If a person is selling a property that is in a district created under the Texas Water Code or by an act of the legislature to provide certain utilities such as water, sanitary sewer, drainage and flood control, and any of these services or facilities have been financed with bonds that are payable by the persons who lives in the district, THEN the seller must give notice to the buyer of those potential fees for owning this property.
The main take-away is “NO binding contract exists if such notice is not acknowledged by the buyer at OR prior to executing the contract! Giving the notice after the contract is executed does not eliminate a buyer’s right to terminate the contract any time prior to closing.”
What are the differences between MUDs, PIDs and TIFs. The most notable difference between the different types of districts are the projects they fund and how they are financed.
MUDs
MUDs (Municipal Utility Districts) finance the construction of public infrastructure that does not yet exist, typically utility facilities and roadways. Over time, developers within a MUD can be reimbursed for water, sewer, drainage and sometimes road infrastructure through property taxes. The purpose of a MUD is to provide a developer an alternative way to finance infrastructure. Homeowners in a MUD receive a monthly bill from the MUD for water and sewer usage as well as an annual tax bill. This MUD tax will be in lieu of a city tax. MUD taxes are a deductible property tax. The MUD is a political entity that can levy taxes overseen by the Texas Commission on Environmental Quality.
Fun fact…there are over 900 MUDs in the state of Texas, approximately 65% of those are in the Houston area.
PIDs
PIDs (Public Improvement Districts) can be used for the same purposes as a MUD (i.e. water, sewage and infrastructure) however PIDs can also be used for sidewalks, roadways, landscaping, parks and recreation, public safety/security, parking facilities, affordable housing, etc. PIDs are utilized to make these improvements authorized by Chapter 372 of the Local Government Code. Unlike a MUD, a PID is not a political entity.
Some developments use a PID instead of a HOA since PID assessments are tax deductible. Unlike tax rates for MUDs, these assessments are fixed once the bonds are sold.
PIDs are funded through bonds secured by liens against the property. Bonds are issued based on the property’s appraised value. Once issued, bonds are paid back through the collection of special assessment taxes. This assessment is in addition to property taxes. These special assessment taxes are only levied for a set number of years established by the PID’s service plan which is a minimum of five years. It is important to note that a public hearing must be held before a PID can issue bonds.
PID or PUD?
Although the acronyms are often used interchangeably, PIDs and PUDs are not the same thing. In addition, they are often confused with HOAs. Here is the difference:
A PID is an entity created by a city or county. A PUD (Public Utility District) is created by the community and operated under an elected board which may seem similar to a HOA, however it exists solely to provide electricity, water sewer and telecommunications. Although PUDs are controlled by the homeowners, they operate independently from the HOA.
TIFs
TIF (Tax Increment Financing) is a public financing method used to subsidize community improvements such as new public utility facilities and area improvements. TIF is authorized at the state level and administered by local governments. TIF is intended for local government to designate areas or redevelopment to encourage economic development to create jobs and to increase the tax base. Both TIFs and PIDs are components of a city and governed by a city council.
Remember when selling a home on your own or with the assistance of a licensed agent, and the property is serviced by a MUD, PID, PUD or TIF, the Notice to Purchaser Form should be filled out by the seller and provided to the buyer at or BEFORE a contract to purchase is signed.
Work with a local Realtor® that is familiar with your area and the notices required to get you to the closing table.
Additional resources for determining if a property falls within a water district can be found at Texas Commission of Environment Quality.
Denton County Special Districts
Northlake, Tx Special Districts