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Private Road … A Hidden Killer!
Well, I hope everyone had a wonderful Thanksgiving, enjoyed time with family and friends, and took some time to reboot from this crazy business! I'm sorry I wasn't able to get my article completed in time last month, but I just had a schedule that wouldn't give me a second to catch a break! But, it gave me a chance to think about a great topic for this month's article and it was something that I personally ran into not too long ago on one of my VA transactions. I like to categorize them as one of the silent killers for VA loans: The dreaded Private Road Maintenance Agreement!
Imagine this … you're clipping along on your VA home loan and so far it's been smooth sailing! You have all of the veteran’s credit docs, their credit is fine, they have a perfect work history, their income is solid, they have a wonderful residual income, excellent assets, and an AUS approve/eligible that should essentially give you a clear to close. Now, depending on what part of the country you're in, you get your appraisal anywhere from 10 to 30 days from execution of the sales contract, and when that appraisal comes in, you see (if you happen to review appraisals) the box checked off for "Private Road.” The underwriter immediately adds a condition for a “Private Road Maintenance Agreement.”
So, you say to yourself, "I'll just call the listing agent and ask them for a copy. This is pretty standard. I mean, they must know they're on a private road, right? Wrong!" You quickly call the listing agent, request a copy of the Private Road Maintenance Agreement, and on the other end of the phone, you hear nothing! That five seconds of silence immediately triggers that "butterfly feeling" in your stomach and you instantaneously know there is no such agreement! What do we do? Is this deal dead? Can the veteran just sign an agreement all by themselves? Would executing that document alone be in their best interest? Will I be able to get two, five, 10 or in my case, I needed 60 neighboring houses to sign a legal document acknowledging their financial responsibility to a road they thought was the town’s responsibility? If this deal falls apart, who's head is on the chopping block? Is it the lenders’ responsibility, the buyer's agent, the listing agent or the seller? All of these questions quickly come out of the black hole every loan officer hates to admit exists and opens up a can of worms that could potentially kill your VA loan. This leaves the veteran without a house, possibly putting their deposit at risk, and who knows, they may not even have a place to live since they gave up the lease to the apartment they were renting. Luckily for me and my situation, I was able to go online to the Massachusetts Registry of Deeds, locate the Declaration of Trust for the Planned Unit Development (PUD) that nobody told us existed, located the easement right of way, and saw that the cost, maintenance and upkeep of the areas above and below the bituminous asphalt road was equally divided amongst the 60 homes in the subdivision! Dodged a huge bullet there! Let's just say we don't want that to happen again!
How do we avoid this nightmarish scenario? Well, the only way, which is absolutely critical in a post-TRID environment, is communication! As the loan originator, you need to make that call to the listing agent introducing yourself, explaining this is VA financing, and highlighting any special needs that could arise with the VA loan. Inform those agents about the private road requirements, pest inspection, water tests, minimum property requirements, and anything that can help your veteran close on their home. This goes a long way, especially with listing agents who are petrified of VA home loans. Who knows, it just might create a new referral partner for you! It's happened to me on more than one occasion. What a feeling, right? You did such a great job on this "difficult" VA home loan that the listing agent begins to refer clients to you because you made a "hard" loan easy!
Another, and I sometimes feel mortgage professionals don't do this enough, is take responsibility of the transaction and acknowledge the fact that you are a composer! The home loan buying process, thanks to the Consumer Financial Protection Bureau (CFPB), is now very much like a symphony. I mean, it was always a process that took coordination, but now more than ever, you need a "composer" to take that baton and guide a group of individuals in creating an exciting and special work of art—helping a veteran achieving the American dream of homeownership a reality! Nothing makes my day like a closing, but closing a home loan for a veteran holds a special place in my heart, I hope it does for you too!
My next article will be after the holidays, and I would like to take this opportunity to wish each and every one of you a very Merry Christmas, Happy Hanukkah, Kwanzaa and any other holiday you may celebrate!
Remember, if you haven't already, please take a minute and thank a veteran! They've done more for us than we could ever repay! This holiday season, let's all try to pay it forward to a veteran in the form of handshake, a cup of coffee, a dinner, a small present or just a thank you!
Richard M. Bettencourt Jr., CRMS, CMHS of Danvers, Mass.-based Mortgage Network is secretary of NAMB—The Association of Mortgage Professionals. He may be reached by phone at (978) 304-0818 or e-mail email@example.com.
This article originally appeared in the December 2015 print edition of National Mortgage Professional Magazine.