Private roads. These 2 words can make Realtors cringe! Because agents know these words may cause some issues during the loan process. But there are solutions. So while looking for the perfect home, let’s say you come across the perfect one on a private road. “No big deal to me!” says the buyer. Well, private roads can get complicated when there is not a private road maintenance agreement in place. Although we will discuss the solutions. Additionally we explain loan requirements for these situations. Now don’t think private roads are only dirt roads in the country! Actually there are many high end subdivisions with private roads controlled by the home owners association. What if it is on a dirt road though? Check out our article that explains dirt roads and the all weather road requirements. Let us explain road maintenance agreements and private roads.
Unless a home is within a subdivision, most owners on private roads choose not to record a road maintenance agreement. The reasons vary. But at least most of the time one or more owners do take care of the road. Even though someone maintains the road, no agreement in place may cause issues for buyers. Lenders will often require a recorded private road maintenance agreement. Basically here is what happens most of the time on private road properties. First the agent looks for a private road agreement already in place. When there is no agreement, the agent and seller start talking to the neighbors. Then, not all property owners sign. The problem is everyone between the public road and the house must agree to the road contract. Often that is where it breaks down.
But there is a solution! Although it not as good as having all property owners sign an agreement. So if all owners won’t sign, then the buyer could sign an individual private road maintenance agreement. Basically the buyer agrees to maintain the private roadway from the state maintained road to the property. Usually the closing attorney prepares the agreement, buyer signs, and it is recorded at closing. If going this route, thoroughly discuss the agreement with your attorney. As a buyer, it is important to understand legal requirements.
First of all, all loans require that private roads or streets must be at least an all-weather surface. All-weather surface means emergency and typical passenger cars can pass at all times. If it takes a large 4 wheel drive truck to drive on the road, that doesn’t work! Public roads are assumed to be all-weather. Below are the main mortgage requirements for private roads.
Actually FHA doesn’t require a road maintenance agreement. The HUD Handbook 4000.1 states, “private streets, including shared driveways, must be protected by permanent recorded easements, ownership interest, or be owned and maintained by a Homeowners Association (HOA). Share driveways do no require a joint maintenance agreement.” Learn more about FHA loans
USDA Handbook 3555-1 states, “Private roads or streets must be protected by permanent recorded easement or the street must be maintained by a homeowners association. Shared driveways must also meet requirements for recorded easement for ingress and egress. Evidence of a road maintenance agreement is not required, but lenders may require it. Learn more about USDA loans
The VA Lenders Handbook chapter 12 states private streets must be protected by a permanent easement, maintained by an HOA or joint maintenance agreement, and roads must have an all-weather surface. Underwriters must verify these items in the NOV, which is the review of a VA appraisal. The underwriter must verify a provision exist for continued maintenance. Learn more about VA loans
Fannie Mae speaks in more detail on this subject. It requires a legally enforceable agreement for maintenance of the street. The agreement should include the following provisions and it must be recorded:
NC Housing Finance Agency and SC Housing Finance Agency goes by the actual loan programs and lender requirement.
Keep in mind that each lender may have their own requirements for private roads. So ask questions up front and do your research on the property early.
This is not legal advice and when preparing legal documents, you should consult a real estate attorney.
Russell Smith - Your Mortgage Lending Expert
NMLS # 78989
