Subdivision law can be complex and in Arizona failure to comply with it poses significant legal risks to the people involved in a real estate transaction. Contrary to popular opinion you don’t have to be a developer, a contractor or even create a lot line to get labeled a subdivider:

By law, A.R.S. 32-2101(54) states 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. 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.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.

This means that a bank or lender who forecloses on more than 5 properties in a single platted subdivision may be required to get a public report before offering REO properties for sale. ADRE has taken the position that this is the intent of the statute and has begun informing lenders of potential violations.

Violations of Arizona subdivision law is a felony and currently accounts for several disciplinary actions which you can find by checking the Arizona Department of Real Estate’s Bulletin.

Anyone who could potentially be labeled as an owner of 6 or more parcels should:

1.  Contact the Arizona Department of Real Estate’s Development Services Division

2. Read ADRE’s Red Flag Checklists concerning subdivisions

3. Review the ADRE Subdivision Brochure

4. Consult legal counsel about complying with the statute and potential liability.

Nothing in this blog post should be considered legal or tax advice. As with all complex real estate issues you should always consult a legal or tax professional for appropriate counseling and advice before taking any action.