Navigating the ins and outs of Texas real estate can be very complicated and confusing for people who are relocating to the Houston area. There are many different terms and nuances to know and understand.
For a relocation home buyer who is interested in purchasing a property in one of Houston’s many suburban locations, chances are that the property will be located within a MUD (Municipal Utility District).
As such, it is essential for real estate agents to be able to clearly explain what a MUD is to their clients and what it means to purchase a home that resides in a MUD.
So, what is a MUD anyway?
In general terms, a MUD is a political subdivision of the State of Texas, usually outside of the city limits, and is authorized by the Texas Commission of Environmental Quality (TCEQ) to provide water, sewage, drainage, and other services within the MUD boundaries. MUDs are taxing jurisdictions that are formed by the Texas legislature, and enable the development of outlying areas via municipal bonds without dependence upon local cities for funding.
For real estate transaction purposes, it is important for a home buyer and seller to know that Texas Water Code, sec. 49.452 requires a seller of property located in a MUD to provide written notice to the buyer regarding the taxing authority of the MUD.
Janice Ratliff is an agent with Bernstein Realty who has been assisting clients buy and sell homes, primarily in the Houston suburbs, for 25 years.
She has a long history of explaining MUDs to her relocation clients, and remarked about how confusing the term “MUD” can be for someone who is not familiar with it.
“I had a lady call me one day who was a relocation buyer, and she asked me if MUD meant that there was actual mud in the house. I realized that it was something very new to her and that she had never heard of it,” said Ratliff.
When explaining MUD taxes to her clients, Ratliff said that she tells them that it is a property tax that goes decreases as the neighborhood grows because there are more homeowners to pay off the debt.
She also tells her client that they will generally have lower water bills than people living in the city paying for similar usage.
To determine if a property is located in a MUD, and which one, Ratliff said that Realtors are able to pull that information up on MLS for their clients. She emphasized that a MUD notice is a mandatory disclosure in a real estate transaction.
“When a buyer purchases a home that is in a MUD, the seller has to provide the MUD notice form,” Ratliff said. “At closing, the title company has the buyer sign it again. The reason that this is such an important document at closing is because people need to understand that the MUD tax is not voluntary. It is a mandatory tax. So, the buyer is required to sign a document at closing stating that they understand that they are buying a home that is in a MUD district.”
At first glance, a home buyer might think that the MUD tax means that they will be paying an additional or higher amount in property taxes, but as Ratliff explained, the IRS considers MUD taxes the same as they do real estate taxes, and as such they are tax-deductible.
“When buyers are unfamiliar with what a MUD is, the agent needs to take the time to explain what it is, and the fact that it is actually a property tax that the buyer can write off,” she said.
Ratliff also tells her clients that MUDs are an asset to the community and something to be expected in large suburban developments.
“I tell my clients that big residential developments will have a MUD, which is a good thing. I let them know that the developer’s responsibility in creating the MUD was to put up a letter of credit equal to 30 percent of the cost of the subdivision’s utilities. So, if you have a MUD, you know it’s not a fly-by-night developer,” she said.
Whether buying a home in the suburbs or in the inner city, it is always important for home buyers to work with an experienced agent who knows the local market and can make the muddiest of terms seem crystal clear.
Michelle Sandlin is a writer and relocation industry expert. She is the 2014 President of Houston Relocation Professionals (HRP), and is a speaker at various conferences and events locally and around the country. Follow Michelle on Facebook: www.facebook.com/HoustonRelocation and on Twitter: @MichelleSandlin. Also visit “On the Move – Exploring Houston Relocation with Michelle Sandlin” at blog.chron.com/onthemove.