As of September 1, 2021, Texas sellers are required to provide a new notice to buyers when selling property located in a public improvement district (PID). If a seller fails to provide the required notice, a buyer will have the right to terminate the contract. The seller also may be subject to other penalties. Texas Real Estate Commission and Texas REALTORS® sales contracts have been updated, and TREC has promulgated a new PID notice to meet the new requirements. These new PID notice requirements are similar to current municipal utility district (MUD) notice requirements.
What is a PID?
A public improvement district is a special district created by a city or county under the authority of Chapters 372 or 382 of the Texas Local Government Code. The statutes allow for a city or county to levy a special assessment against properties within the district to pay for improvements to the properties within the district.
What types of property do the new PID notice requirements apply to?
All real estate sales transactions, including resale, new construction, condominiums, commercial, and unimproved property.
What must the PID notice contain?
Specific information about the PID where the property is located, such as the name of the PID and the name of the municipality or county that authorized the PID. Buyers are required to sign the notice as evidence of receipt.
When must the notice be delivered to the buyer?
Sellers of real property located in a PID must provide a notice to buyers prior to the execution of the sales contract. The notice may be given separately or as an addendum to the contract. A separate copy of the notice must also be signed by both sellers and buyers at closing.
What happens if a seller does not deliver the notice prior to execution of the contract but delivers it after execution?
Buyers may terminate the contract at any time prior to closing. If the buyer does not terminate the contract and closes on the property, the buyer may not subsequently sue for damages.
What happens if the seller does not provide the notice, but the buyer receives the notice at closing?
If a copy of the notice is executed at closing, and the buyer closes on the property, the buyer waives the right to terminate and may not subsequently sue for damages.
What happens if the buyer never receives the notice?
Buyers who do not receive the notice may terminate the contract at any time prior to closing. If the buyer does not terminate the contract, the buyer can file a lawsuit for damages after closing. The buyer may file a suit for damages requiring the seller to return all costs related to the purchase of the property to the buyer with the buyer reconveying the property back to the seller. Alternatively, the buyer may file a suit against the seller for damages in an amount not to exceed $5,000. These penalties are similar to current penalties applicable to the failure to provide a MUD notice.
What contracts have changed to implement this new requirement?
TREC updated its residential sales contracts, including the One to Four Family Residential Contract (Resale) (TXR 1601, TREC 20-16) and Unimproved Property Contract (TXR 1607, TREC 9-15), to reflect the new statutory requirement for sellers to provide a separate notice. Texas REALTORS® updated several sales contracts, including those pertaining to new residential condominium and commercial transactions, with the identical language found in the updated TREC contracts to reflect the new statutory requirement.
When using the updated contracts, sellers will be required to attach the new PID notice as an addendum if the property is located in a PID.
Sellers of real property located in a PID must provide a notice to buyers prior to the execution of the sales contract.
What notice form does a seller use to provide this notice?
Each PID is required to maintain and file with the county clerk a service plan that includes information about the PID. When a PID next updates its service plan, it must include a copy of the PID notice completed with the required information. Once available, sellers may use this notice to satisfy the requirements of the statute. The service plan and completed PID notice will typically be publicly available on the PID website.
Additionally, TREC has promulgated a new PID notice form, Addendum Containing Notice of Obligation to Pay Improvement District Assessment (TXR 1955, TREC 53-0). The TREC PID notice requires certain information about the PID to be filled in on the form. Use of the TREC form is voluntary, meaning license holders can use this form or use another notice that meets the requirements of the statute, such as the notice filed by the PID with the service plan. Note that the date on the TREC PID notice is November 8, 2021, even though the notice requirements went into effect September 1. That’s because TREC approved its notice for emergency use beginning September 1 and anticipates finalizing the form at its November 8 meeting.
Because sellers are required to provide the notice beginning September 1, 2021, but PIDs are not required to file a copy of the completed notice until they next update their service plans, there may be a period where it will be necessary to search online for the information required to complete the TREC PID notice. Agents may have sellers sign the Notice of Information From Other Sources (TXR 2502) when assisting a seller in completing the PID notice form.
What information must be included if a seller is using the TREC PID notice?
- Property address
- Name of the public improvement district
- Name of the municipality (and city council) or county (and commissioners court) that approves and levies assessments
- The statute the PID was created under, which will be either Subchapter A, Chapter 372 of the Local Government Code or Chapter 382 of that same code.
- Most PIDs are created under Chapter 372 of the Local Government Code. Chapter 382 has limited applicability. Only Bexar County and Comal County can create PIDs using Chapter 382. (Cities within Bexar and Comal Counties must use Chapter 372.) The Bexar County special improvement districts website currently shows several public improvement districts that were created using Chapter 382. Visit bexarcospecialimprovementdistricts.com for details. You can contact Comal County for current improvement district information in that county. For properties located in PIDs outside of Bexar or Comal counties or PIDs created by cities within Bexar and Comal counties, “Subchapter A, Chapter 372, Local Government Code” should be inserted on the PID notice.
As the listing agent, can I fill out the TREC PID notice on behalf of my seller?
Yes. Agents may have sellers sign the Notice of Information From Other Sources when assisting a seller in completing the PID notice form. This is distinct from a seller’s disclosure notice, with which an agent should not assist a seller.
The new PID notice requirements apply to all real estate sales transactions, including resale, new construction, condominiums, commercial, and unimproved property.
How can I determine if the seller’s property is located in a PID?
The new law requires PIDs to file a copy of the completed PID notice as part of the PID’s service plan. These service plans must be filed with the county clerk of the county in which the PID is located. Sellers can use the filed PID notice to provide to buyers. However, filing of the service plans will occur over the next year through August 2022 as PID service plans become due. (PIDs are required by law to update service plans annually.)
In the meantime, there are several ways to determine if a property is located in a PID. The MLS is a good place to start because it is searchable by property address. In the MLS, look under the Taxing Jurisdiction tab for a specific property. Tax information on the MLS is imported from county appraisal district (CAD) records. Many CADs, although not all, will show if a property is located in a PID along with the name of the PID. Determining if a new home is located in a PID may require more digging. There may be significant delays from the time a PID is created before it appears in CAD records. For new homes, the builder may be a good source to determine if the property is in a PID. If no information is in the MLS for a property, you can also search the websites of the city and the county where the property is located. Most city and county websites include information about the PIDs created under their jurisdictions, including maps showing the boundaries of the PIDs. Finally, the seller’s tax bill may show whether the property is subject to a PID assessment. (Texas REALTORS® is working with industry partners to ensure PID information is available and easy to locate.)
How does a seller determine the name of the city or county that created the PID?
The website for the PID will provide the name of the city or county that authorized the PID and approves and levies assessments. An MLS or CAD website may have a direct link to the PID website. If not, an internet search of the name of the PID should locate the PID website. The PID website may be part of the city or county website.
You may also search online for the PID service plan. The service plan for the individual PID will contain the necessary information and be publicly available on the PID website.
Are any sellers exempted from providing the PID notice?
The requirement to provide the PID notice does not apply to a transfer:
- Under court order or foreclosure
- By a trustee in bankruptcy
- By an owner to the lender or by a trustor to a beneficiary under a deed of trust
- By a lender or a deed of trust beneficiary that acquired the property under a deed of trust sale, court ordered foreclosure, or deed in lieu of foreclosure
- By a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust
- From one co-owner to another of an undivided interest in the property
- To a spouse or blood relative of the seller
- To or from a governmental entity
- Of only mineral interest, leasehold interest, or security interest.
What if a PID service plan is not filed as required?
Sellers, title companies, real estate brokers, examining attorneys, and any agents, representatives, or people acting on their behalf are not liable for damages for failing to provide the notice to a buyer if the city or county failed to file the PID service plan with the county clerk in accordance with the statute.
Buyers who do not receive the notice may terminate the contract at any time prior to closing. If the buyer does not terminate the contract, the buyer can file a lawsuit for damages after closing.
What if the incorrect notice is unintentionally provided?
Sellers, title companies, real estate brokers, examining attorneys, and any agents, representatives, or people acting on their behalf are not liable for damages for unintentionally providing a notice that is not the correct notice under the circumstances before execution of a sales contract, or at or before closing.
What if the information in the PID service plan is incorrect?
Sellers, title insurance companies, real estate brokers, examining attorneys, vendors of property and tax information, lienholders, and any agents, representatives, or people acting on their behalf are entitled to rely on the accuracy of the service plan last filed by the PID. Information taken from the service plan is presumed to be correct as a matter of law.
When representing buyers, should agents also research whether the property is located in a PID to protect buyers even if no notice is provided by the seller or listing agent?
It is a good idea for buyer’s agents to inform their clients of the potential for property being located in a PID and confirm whether a PID notice is required for a specific property the buyer is interested in.
Texas REALTORS® forms help
The General Information and Notice to a Buyer and Seller (TXR 1506) discusses PIDs. Use that form to discuss with your clients whether the property might be located in a PID and the new disclosure requirements for such properties.