A few ticking time bombs lie low in the home buying process that can explode at the last hour without preparation. One such dreaded, last-second request sounds 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 real estate agent or mortgage lender, you have lived this.
Private Road Maintenance Agreement Explained
If you are reading this article, chances are you are either a/an:
- Real estate agent who has just been burned at the last second because of a private road
- Experienced listing agent doing homework up-front on a private road listing
- Buyer currently having an issue with a private road
- 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 it is best to contact us up-front to help you address the situation and close in a perfect situation.
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.
What is a Private Road Maintenance Agreement?
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.
Road Maintenance Agreement Issues
The example above isn’t so scary, but what if you find a home in a small community, on a rural county road, or on or a gravel/dirt road? Often there is no association, and an agreement is rarely in place for road maintenance.
When repair issues arise, an individual or a group of property owners can fix the problem. Yet, what happens if the road washes out or experiences neglect 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. Even worse is the thought of getting 40 or so landowners to sign an agreement prior to closing. Luckily, there are a few possible solutions to this problem:
Private Road Maintenance Agreement Solutions
The buyer can:
- Accept the responsibility to maintain the road and present a signed individual private road maintenance agreement
- Work with neighbors to establish a shared private road maintenance agreement
- Choose a loan type that has more lenient requirements
Keep in mind, each loan program has different guidelines regarding this topic. Let’s examine the common requirements by loan type.
Private Road Maintenance Agreement FHA
Are you looking for the FHA road maintenance agreement requirements? You’re in luck! This loan program does not require a private road maintenance agreement. If there’s ownership interest, protection by a permanent recorded easement, or if an HOA owns and maintains the road, the agreement is not necessary. Normally any road would have one of these.
HUD Handbook 4000.1
“The Mortgagee must confirm that the property is provided with a safe pedestrian access and adequate vehicular access from a public or private street. Streets must either be dedicated to public use and maintenance or retained as private streets protected by permanent recorded easements. Private streets, including shared driveways, must be protected by permanent recorded easements, ownership interest, or be owned and maintained by an HOA. Shared driveways do not require a joint maintenance agreement.”
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
- The 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. This loan program does not require evidence of a private road maintenance agreement. Keep in mind, you will need to meet USDA eligibility requirements in order to finance your home with this loan type.
Private Road Maintenance Agreement – Down Payment Assistance
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.