A Long and Winding Road or A Path to a Closing Nightmare: A Primer on Privately Maintained Roads
Some of the most beautiful properties lie at the end of a long and winding road. Many people yearn for the quiet, solitude and exclusivity of living off the beaten path. However, when the “Dream Property” is located on a privately maintained road there can be considerable challenge in obtaining mortgage financing.
I was compelled to comment on Elliott’s post Is Your Listing Located on a Shared or Common Driveway--Recent underwriting changes may behoove you to act in advance to avoid underwriting issues. In his post Elliott recounted the challenge of a delayed closing because the underwriter requested a Private Road Maintenance Agreement “at the last minute”. As has been true of all of Elliott’s post on ActiveRain, he shared his experience as a “heads up” on how to avoid the same issue.
Thankfully, largely due in part to the influence of the buyer, enough pressure was applied to the “offending” (my words, not Elliot’s) underwriter that the condition for a PRMA was finally waived and the transaction successfully closed.
The only thing I would suggest changing in Elliott’s post is “Recent Underwriting Changes”....there is nothing “Recent” about the need for a PRMA. In fact, I have never closed a loan without a signed and recorded PRMA (signed by ALL homeowners of the properties abutting the road).
Actually, I cannot imagine why 
lender/investor OR borrower would ever want to close on a property without a PRMA.
For clarification’s sake, let’s be clear that a “privately maintained road” is NOT a “private county/city road”. The distinction is specifically that the city/county will NOT maintain the property’s access road in any way, shape or form. Maintenance by the homeowners is required and essential.
As in the case Elliott discussed in his post, the road has always been maintained by mutual agreement:
“For the past almost forty years, this responsibility has been stewarded by one abutter, who arranged for the various services, and periodically presented a bill to the abutters for their share. Evey abutter paid promptly, and there was never an issue about how this informal approach worked. It worked flawlessly, and all abutters have been satisfied”.
So, what’s the problem????? After all, everyone has always played nice and payed their portion of the costs associated with the access road! Why on earth would the underwriter be so picky and require a separate, and legally enforceable, PRMA?
Simply because the “accountability” of the previous owners in no way predicts the propensity of the new and subsequent owners to assume their allocated portion of the road maintenance costs. As I indicated in my comment in Elliott’s post, this situation is akin to “Good Fences make Good Neighbors”.
At Elliott’s request I contacted my underwriting departing for clarification of the issue and the following is the response:
If a subject property is located on a community-owned or privately-owned and maintained street, an adequate, legally enforceable agreement or covenant for maintenance of the street is required. The agreement or covenant should include the following provisions and be recorded in the land records of the appropriate jurisdiction:
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Responsibility for payment of repairs, including each party’s representative share
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Default remedies in the event a party to the agreement or covenant fails to comply with his or her obligations, and
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The effective term of the agreement or covenant, which in most cases should be perpetual and binding on any future owners
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The appraiser is not required to provide a copy of the Maintenance Agreement, but must report that the subject meets the aforementioned requirements.
The KEY words in the guidelines (and the explanation of WHY a lender/investor would require a PRMA) are “Default remedies” and “Perpetual”.
In order of significance, I believe all parties should operate with “the end in mind” and address the issue of a Private Road Maintenance Agreement before any issues arise:
Current Property Owner
If available, review your current PRMA to ensure it is up to date and all current property owners have signed it. If, as in Elliott’s transaction, all current owner’s have been operating with a “gentlemen’s agreement” be sure to disclose to your listing agent immediately.
Listing Agent
Do your due diligence the minute you are aware of the fact the property is accessed via a private road. In a PRMA is in existence get it reviewed by a trusted source (broker or lender partner). If there is no PRMA, talk with at least one or two mortgage professionals to get insight into what will be required.
Buyers Agent
Get all information you can on the private road and explain the significance and possible challenges to potential buyers. Talk to at least two trusted mortgage professionals to get guidance from them on their specific lender/investor requirements. (YES, even if the listing agent has already done this...Never, ever take anyone’s word for any issue that can potentially derail YOUR transaction).
Buyer
If the property you want to buy is located on a private road, tell your mortgage partner IMMEDIATELY...even before an executed contract. Provide your finance profession with opportunity and access to get feedback from the underwriter on what the lender/investor will accept and/or require. Also, have the existing or prepared PRMA reviewed by someone other than your lender or real estate agent!!! Just because a lender accepts an agreement (or even lack thereof...RARE, but possible) does not mean the agreement is “good” for you! The lender requirements are required to protect the lender/investor, not you the homeowner....this is a cold, hard fact.
Mortgage Professional
Obviously, address the issue the minute you are aware of the existence of a private road. If, as in most cases, no one bothered to tell you anything about it and you only find out through the appraisal and/or final title policy; the best course of action: POUR YOURSELF A GOOD STRONG DRINK!!!
The fact is the transaction will probably go the direction of the example in Elliott’s post and, without a doubt, all fingers will be pointed at you. There will be much weeping, wailing and gnashing of teeth and you will probably have numerous skid marks across your back from the various buses that each involved party has thrown you under.
All cryptic banter aside: Your mortgage professional is very likely to be the LAST person to know about a private road UNLESS someone tells them. There is absolutely no precedent to query about a private road 99% of the time...why would I ask?
For the record: I did receive a comment from Leslie Ebersole that she has successfully closed a transaction without a PRMA. In no way can I unilaterally profess that a PRMA is ALWAYS required. I can only say that every time I have encountered a private road in the past twenty plus years a PRMA has been required.
Avoid the fire drill. Address the potential challenge presents itself!
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