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Is Your Listing Located on a Shared or Common Driveway--Recent underwriting changes may behoove you to act in advance to avoid underwriting issues

By
Services for Real Estate Pros with Topkins & Bevans-etopkins@topbev.com

This started out as one of those "dream engagements" for all concerned. A lifelong friend, whose real estate transactions I have always taken care of, was selling his spectacular home on a private way, where there were eight or nine other beautiful homes, and purchasing a town home in Boston's South End. My friend's children were all grown-up, and he and his wife have recently spent a considerable amount of time during the winter in Florida.

My friend's listing agent was also a friend, and probably the most competent and through Realtor in Milton, Massachusetts, where I reside and the location of my friend's home. I suggested that my friend obtain his mortgage from a Private Bank in Boston, with whom I have recently referred many satisfied custmers. The Purchase and Sale Agreement for my friend's home was completed in early March, 2011. The closing was scheduled for May 6, 2011. All the dates lined up, and I spent a lot of time preparing for the sale, on the one hand, and the purchase, on the other.

The purchase moved like clockwork, and my friend, who is in the financial industry, uncovered a LIBOR based mortgage for a rate that you wouldn't believe. There are some "pre-pay" restrictions, and the LIBOR indices could move up, but history says they are remarkably stable, and my friend's interest rate scenario is, shall we say, very competitive. All of us have spoken before about the real advantages a Borrower can receive from dealing locally for his mortgage.

The person who bought my friend's home is a person whose name many people would recognize, He has a business agent, and the business agent chose a national Lender for the Buyer. The property in question appraised out to higher than the purchase price. That should have been enough in this scenario, no? Regrettably, the more than satisfactory appraisal was not enough.

The person underwriting the file insisted on obtaining a written agreement from all of the abutters which indicated that each of them agreed to bear a pro-rata share of snow removal, maintenance and repair costs for the common driveway that they all lived on. 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.

Counsel for the Lender drafted a rather simple agreement for the abutters to sign. My motivated Sellers went door-to-door to each of the abutters to obtain signatures, Most agreed readily. Two wanted their attorneys to review the proposed agreement. Two flat out refused. The deal was in jeopardy, because I could not get what the national Lender required. We were at an impasses.

There is a happy ending here, but really because this was a "high-end", sale to a "highly visible" Buyer. There were big commissions, and big fees, involved, and so, at the eleventh hour, the national Lender waived the requirement.

I am not at all sure that the same result would have obtained if the property was a $300,000 starter home, and the Buyer someone with relative anomymity. The lesson learned here is "forewarned is forearmed".  If you have a listing on a private driveway, or in a development with neighborhood association language in the deed, get started, right away, in understanding how things actually have been managed in the past. If that data can be presented to the Appraiser, it may be enough to avoid the really traumatic issues my friend, and I, experienced.

Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

It's amazing how all those hypotheticals that we learned about in real estate licensing law classes actually show up in real life.

May 08, 2011 02:14 AM
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

It is so sad that lenders have forgotten that lending is predicative on risk not 100% guarantees.

May 08, 2011 01:31 PM
Ann Bellamy
Hard money lending for investors in NH and MA - Tyngsboro, MA
Lending to real estate investors since 2006

The other lesson is that it's who you know, or who you are, that counts.  Sad but true, unless you are one of the "who"

May 09, 2011 04:43 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Elliott,  Thank you for the ability to reblog!  Important and crucial information.  However, I have to tell you that a signed and recorded road maintenence agreement is required on all properties that are accessed by a private road.  The lender/investor is concerned as much about the "future" as the "present" and I have never seen this condition waived.

Obviously, it is "who you know" that got this done; however, from a traditonal lending platform this file was a fire waiting to explode from the beginning.  The listing agent and/or MLO should been all over this the moment it was known that the road was not publicly maintained.

Word to the wise:  Private road access?  Address the road maintenenci issue upfront. 

On this one, I have to stand by the request of the underwriter.  Just because all the previous owners were cooperative does not mean the future will be.  This falls under the sub-title of "Good Fences make Good neighbors". 

May 14, 2011 02:18 PM
June Piper-Brandon
Coldwell Banker Realty - Columbia, MD
Creating Generational Wealth Through Homeownership

I was fascinated to read your blog.  I wonder if this would also apply to a home on a private County road.  So many issues to think about.

May 14, 2011 02:53 PM