Today I’ll explain how FNMA (Fannie Mae) is killing transactions by requiring private road maintenance agreements. Sequim, Washington is rural America away from the hustle and bustle of the metropolis, the crime, the noise, and the pollution. Sequim really is what so many hard working people planning their retirement see as a genuine piece of Americana. Living in Sequim is like going back in time 20 or 30 years when people were always friendly, children were respectful of adults, and private property was . . . still private property owned and controlled by the homeowner.
Enter FNMA, the powerhouse that controls how mortgage companies and banks make loans and to whom they can make them. If you apply for a loan in a rural area like Sequim, beware buyer, because bureaucrats at FNMA may kill your purchase. Of course, this doesn’t just kill the buyer’s transaction. It also kills the sale for the homeowner, and may make a home virtually unsellable. Here is what is happening.
Private Road Maintenance – A True Story
A couple put their home up for sale in Sequim on a private road, which serves six other homes. This private driveway easement is a legal easement on the plat that created this little subdivision. That means this is a legally enforceable easement, and it is forever an easement that “runs with the land.” The easement (or driveway) is gravel, well compacted, and has not needed maintenance for 40 years, apart from an occasional filling of a small pothole with a shovel by one of the homeowners. The homeowners, like tens of thousands of rural homeowners on the Olympic Peninsula (and across America), never formed a formal homeowners’ association, and they have no intention of doing so. The original developer never created a formal road maintenance agreement in writing, and the homeowners who bought the lots got loans to build their homes, and subsequent owners also got loans to finance the purchase of these same homes. No one ever saw the need, nor did they want a road maintenance agreement. Why would they? The road never needed maintenance of any significant measure, and a shovel and twenty minutes once or twice a year filled any potholes. Why create a bureaucracy when none is needed?
The homeowners drove for four decades on this driveway, as they call it, without any need to discuss homeowners’ associations or road maintenance agreements.
An elderly couple in this subdivision decided to sell their manufactured home on one acre. The buyers are in their 70’s, too, and apply for a loan. They qualify for the loan, but their lender tells them days before closing that someone in the bureaucracy, i.e. the FNMA regulators in the sky who rule the underwriters, are threatening not to make the loan unless all seven homeowners agree to a written private road maintenance agreement, have their signatures notarized, and record it. The agreement must state that all private road maintenance expenses will be shared equally among the seven homeowners, or words to that effect.
Someone quotes this FNMA regulation (FNMA: B4-1.4-08):
A loan subject to FNMA (Fannie Mae) regulations requires rural areas like Sequim, Washington to do the impossible: get all homeowners on a private driveway or easement to sign a private road maintenance agreement. Many in the bureaucracy are generally quite ignorant of how this works. The vast majority of these bureaucrats, while good and honest people, have never actually been in the real estate business. One such person suggested that “it can’t be that complicated to get a private road maintenance agreement signed by all the homeowners. Can’t you just find one on the Internet?”
According to FNMA, if a written agreement cannot be obtained, “the lender must indemnify Fannie Mae for any losses or expenses it may incur due to the physical condition of the street or in order to establish and/or access thereto.” Since no lender on the face of the earth is going to agree to such an outlandish indemnification, one has to wonder if these bureaucrats ever had any real world experience in real estate.
For those of us in the field with our boots firmly planted on terra firma, living and breathing real estate, and for Realtors like me who practiced real estate law for 20 years and drafted hundreds of real estate documents, including many private road maintenance agreements (and litigated the language in these agreements), the naivete of these underwriting and FNMA regulators is shocking.
Why Require a Private Road Maintenance Agreement?
I asked one lending bureaucrat what motivation would any of the homeowners on a private road have to sign an agreement that obligates them to do something they have never had to do before? He acted as though he did not understand the question. These regulators will kill a loan before they will answer critically important questions, such as these.
- Who will hire an attorney to draft a legally sufficient private road maintenance agreement? Not the buyer. Not the seller. Not the homeowners.
- Who will pay that attorney’s legal fees?
- Who will track down all the true owners of the properties on the street and schedule appointments to present the private road maintenance agreement?
- Who will calculate the amount each homeowner should theoretically be charged for road maintenance? (It is theoretical because on most of these private driveways, there have never been any expenses or maintenance costs whatsoever.) And the apportionment of road maintenance is not necessarily equal. The homeowners at the beginning of a long driveway will argue that they should not have to pay for the costs to maintain the road for a quarter mile when they only use one hundred feet.
- Who will meet with the homeowners and explain the purpose of the agreement, the interpretation of the language in every paragraph, and who will explain the legal significance of signing the agreement?
- Homeowners are likely to ask, “How is it all of us on this street got loans when we bought our homes, and we did not have to have a private road maintenance agreement then?”
- The biggest question that seems to escape the regulators is this one, “What motivation do homeowners have to voluntarily sign a private road maintenance agreement when they have never had the need for one?”
The bottom line is that there is virtually no possibility 20 or 10 or even seven homeowners will all agree to sign a private road maintenance agreement simply because one homeowner wants to sell their home to a buyer whose lender is subject to Fannie Mae regulation FNMA: B4-1.4-08.
The final result is that many homeowners will be unable to sell their homes, especially manufactured homes, subject to this profoundly unfair regulation. This regulation will hurt many elderly couples who must sell their manufactured homes on a private driveway due to health reasons or the death of a spouse. This regulation has never been enforced in the Sequim area, but now many elderly homeowners will find out that their homes are unsellable, since cash buyers are extremely rare for manufactured homes.
The regulators don’t understand real estate, and they certainly do not understand the implications of requiring private road maintenance agreements, or they would never have written such a profoundly ridiculous rule. Since a recorded easement, like the one in this story, is legally part of the real estate, a recorded deed of trust secures the loan with or without a road maintenance agreement. The potential problems they imagine for lenders is roughly one million times less than the problem they have created for buyers and sellers. Of course, the regulators never consulted with me or other Realtors in the business in rural areas, but there would have been an easy answer if they really felt themselves compelled by an overpowering desire to create such a regulation. They could have added an exception that allowed a lender to include a statement explaining why such an agreement would be inappropriate for the local real estate market and why it would create an undue burden on all parties involved. But they did not. Private road maintenance agreements should never be forced on private property owners by regulatory fiat.
UPDATE: I include this important update because some of you may face this nightmare, and after a great deal of legal research, telephone calls, emails, and administrative resources coming to bear on this issue, we found the solution in the state of Washington. Under the FNMA regs, if there is a state statute that does the same thing that a private road maintenance agreement would do, i.e. stating what is already true under the common law that everyone using the road is responsible for its care, then the FNMA requirement is met and the loan can be made in compliance with FNMA. Here is the specific language in the Washington law (HB 1349) that does this:
Summary of House Bill 1349 Provision:
An easement is a non-possessory interest in the land of another that entitles parties to a private right-of-way, embodying the right to pass across another’s land.
The cost of maintaining an easement is shared by the land owner and the persons with the legal right to use the easement. The parties can determine the terms of the maintenance in an agreement recorded with the county auditor. In the alternative, if the parties do not have an agreement regarding maintenance, the cost of maintaining the easement must be shared by the parties in proportion to their use of the easement. Each party is required to repair any damage that they cause due to negligence or abnormal use. In resolving conflicts between the parties, the frequency of each party’s use of the easement and the size and weight of their vehicles should be considered unless the agreement determines otherwise.
A civil cause of action for money damages, specific performance, or contribution may be brought if a party fails to maintain the easement according to an agreement or fails to pay their portion of the cost for maintenance in the absence of an agreement. The court may order the parties to submit to arbitration. The court (or arbitrator) may order any equitable relief that may be just under the circumstances, and must award the prevailing party all court costs, arbitration fees, and reasonable attorneys’ fees.
The act applies to all easements existing on or created after January 1, 2012. The act does not apply to any easement held by any public entity, railroad company or affiliate, and entity regulated under the forest practices law.
Update February 25, 2015: For reasons unknown, the above bill was passed in the house and the senate, but never passed in final form to become part of the RCW (Revised Code of Washington), and those bills languished since 2012 until now in 2015 when H-1237.1 has revived the old bills for creating a new law for private road maintenance. Finally, it appears that it will become law and save hundreds of thousands of homeowners from the dictates of FNMA that could kill the sale of their home (and the financing for the buyers). The final bill has not been passed as of today, but you should be able to track its progress and see the final bill as passed at this link: Washington Private Road Maintenance Agreements. The new law will be placed under Title 64 of the RCW, so that’s where you’ll be able to find it when it is finalized.
Update March 23, 2015: Sad news folks. The above bill has died. The politicians in Olympia probably have no idea of the importance of it, and they didn’t take any time to vote on it. No one cares. Oh boy. Wait until you try to sell your home on a private road and your buyer cannot get the FHA loan. Hundreds of homeowners will be affected by this, and imagine the devastation if you simply cannot sell your home to anyone getting a loan that requires FNMA involvement. By not passing this simple bill, many will not be able to sell their homes, except to cash buyers or those getting a conventional loan.
Update August 6, 2017: For a current update on the status of this legislation in the State of Washington, which is taking forever to get done, go to this special update page (which is really cool) showing the complete status of this bill in the house and senate: Chuck Marunde’s Update on the Private Road Maintenance Agreement problem.
Update March 20, 2021: The Washington state legislature has dropped this issue and apparently have no intention to pick it up. Again, they have no idea how important this is to their constituents, until they can’t sell their homes. All the Washington legislature has to do is pass the law that is in their file that have not passed, and this is settled, but believe me they don’t know how important this is. It’s a technical real estate issue, and they don’t know how important it is. The link in the last para shows the latest status of the bill. If you want to get something done, I suggest you email the link to this article to your Washington state representative.
Last Updated on August 7, 2014 by Chuck Marunde
Thank you very much for the information and the update. The update regarding the state statute is very helpful. I work for a lender and that law was our saving grace to help get our borrowers closed.
This article was very helpful. I was searching nationwide for an answer to my question, and you are the only one who answered it. Thank you and God bless you.
Seems to me this FNMA requirement is for “community owned” roads. Our private road is not that. Each lot provides an easement for ditch, road, utilities. An easement does not make it community owned. I give right of ingress and egress to neighbors, but still own my piece of the road. I think that is a key legal distinction that should overcome the federal requirement.
Gary, you should be right, but the issue goes to an underwriter who is not an attorney trying to satisfy a long complex list of underwriting requirements by HUD or FHA or HUD, and they are told by their supervisors they need to satisfy the formal written road maintenance requirement unless that state has addressed it by a specific law waiving that requirement.
Thnx for your well written article. I think it is frustrating that politicians won’t make the simple fix on this huge problem for homeowners. We were thinking about buying a home on a private road, but then we decided not to because of what’s going on with FHA loans on this.
Looks like the bill has been re-introduced on April 29th. I am dealing with this right now, and hope I can get the other owners to sign off on this agreement…
I’m also dealing with this stupid mess. Dirt road. Maybe 130 ft by 12 ft in dimension. What a crazy and stupid situation.
My neighbor has an easement on a shared driveway, but I’m looking to refinance a conventional loan into a lower interest rate VA loan. The bank won’t lend to me unless I can get my neighbor’s written maintenance agreement. This is why the framers of the Constitution devised the Constitutional Convention… to get rid of bad laws. If the 17th Amendment wouldn’t have been then state governments wouldn’t have ever allowed the FNMA in the first place. Write your legislators and hire a lawyer.
There’s a lot of frustration and anger out there, all because the politicians in Olympia have not solved the entire dilemma with a very simple bill that was already drafted a couple of year back. All they have to to is approve the bill. Why haven’t they? They don’t know the importance of the bill and how this is killing sales by homeowners all over Washington. Unfortunately, it takes a lot of angry people uprising before our politicians get their act together.
I received this email today:
My wife and I became victims of the Fannie Mae PRMA requirements last year. It would be impossible to get a PRMA with our neighbors. We are lucky none have killed each other. Are you aware of another legislative effort this year? Where does the opposition come from if you are aware?
I also got this call today, “I’m calling in regards to house bill 1841 that you got rolling down in olympia. We’re on a private road that involves the DNR, Warehouser, and an old railroad easement. There’s about 12 or 15 parties in here, and now they can’t sell their properties . . ” because everyone can’t agree to sign a private road maintenance agreement.
Note by Chuck Marunde: You will never get 100% to sign. Not going to happen. This is a Federal mess created by idiots at the FNMA and HUD and VA. Our state politicians can resolve it by passing the bill that was drafted years ago.
The House bill, now HB 1841, was reintroduced in Jan. 2016. I urge everyone with an interest, and your friends, to send a comment to your legislators at https://app.leg.wa.gov/pbc/bill/1841 . It’s as easy as a quick email.
19 of 24 parcel owners stepped up on a handshake when our bridge washed out over a year ago, and we got a culvert in. We stand a far better chance of collecting from the 5 holdouts, and revising our useless old covenants, with this bill in law. As this blog shows, these ugly little dramas are playing out badly all over our state, all the time. Let’s get this fixed.
Well, crap. Just heard back from Sen. Jim Hargrove: “Hi Richard, Thanks for the email. Unfortunately, this bill never made it out of the House Judiciary Committee, so I have not been able to vote on this. This bill failed to make the cutoff date to get over to the senate, so will not be eligible to pass this year. Best regards, Jim”
yup!! happened to us, key bank pulled a deal breaker ON CLOSING DAY!! Everyone refused to sign a simple road maintenance agreement!! What a nightmare…
Just yesterday after receiving a copy of the appraisal we paid for to obtain a HELOC, we are informed by the lender, a credit union, that we must provide a PRMA prior to closing. Jesus. Fortunately for us we don’t actually need the money, but this could pose so many problems for everyone on our road in the future. I might have a good chance of getting the 3 other property owners to sign something but it will have to be well crafted. What a croc of crap.
Thanks for your well written article.
Dealing with this issue right now, tryingtrying to track down neighbors to sign the agreement. At a stand still until we get this done. No signatures no closing
Just had a deal fall through in he DC Metro area for the same reason. Major banks are now defaulting to those standards on non fha and non fnma loans too.
Fairbanks, Alaska – dealing falling through as I write this. I am in utter disbelief about this and angry beyond words.
Michael, very sorry to hear that your deal is falling through because politicians cannot get their act together. Isn’t it amazing how far removed the lawmakers are from the rest of us ordinary folks. How many more people are going to lose their sales around the country because of this glitch in the federal regulations and state laws?
Ditto! Same thing happening to us in getting a refi for a property we have owned for 2 1/2 years in Island Park, ID. Sellers, Buyers and refinancing homeowners beware!
We are just sick to our stomach about this.
You are an honest straight shooteer who goes the extra mile. Thank you from a disabled veteran.
When the ‘coveryerass’ govmint gets involved you should expect nothing less. People, cooperate and make the beauracracy go away.
Im a realtor in the suburban Detroit area. And have a lender require it on a FHA deal. Private canal street. 11 homes. one owner will not sign. I did another deal fha 2 years ago and they did not require on a differant private road?
This isnt fun.
My mother passed away last year and we sold her house. The closing date was April 1,2017. The VA turned the veteran down because the house is on a private road. So the lender Chase bank says. do a conventional loan. We extended the closing date until April 14. The banker said it would close. Guess what? Three days before closing, the banker said they couldn’t do the loan because of the road! Now the closing date is April 24 and there are 15 residential properties on the road. The road is in great shape because everyone takes care of their portion. Now I have to work on a road agreement. It’s been a nightmare! The buyers are devastated and so are we because that’s our inheritance and we (my siblings) have plans. My sister was going to use her portion to build a new house (she always rented) so this is really screwed up! Help!!
Two years ago, the bank we have been using for 45 years for all our financial transactions, we asked for a refinance loan. All credit approvals were done and papers drawn up ready to sign. The appraiser noticed there was a shared driveway. Our loan disappeared because we couldn’t get all parties to sign a maintenance agreement. Since then the interest rate has increased by 2% on the second mortgage. Cannot refinance. What can we do?
I live in WA. I’ve lived on the west side, and currently live on the east side. I’ve seen a lot of dirt roads here, and I flat out don’t believe you that there’s a road in the state that hasn’t need maintenance for 40 years. Most of us get potholes and drainage issues regularly, and in a large portion of the state, we need to plow in the winter. So let me explain why you need such maintenance agreements. (You’ve been too focused on the sale to understand the legitimate reason, it seems.)
If I technically own the road, but all my neighbors have legal access, and let’s say the road needs work… just some grading and fill, but that costs $5k or $10k. (And yes, it does cost that.)
Without such a maintenance agreement, my neighbors could force me to shoulder the entire burden of the maintenance cost. They get to use it, but don’t have to pay. How is that fair?
Does anyone know what the latest is on this bill?
I think the reasoning behind the requirement is somewhat legit. Think about it in the banks perspective. What if the lend money on a house on a private road with no agreement. they end up foreclosing on the property and part of the road gets swept away in a flood or something like that. They just want a legally enforceable agreement that is recorded so they can guarantee the damage will be fixed. What if the house is the last house on the road and the banks house is the only home affected by the damaged road? They would not be able to sell the foreclosed property until the road is fixed and if there is not an agreement on file then they would be S.O.L
I couldn’t understand as I read the link to see if the law has passed in Washington yet. Has it?
Answer: Don’t think so. The politicians don’t seem to understand the importance.
There are ways around a PRMA. The appraiser has to follow Guidelines and use comparables with similar access and the buyer can then sign a statement.
Community-Owned or Privately Maintained Streets
If the 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:
• responsibility for payment of repairs, including each party’s representative share;
• default remedies in the event a party to the agreement or covenant fails to comply with his
or her obligations; and
• the effective term of the agreement or covenant, which in most cases should be perpetual
and binding on any future owners.
Note: 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.
If the property is not located in a state that imposes statutory requirements for maintenance, and
either there is no agreement or covenant for maintenance of the street, or an agreement or
covenant exists but does not meet the requirements listed above, the lender may still deliver the
If a legally enforceable, recorded use and maintenance agreement is not in place, the following
information will be acceptable:
• Statement from the borrower acknowledging the existence of the private road and his or
her responsibility to maintain and repair the road when necessary;
• Affirmative statement from the appraiser confirming the private road is common in the area
and is supported by comparable properties exhibiting the same characteristics. Additionally,
he appraiser must state the existence of the private road is not a detriment to
marketability, accessibility, or the value of the property;
• Comparable properties must be subject to the same access conditions;
• Appraiser must comment on the condition of the road and indicate that the road is in good
• Municipality or the appraiser must confirm that the private road does not detrimentally
affect the availability of public services for the property, particularly fire protection and
police protection; and
• Legal ingress and egress must be available to the property, and no exceptions may be noted
on the title report for these characteristics.
The property should front on a publicly dedicated and maintained street that meets community
standards and is accepted in the market area. Streets must provide all-weather access to all
buildings for essential and emergency use, including access needed for deliveries, service, and
maintenance and fire equipment. All-weather surface is defined as a road surface over which
emergency and the area’s typical passenger vehicles can pass at all times.
Private streets must be protected by a permanent easement, and maintained by a homeowners
association or joint maintenance agreement.
If the property fronts a street that is not typical of those found in the community, the appraiser
must address the effect of that location on the marketability and the value of the subject
property. The presence of sidewalks, curbs, and gutters, street lights, and alleys depends on
local custom – if they are typical in the community, they should be present on the subject site. A
street that does not meet city or state standards frequently requires extensive maintenance,
and property values may decline if it is not regularly maintained.
If the property is on a community-owned or privately-owned and maintained street, an
adequate, legally enforceable agreement or covenant for maintenance of the street is required.
Private streets and shared driveways must be protected by permanent recorded easements or
be owned and maintained by a homeowners’ association. The recorded easement must be
reviewed and approved by the underwriter. Evidence of a road maintenance agreement is not
I am currently working on one where the comparables aren’t on private land and so it may not get done. But hopefully the above may help some of you.
Diana, I’m slow in thanking you for your great detailed comment, but I want to thank you publicly. Bless you.