What the MUD!?!: Exploring MUDs, PIDs and TIRZs

When buying a home in Texas you may come across things such as MUDs, SUDs, PUDs, PIDs, or TIRZs. What they heck are these? Or maybe you are selling your home and being told you need to disclose information about one of these entities. Let's take a look at what they are and how they differ from each other. 

Tax Districts

All of these different entities are special tax districts. Their use varies depending on the type but essentially, these entities are formed to allow cities and counties to finance development through the use of future taxes. Typically they are proposed by developers in order to help fund their projects and lower their investment cost. From a developers perspective, it is a win win for them. First, they get to offset their initial cost, but then once the community is built, it allows for lower home prices since the development cost has been offset by taxes. For homeowners though, it is a bit like kicking the can down the road. Up front they get a lower home cost, but are then on the hook for potentially thousands of dollars extra in taxes every year they own the home. Also, when they go to sell their home, their home will typically sell for less than a similar house in a non tax district area since those taxes take into account the homes affordability and monthly payment. You got a discount when you bought, but that discount stays around when you sale. The home is less marketable with higher taxes so that is something to keep in mind if you chose to purchase in these districts.

Municipal Utility District

MUDs are one of the most common and oldest of the tax district entity types. They have been used extensively over the past several decades to develop the growing metropolitan cities in Texas. They can be found in communities throughout Dallas/Fort Worth, Houston and Austin. They are especially popular post 2008 recession after banks became hesitant to fund projects after many went belly up. 

MUD's pay for utilities, roads, curbs, sidewalks, traffic signals and other community infrastructure instead of these costs being rolled into the sales price of the house. The MUD issues bonds that then pay the developer back for development costs. The MUD cannot be annexed until the bonds are mostly paid off. 

Public Improvement District

PIDs are similar to MUDs except that PIDs pay for the infrastructure upfront vs reimbursement after the fact. Because of this, PIDs can be annexed by a city. With a PID, bonds are issued to pay for development and then property owners pay a special assessment to repay the bonds. When the bonds are paid off, the special assessment/property tax goes down. 

Public Utility District

A PUD is similar to a PID except that instead of being controlled by the city or county, it is controlled by the property owners. It is ran by a board elected by the property owners located in the PUD and their existence is solely to provide utilities to the community.

Tax Increment Reinvestment Zone

TIRZ is a bit different in that the developer pays for the development cost upfront and are then repaid by the increase in tax value. Basically the idea is that the undeveloped property will have a low tax value and as the property is developed the tax value will increase and the developer is reimbursed from this additional tax revenue. This option is more common on commercial projects. 

So How Does This Affect Me?

As mentioned previously, these can affect a homes value so be sure to keep this in mind if you are considering one. If you do decide to buy a home in one of these districts there are certain obligations that the seller must adhere to. Sellers in these areas must give the buyer a disclosure before signing a the contract. Typically the disclosure can be obtained by the taxing entity. 

If you want to learn more the State of Texas has put out a guide.

If you want to know what areas are within these districts you can see here.

As always, the team here at BlackJack Realty is happy to answer any of your questions or help you with your next move. Please reach out to us if we can be of any assistance.