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When do I need a Public Report to sell lots or condominium units?

By law, A.R.S. 32-2101(54), you are a “Subdivider” if you own or have owned 6 or more lots in a single platted subdivision and offer any number of them for sale, regardless if you are an individual or a “builder” entity. All Subdividers are required to obtain a Public Report(s) prior to offering lots for sale in accordance with A.R.S 32-2181 et seq. and Commissioner’s Rule R4-28-B1207.

If you hold fee title or an equitable interest (e.g., “Option to Purchase”) in 6 or more lots at one time, or subdivide an unsubdivided parcel or lots within an existing subdivision into 6 or more new parcels, lots or condominium units, a Public Report is required prior to offering any of those new parcels, lots or units for sale.

Regardless of the State requirements, you may still be required to follow the requirements for “minor land division” or lot-split ordinances of the city or county in which the property is located, even if splitting into 5 or fewer parcels or lots.

It is the act of selling that requires a Public Report, not ownership. There is no time limit connected with this. It makes no difference when you acquired or sold a lot. Upon acquiring fee title or an equitable interest in the 6th lot within a single platted subdivision, a Public Report is required prior to its sale. You could purchase and sell 2 lots every five years and as soon as you acquire an interest in the 6th lot and offer the lot/lots for sale, you would be in violation if you did not obtain a Public Report.

Exempt sales and leases

A.R.S. 32-2181.02 provides that the sale or lease in bulk of six or more lots, parcels or fractional interests to one buyer in one transaction is exempt from the requirement to obtain a Public Report.

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“Unsubdivided” Subdivisions

It may be an oxymoron, but a Public Report (now known as a “Subdivision Disclosure Report”) is required for sale of an unsubdivided subdivision of 6 or more parcels, each less than 36 acres (un-platted lands, without municipality approval or street/easement dedications).

Some of the minimum requirements to obtain a Public Report in this case are as follows:

• A map or survey of the entire “subdivision” with boundaries and identifying parcel numbers of the individual parcels.
• Disclosure of utilities location (distance from the furthest lot in the subdivision) and an estimate of how much it would cost a buyer to bring the utilities to the foundation of a residence to be constructed on a parcel.
• A letter from a civil engineer stating the flood potential of the parcels and the designation given the area or subdivision by FEMA on the Flood Insurance Rate Maps.
• A statement by the Subdivider (within the Public Report itself, but based on expert knowledge… a soils engineer’s report) whether the soils of the parcels are subject to subsidence or expansion, and if there are any ground fissures in or near the subdivision.
• Health Certificate, or “Approval of Sanitary Facilities for Subdivision” from Maricopa County Environmental Services Department (only if in Maricopa County), otherwise from the Arizona Dept of Environmental Quality.
• A letter from a title company or engineer identifying the means of legal access to the individual parcels from a known public right of way by conventional motor vehicle.
• Certificate of Assured Water Supply (“CAWS”) for the subdivision from Arizona Dept of Water Resources, unless the property is in the service area of a water company or municipality determined to have an adequate water supply. Further, if that company or municipality, or this “subdivision”, is a member of the Central Arizona Groundwater Replenishment District, a Notice of Payment of any fees associated with the membership.

There will be more requirements. But, this gives an idea of the curves you’ll need to negotiate on your path to selling unsubdivided land while complying with the laws and rules of the State of Arizona and the Commissioner of Real Estate.

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Vacant Lot Sales (Considered “Unimproved” Lots by AzDRE) Require Rescission Periods

In the current real estate market, many subdivided lots are being acquired by lenders and other parties planning to “flip” the lots to other prospective purchasers, presumably for some semblance of a profit.

In addition to the requirement of providing a valid Subdivision Disclosure Report (Public Report) to a purchaser when selling 6 or more lots to individual purchasers, and in all cases where selling vacant real estate, purchasers enjoy certain rights of rescission. From the body of the Public Report:

ARIZONA LAW STATES:

1. THE SALE OR LEASE OF SUBDIVIDED LANDS PRIOR TO ISSUANCE OF THIS REPORT OR FAILURE TO DELIVER THIS REPORT TO YOU SHALL RENDER THE SALE OR LEASE RESCINDABLE BY YOU. ACTION TO RESCIND MUST BE BROUGHT WITHIN 3 YEARS FROM DATE OF EXECUTION OF PURCHASE AGREEMENT.

2. CONTRACTS OR AGREEMENTS FOR THE PURCHASE OF AN UNIMPROVED LOT (WITHOUT A BUILDING)* MAY BE RESCINDED BY YOU WITHOUT CAUSE BY SENDING OR DELIVERING WRITTEN NOTICE OF RESCISSION BY MIDNIGHT OF THE SEVENTH CALENDAR DAY FOLLOWING THE SIGNING.

3. IF YOU HAVE SIGNED A PURCHASE AGREEMENT FOR THE PURCHASE OF AN UNIMPROVED LOT (WITHOUT A BUILDING)* PRIOR TO INSPECTING THE LOT, YOU HAVE SIX MONTHS TO INSPECT AND UPON INSPECTION MAY RESCIND THE PURCHASE AGREEMENT.

* A contract or agreement for purchase of a lot which includes a building or obligates the seller to complete construction of a building within two years from the contract date does not constitute the purchase of an unimproved lot. Therefore, if your purchase includes a lot and a building or a building to be built, you are not entitled to the rescission rights described in paragraphs 2 and 3.

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Checklist for AzDRE filing process

Below the header of this page are tabs to other pages and information that you might find helpful.

I’ve just added another link:  a checklist of all steps and documents required for the Arizona Dept of Real Estate “Subdivision Disclosure Report (Public Report)” or the initial Exemption allowing “conditional” or non-binding and fully-terminable purchase contracts for lot sales conditioned upon the eventual issuance and approval of the DRE Public Report. Please click this link to download the PDF file.

I hope you might find this useful. Write back in the comment section or give me a call if you have any questions about the process.

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DISC Revised Service Fees

We are pleased to announce that we have revised our service fees to accommodate the current economic environment. Please follow this link to view our schedule of fees.

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New, Simplified Filing Forms Introduced

As a result of the recommendation of an industry committee from last year on which I participated, the Arizona Department of Real Estate has introduced new application forms for all Public Report filings, available and effective immediately. The Public Report has also been renamed “Subdivision Disclosure Report”.

Rather than the outdated MS Word-formatted questionnaire of some 30 pages or more seeking answers for individual data-points required in the statutes, the new questionnaire is limited to just the signed affidavit portion where the Subdivider provides answers to questions such as “Have you ever been convicted of a felony?”, and other details regarding the subdividing entity. This results in an application form of just about 5 pages, in addition to the Subdividers draft form of Public Report.

The DRE began requiring, some time ago, that Subdividers prepare a draft form of the Public Report to be approved by the Department, saving DRE personnel the typing of the report itself. All required data-points are provided in that proposed document, making the full questionnaire superfluous.

The required form of draft report has also been revised to include an index or table of contents, among other cosmetic changes.

These are welcome changes and fit Commissioner Sam Wercinski’s philosophy of simplifying the approval process for good practitioners while more actively enforcing the requirements of the Arizona statutes by pursuing and correcting the practices of “wildcat” subdividers and other bad practitioners.

Application Form

Subdivision Disclosure Report (Public Report) Template

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DRE Drops Public Report Application Fees

Effective July 7, 2008, the filing fees for Subdivision Public Reports (both Expedited and Regular) has been reduced to $450.00.

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“Permanent” access disclosures to the DRE

The following are examples of language typically found in statements in separate disclosure letters and title reports required from title companies to support applications for Public Report:

1. “Permanent access from the above referenced subdivision to (Name of Federal , State, County or City maintained street or highway) is provided by the following recorded documents:…”

2. “Permanent access within the subdivision to all lots, units or parcels is provided by the following documents:…”

3. “Permanent access to and within the development is via …………………………………………..”

Permanent Access constitutes both legal and physical access.

Note that, generally, the DRE is interested in the access physically existing to and within the property, as well as citing specifically what documents of record establish legal access from the property to an open and established public roadway, regardless of how distant that public roadway may be.

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Assured Water Supply and CAGRD

Living in the desert, and in a generally dry state, we’re all interested in a continuous, abundant supply of water for life and leisure. The Commissioner of the Department of Real Estate is charged with helping to assure that is the case.

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“Sub-Ex” or Subsequent Owner Exemptions

New!! (updated 2-8-08) The Commissioner has issued an advisory relaxing the rules a little bit on “Subsequent Owner” exemptions.

The sub-ex has been applicable only for a Public Report of a previous Subdivider that was dated within the past two years. Now, by petitioning the Commissioner, a Public Report dated earlier than 2 years can be used by a subsequent owner of the covered property upon a special exemption being granted by the Commissioner. Read the previous article after the jump.

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Financial Assurances

Rules of the Commissioner of the Arizona Department of Real Estate require that assurances be provided for completion of all public and private common-area subdivision facilities (as defined by the DRE) prior to issuance of a Public Report and prior to acceptance of any binding contract for sale [See the rule here]

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