There are many ticking time bombs lying low in the home buying process that can explode at the last hour. The chances increase when certain items are overlooked. One such dreaded, last-second request sounds something like, “Please send us the private road maintenance agreement for this street.” Too often, there isn’t a road maintenance agreement. Then, fear sets in with the thoughts of getting 40 property owners on the street to sign an agreement in the next 24 hours. Closing on-time is then in jeopardy. If you’re a Realtor or mortgage lender, you have lived this.
Private Road Maintenance Agreement Explained
Chances are good that reading this article means, that you are either:
- A real estate agent who has just been burned at the last second because of a private road
- An experienced listing agent doing homework up-front on a private road listing
- A buyer currently having an issue with a private road
- A real estate agent trying to solve a last second issue for their buyer or seller
Honestly, this article was written because we received so many calls from Realtors, first-time buyers, and even sellers asking for the guidelines. Basically, looking for a solution at closing, but in a perfect situation, it is best to contact us up-front to help you address the situation and close.
What is a Private Road?
Simply put, private roads are roads not maintained by the state. These roads are maintained by someone other than the government such as property owners or a homeowners association (HOA). A common misconception is that all private roads are dirt roads, but that is far from correct. Actually, there are a bunch of very nice, large neighborhoods with private roads. For instance, a large golf community could have private roads. Condo communities may also have private roads.
Road Maintenance Agreement Definition
In order to lend on a property located on a private road, mortgage companies and banks require a copy of the recorded road maintenance agreement. The road maintenance agreement details how and by whom the private roads of a community will be maintained. Usually, large communities already have a road maintenance agreement in place. Additionally, they have an HOA who more than likely maintains the roads. The HOA members pay an HOA fee and part of the dues are allotted to road maintenance and repairs, but these are the easy ones. Normally, these road maintenance agreements are readily available to attach to a quick email. Problem solved!
Road Maintenance Agreement Issues
The example above isn’t so scary, but what if you find the perfect home in a small community, a rural country road off a state maintained road, or on a gravel/dirt road? Often there is no association and rarely there is an agreement in place for maintaining the roads. Basically, when repair issues arise someone or a group of property owners get together to fix the problem. Yet, what happens if the road is washed out or it gets neglected over time? Mortgage lenders and lending agencies want to make sure that the roads remain passable.
The biggest issue appears when there is no private road agreement. Whether it is early on or just before closing, someone will request a PRMA. Even worse, is the thought of getting 40 or so landowners to sign an agreement prior to closing. Luckily, there are often solutions to this common problem. Keep in mind that the solutions depend on the mortgage program. Let’s dig into the private road maintenance guidelines and solutions for each loan.
Private Road Maintenance Agreement FHA
Are you looking for the FHA road maintenance agreement requirements? You’re in luck! It is NOT required! As long as the road is protected by a permanent recorded easement, ownership interest, or owned and maintained by an HOA. Normally any road would have one of these. Otherwise, the properties would be landlocked.
HUD Handbook 4000.1 actual road maintenance guideline
Private Road Maintenance Agreement VA
The Veterans Administration is more strict on private streets than FHA. The VA Handbook Chapter 12 states, “Private streets must be protected by a permanent easement AND maintained by a homeowners association or joint maintenance agreement.“. Additionally, VA requires that the street have an all-weather surface. VA underwriters must verify these items in the VA Notice of Value (NOV), which is the review of a VA appraisal. VA underwriters must verify a provision exists for continued maintenance of the private road.
Private Road Maintenance Agreement Fannie Mae
Conventional Fannie Mae loans do require that properties on a private street have an “adequate, legally enforceable agreement or covenant for maintenance of the street”. Fannie further states the following should be included in the recorded document:
- Responsibility for payment of repairs, including each property’s share
- Default remedies when property owners do not meet the obligations
- Effective term of the agreement (mostly perpetual and binds future owners)
Exception: Fannie states “If the property is located within a state that has statutory provisions that define the responsibilities of property owners for the maintenance and repair of a private street, no separate agreement or covenant is required.”
Private Road Maintenance Agreement USDA
USDA closely mirrors FHA requirements. USDA Guaranteed Loans require that private roads must be protected by a permanent recorded easement or the street must be maintained by an HOA. USDA does not require evidence of a private road maintenance agreement. Keep in mind that USDA Rural Development Guaranteed Loans also have location requirements to be eligible.
State housing agencies offering down payment assistance or grants typically follow the first mortgage guidelines. If using an FHA first mortgage with DPA, FHA road maintenance guidelines should prevail.
Keep in mind that these are the lending agency guidelines and each lender may have additional requirements.