but that is expensive to the developer and could make the cost of homes in a subdivision too high and put them at a disadvantage with rival housing developments and with mortgage bankers who depend on appraisers (who wouldn’t see the value).

CDDs, on the other hand, serve as a vehicle to issue debt to build, and then own, the necessary infrastructure. The bonds are repaid only by residents who directly benefit from the improvements, and by spreading bond payments over many years, subsequent homeowners who will benefit from the roads and wastewater systems also share in paying the cost for the benefits they receive through special assessments included on their tax bills.

But of course today’s selling prices are so much less than the builders originally estimated, that when you take today’s price of the home and compute the monthly mortgage payment, the CDD, taxes and HOA fees just about double the monthly payment, making the home just plain unaffordable.  The monthly mortgage on this property would run around $900, the CDD and HOA (Home Owner Association) fees and taxes would add another $810 per month.  These numbers will likely put the future success of Gran Paradiso in jeopardy.

Not all CDD’s are that harsh.  Only about 12-15 years ago, there were only 8,000 residents in The Villages, an active adult retirement community an hour north of Orlando. Now there are more than 80,000 residents, with still more moving in almost every day.  Building The Villages, and Disney’s Celebration just southwest of Orlando was made possible in large part by the use of CDD’s.

So the message here is CDD’s may be the best way for a developer to make his dream happen, but as a buyer you better be sure you share the dream, because you certainly will share the cost.
Dane Hahn is a real estate professional with Tarpon Coast Realty in Boca Grande, Englewood and Sarasota, and The Gove Group Realty in New Hampshire. You can reach him at 941-681-0312 or at,  Or see him on the web at and

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