The Notice That Has to Be Signed Before the Contract
Most disclosures can catch up during the option period. The MUD notice can’t. If the property is in a municipal utility district or a similar water district, Texas law wants the buyer to sign the district’s notice before the contract is signed. Miss that, and the buyer has a statutory way out that has nothing to do with the house.
This is the guide for listing agents setting up the disclosure package and buyer’s agents writing offers in MUD country.
Table of Contents
▼What a MUD Is, in One Paragraph
A municipal utility district is a political subdivision that finances water, sewer and drainage (and sometimes roads and parks) for areas outside a city’s system. The district sells bonds to build that infrastructure, and the homeowners in the district pay them off through a district property tax. MUDs are everywhere in the suburbs of Houston, Dallas-Fort Worth and Austin, and they’re common in newer subdivisions around the rest of the state. Being in a MUD isn’t a problem. Not disclosing it is.
What the Law Requires
The rule is in Section 49.452 of the Texas Water Code. It applies to districts whose main job is water, sewer, drainage or flood control financed with bonds or a standby fee, plus municipal management districts under Chapter 375 of the Local Government Code.
The pieces that matter for a file:
- Who gives it. A person who proposes to sell property in a district must give the buyer the written notice (§49.452(a-1)).
- When. Before a binding contract is signed, either separately or as an addendum or paragraph of the contract (§49.452(f)).
- Proof. The buyer signs the notice, or the contract that includes it, to show it was received (§49.452(g)).
- At closing. A separate copy with current information is signed by both parties, acknowledged and recorded in the county deed records (§49.452(h)). Title handles that one.
- Exceptions. Foreclosures, deeds in lieu, transfers by will or probate, transfers to a governmental entity and a couple of others are exempt (§49.452(a-2)).
What the TREC Contract Says
Paragraph 6E(3) of the TREC One to Four Family Residential Contract (Resale), TREC 20-19, puts it in the contract. Straight from the form: “Chapter 49, Texas Water Code, requires Seller to deliver and Buyer to sign the statutory notice relating to the tax rate, bonded indebtedness, or standby fee of the district prior to final execution of this contract.”
Paragraph 22 then has a line under Statutory Disclosures and Notices to list every utility, water, drainage, public improvement and other district notice that has been given or attached. Fill it in. It’s the record that the notice was part of the deal.
Where the Notice Comes From
The HAR 400 MUD form that Houston agents used for years was retired in 2023. We covered that change in Farewell to the HAR MUD Form. Since then:
- The district’s own form comes first. Section 49.453 of the Water Code requires each district to make its form of notice available to the public, on its website or otherwise.
- TREC 59-0 is the fallback. The TREC Notice to Purchaser of Special Taxing or Assessment District (TREC 59-0) says at the top that if the district’s form is available, the seller should use it. If the district doesn’t publish one, the seller gets the information from the district and completes 59-0 with it. The same form says it is not for public improvement districts.
The notice covers the district’s name, its tax rate (or projected rate), any assessments, the bonds the voters have approved and how much is outstanding, and any standby fee. Some districts charge a small fee to send it, and a few will only release it to the owner, so start early.
How to Find Every District on a Property
- Pull the taxing entities. Check the county appraisal district record and the tax report in your MLS tax tool. Use more than one source; they don’t all update at the same speed.
- Look up each district. TCEQ’s water district database has the district’s contact information and, often, its website.
- Watch for more than one. Some properties sit in two districts, for example a MUD and a separate water control and improvement district. Each one needs its own notice.
- Check for a PID, too. A public improvement district is a different notice under §5.014 of the Property Code. See our PID disclosure guide.
What Happens When It’s Missed
Section 49.452(f) says that if a contract is signed without the notice, the buyer is entitled to terminate. If the seller provides the notice at or before closing and the buyer chooses to close anyway, the buyer is conclusively presumed to have waived the right to terminate and the other remedies under the section. The statute also lets a buyer sue for damages when a sale isn’t made in compliance with it, and it limits liability in a few specific situations, such as when the district never filed its information.
In our experience, a missed MUD notice rarely kills a deal on the merits. Buyers in MUD areas expect the tax. What it does is hand a buyer with cold feet a clean exit at any point before closing, long after the option period is over. Whether a termination on those grounds is valid, or what a buyer could recover, are questions for a real estate attorney.
How Our TCs Handle It
On listings, our listing coordinators track that the MUD notice is in the disclosure packet and tell you if it’s missing. If you need TREC 59-0, we fill it out only at your specific written direction from the district information you give us and send it to you to review and take to your seller for signature, and upload the signed notice to the MLS with the rest of the disclosures.
On contracts, we check that the buyer’s signed notice is in the file before the contract is fully executed and that Paragraph 22 lists it. If it’s missing, we tell you right away. From there, our TCs track the rest of the file with 48-hour reminders on every deadline, confirm with title that the closing copy of the notice is on their list, and send you a Monday key-dates report and a Thursday status report until closing.
We don’t decide whether a property is in a district or which notice is right for a disclosure. You and your broker make the call.
