Addressing Community-Owned or Privately Maintained Streets
When the subject property is located on a private street, the appraiser must always include additional commentary. Most private streets are either community-owned or the maintenance of the private street is shared between a few owners. Most private streets have legally enforceable agreements for the maintenance of the street. Sometimes, private streets have only a “gentleman’s agreement” on the maintenance of the street. A private street without a legally enforceable agreement for its maintenance creates a risk for the lender and FNMA.
While a lender may still deliver a loan to FNMA that does not have a legally enforceable agreement for the maintenance of the private street, FNMA is clear that if they experience any losses or expenses due to the physical condition of the street, the lender would be responsible for the “reimbursement of losses or expenses.”
Keeping in mind and understanding that a well-written appraisal report helps the lender and the secondary market to identify and accurately gauge risk, the following questions should be asked during the interview with the homeowner or the homeowners’ association’s representative regarding private streets:
· Is there a legally enforceable agreement for the maintenance of the private street? In many cases, the subject’s HOA is the one responsible for the street’s maintenance particularly in PUD and condo projects. Always confirm this information during the interview, and always include the comment in the appraisal report. Do not assume that the presence of HOA fees alone satisfies FNMA’s requirements for comments on the existence of a legally enforceable agreement for the maintenance of the private street. When the subject is on a private street that is not associated with a PUD or condo project, it would be helpful to include comments on how many properties share in the street’s maintenance and how often the fee is paid. Always specifically disclose what you found out during the interview.
· Include comments if the private street does or does not affect the marketability of the subject.
· Disclose when you discover the subject’s private street DOES NOT have a formal agreement for the maintenance. Include additional comments on the physical condition of the street. Supplying additional photos of the private street would be prudent when there is no legally enforceable agreement as they would help support your comments on the street’s condition. Some states have statutory provisions defining the responsibilities of the property owners regarding maintenance of the private street. If the subject does not have a formal agreement, the appraiser should include an additional comment addressing if the subject is or is not located in one of these states.
For complete clarification and guidance, go to; https://www.fanniemae.com/content/guide/sel052714.pdf Community-Owned or Privately Maintained Streets is addressed on page 579.