By March 1913, the San Benito Land & Water Company had secured additional irrigation contracts, increasing the acreage watered by the Company to approximately 78,000 acres. But still being under capitalized, on July 31, 1913, the Company filed a receivership proceeding, which is a form of bankruptcy, in the U.S. District Court for the Southern District of Texas.

By the end of 1915, it became evident that the Company would be unable to solve its financial problems and the principals of the San Benito Land & Water Company began working toward the creation of an irrigation district to purchase the Company's irrigation system. An irrigation district is a governmental subdivision of the State of Texas, created by an election, and governed by an elected board of directors. In early 1916, landowners petitioned the Cameron County Commissioner's Court to take the steps necessary to create an irrigation district to be known as Cameron County Irrigation District Number Two.The boundaries of the proposed district generally coincided with the area irrigated by the Company: a strip of land fifteen miles long, with an average width of five miles, stretching from the Rio Grande River to the Arroyo Colorado, containing approximately 78,000 acres. At an election held on July 25, 1916, the proposition received the required number of votes, and the first board of directors was elected. Cameron County Irrigation District Number Two officially came into existence on August 2, 1916. The Board of Directors held its organizational meeting on August 15, 1916. On September 4, 1916, an engineer was employed to, among other things, estimate the cost of purchasing and completing the irrigation system.

After the creation of the Irrigation District, the principals of the San Benito Land & Water Company requested that the lien securing the payment of the bonds be foreclosed and the Company's assets sold at a foreclosure sale. On October 23, 1916, the U.S. District Court granted the request and ordered the foreclosure sale be held on January 16, 1917. The Irrigation District's Engineer reported to the Board of Directors on November 15, 1916, that Thomas N. Dysart, Trustee for bondholders, had agreed to sell the irrigation system and the Water District Building to the Irrigation District after the foreclosure sale for $360,000.00. The Engineer also reported that an additional $240,000.00 would be needed to complete the system. The Board decided to raise the $600,000.00 by issuing bonds. Needing voter approval for the issuance of bonds by an irrigation district, the Board ordered that the bond election be held on December 7, 1916. The election was held as scheduled, and the required number of votes were cast in favor of the bond issue. The foreclosure sale was held on January 16, 1917, and as expected, no one bid more than the unpaid debt. In the meantime, a disgruntled landowner had filed a lawsuit disputing the creation of the Irrigation District and the bond election.

The creation of the Irrigation District and the bond election were upheld by judgment of the District Court of Cameron County issued on March 16, 1917. On April 12, 1917, the U.S. District Court confirmed the foreclosure sale, and on April 13, 1917, the Court appointed receiver conveyed the assets of the San Benito Land & Water Company, including the Water District Building, to Thomas N. Dysart, Trustee. On April 16 and 17, Dysart met with the Irrigation District Board. The Trust, through Dysart, agreed to accept $360,000 in bonds in payment for the irrigation system and to purchase the remainder of the bonds to complete the system. The Board delivered the bonds to Dysart on April 17, whereupon, he delivered a deed conveying the irrigation system and the Water District Building to the Irrigation District. The building has served continuously as the Irrigation District's headquarters since that day.

On April 13, 1917, the Board of Directors changed the name of the District to "Cameron County Water Improvement District No. 2." Effective February 1, 1981, the name was changed back to Cameron County Irrigation District No.2.

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