Maybe it was the recent mild weather or simply the coming of the traditional housing season. Whatever the reason, easements and access now seem to be back on the front burner for consumers in the Puget Sound area.
A key player in the deal is the institution that supplies the financing.
The lender who plunks down most of the cash when you buy a house is not only interested in the condition of the property, but also the condition of the road leading to it, as couples in Pierce and Kitsap counties recently learned.
Approval of the Kitsap couple’s home loan was held up until they could get all of their neighbors to sign a road-maintenance agreement detailing who was responsible for maintaining the dirt road in front of their home.
Such agreements are not required when property borders a city or county road because those roads typically are paved and maintained by the local jurisdiction. But lenders require road-maintenance agreements for private roads – typically those used by more than one property owner. What the couple could not understand was the need for a written document when a verbal understanding had served 10 full-time residents for the past 18 years.
One woman had taken on the chore of billing the 10 property owners equal amounts for the grading and gravel needed each year. Each owner paid his fair share willingly.
However, when the couple applied to refinance their mortgage, the lender required a road-maintenance agreement. Some of their neighbors were not willing to sign the document. The arrangement was going fine, they said, so why should we change it?
Lenders say they need a serviceable “ingress and egress” to a property. If the bank, or the investor buying the loan, has to foreclose on the property, and the road to it is so bad you have to take a 4-wheel drive to get to it, it’s going to negatively affect the value of that property.
The Kitsap County neighbors didn’t think they should be held accountable for road maintenance by anyone’s lender. However, a written agreement is usually a benefit to everyone using the road and it’s often difficult to get financing without one. And once the neighbors realize they will probably need one to sell their home, they begin to understand.
The Federal Housing Administration will reject a home loan if any neighbors using a private road fail to sign a road-maintenance agreement.
The agreement must be in place at the time the appraisal is made.
Here are the FHA’s guidelines for a road maintenance agreement. Conventional lenders seek a similar arrangement:
* The agreement includes the entire private road system to the public road.
* The agreement and access must be legal and in perpetuity.
* The road is in an acceptable condition. The roads within the system must have all-weather surfaces. An all-weather surface is defined as a road surface over which emergency and the area’s typical passenger vehicles can pass at all times.
The agreement states how the costs are to be shared (equally by all lots, pro-rata). The provision for maintenance must not create an unusual or abnormal burden upon the ownership of the subject property.
All of the property owners served by the private road system must be party to the agreement.
The above requirements may be waived by the direct endorsement underwriter when the subject property abuts a publicly maintained road and the easement is a common driveway between two neighbors, and it is all weather, such as in a shared driveway in many older parts of cities.
Conventional lenders are not as strict, but require at least a majority of the neighbors to sign the agreement. (In the Pierce County case, the borrower, not wanting to jeopardize his transaction, personally guaranteed to maintain the road in order to get the loan approved). In other cases, all neighbors along the dirt road between the subject property and the point at which it intersects a county road have been required to sign. Neighbors further removed from the subject property were not required to sign.
The main investors in the secondary mortgage market – Fannie Mae and Freddie Mac – ask that a written road-maintenance agreement be included in the loan package. The agreement has to be perpetual, one that is binding for any future owner.
Some lenders, especially those “portfolio” lenders who do not sell loans to the secondary market, say they will work with owners if a road-maintenance agreement is the only blip in their loan package.
But there’s a lesson here. If you are buying property off the beaten track, find out if you will be asked to repair the track. It’s usually part of the deal and the lender will want it in writing.
Tom Kelly’s new book “The New Reverse Mortgage Formula” (John Wiley &Sons) is now available in local bookstores and at Amazon.com.
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