A Municipal Utility District or MUD allows communities to develop and grow, particularly in areas which lack municipal services. Through bonds and taxes paid by residents living within its boundaries, a MUD finances water, sewage, and other utility infrastructure. Nearly 1,000 MUDs currently exist in Texas.
Requirements of MUD Notices
Section 49.452 of the Texas Water Code states that a buyer purchasing property within a MUD should receive a MUD Notice before entering into a binding contract. This notice must include information about the tax rate, current debts owed for bonds, and, if there is one, a standby fee. If time limitations make a title search too difficult, buyers should review recent tax statements to evaluate these costs. In fact, knowing this information is so important that a buyer who does not receive a MUD Notice before closing has the option to terminate that contract and to recover the costs of the purchase, including interest and attorney’s fees.
There are three different types of MUD Notices. The correct type of MUD Notice is determined by the location of the property:
- Property Within Extraterritorial Home-Rule Municipality, Outside City Limits (notice in 49.452 (b) of the Water Code),
- Property Within City Limits (notice in 49.452(c) of the Water Code), or
- Property Outside Extraterritorial Home-Rule Municipality, Outside City Limits (notice in 49.452 (d) of the Water Code).
Registering a MUD Notice
A separate copy of the appropriate notice, with the most current information, should be completed by the seller and shared with the buyer at closing. The MUD Notice will be recorded in the county’s deed records. Usually, the title company is responsible for recording the MUD Notice.
Whether you are buying or selling, a key requirement of a real estate transaction subject to a MUD is obtaining the appropriate MUD Notice and carefully evaluating it. Another prudent way to protect your investment from potential pitfalls is consulting a lawyer well-versed in real estate law.
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