Condo Financing and SB 326 Balcony Issues in LA and OC: What to Get Ahead of Before Buying or Selling in 2026

Elizabeth Sanchez · Broker Associate at Compass · DRE #02082844 · NMLS #1934440

Bilingual (English and Spanish) residential broker and licensed mortgage loan originator serving Southeast LA, San Gabriel Valley, East LA, Long Beach, and Orange County. Team Sanchez Real Estate specializes in first-time buyers, residential investors, veterans, and multi-generational households. Elizabeth’s dual license (real estate broker + mortgage loan originator) gives condo clients aligned guidance across the HOA due diligence side and the financing side of a condo transaction.

Updated August 6, 2026.

Two forces have quietly reshaped the LA and OC condo market since 2020. First, California SB 326 (Civil Code §5551) required HOAs of every condominium building with elevated exterior elements (balconies, decks, walkways, exterior stairs) to complete a licensed structural inspection by January 1, 2025. Second, the June 2021 Champlain Towers South collapse in Surfside, Florida triggered Fannie Mae and Freddie Mac to tighten condo project financing standards nationwide, requiring detailed HOA questionnaires that scrutinize deferred maintenance, reserves, and structural integrity.

The combined effect is that LA and OC condo transactions in 2026 face substantially more scrutiny than they did five years ago. Buildings out of compliance with SB 326 face daily $500 penalties and negligence exposure. Buildings with insufficient reserves or unresolved deferred maintenance get flagged by lenders and cannot support conventional Fannie or Freddie financing. Buyers who discover these issues mid-escrow lose deals or renegotiate at discounts. Sellers who learn about them at listing time watch price expectations reset. Neither side sees this coming unless they get ahead of it.

This guide covers what SB 326 actually requires, why the January 2025 deadline was a big deal that many HOAs still have not addressed, what Fannie Mae and Freddie Mac condo project requirements look like in 2026, how to check whether a specific building is warrantable, the buyer’s and seller’s due diligence checklists to run before an offer is signed, and how these issues typically break deals when they surface too late in escrow. It is written from the perspective of a residential broker who is also a licensed mortgage loan originator (NMLS #1934440) because condo transactions in 2026 require aligned guidance across the property side and the financing side.

What SB 326 actually requires

SB 326 became California law effective January 1, 2020 (Civil Code §5551). It applies to condominium associations for buildings with three or more multifamily units that have exterior elevated elements (EEEs). EEEs include:

• Balconies
• Decks
• Porches
• Stairways
• Walkways
• Entry structures elevated more than 6 feet above ground level and supported substantially by wood or wood-based products

The requirement is simple in concept: HOAs must have a licensed professional visually inspect a statistically significant sample of these elements to confirm safe condition. Any elements found unsafe must be repaired promptly. The inspection results become part of the HOA’s records.

Inspector qualifications. Originally the law restricted inspections to licensed structural engineers or licensed architects. Senate Bill 2114 expanded eligibility to add licensed civil engineers, addressing capacity constraints that emerged in 2024 as the deadline approached.

Sample size. The inspector examines at least 15% of each type of EEE in the building. If the sample reveals defects, more elements are inspected.

Report required. The inspector produces a written report identifying condition, defects, and recommended repairs. The report becomes part of the HOA’s records and must be available to unit owners.

Timing: Initial inspection deadline was January 1, 2025 for condominiums. Subsequent inspections required every 9 years thereafter.

Distinct from SB 721. SB 721 covers the same territory but applies to apartments (buildings with 3+ multifamily units where units are rented, not owner-occupied condos). SB 721’s compliance deadline for existing apartments was January 1, 2026. Together, SB 326 and SB 721 cover essentially every multifamily building with elevated wood-framed elements in California.

The January 1, 2025 deadline: what happened and where things stand

Many HOAs did not complete inspections by the January 1, 2025 deadline. Reasons include: capacity constraints among qualified inspectors, HOA boards under-informed about the requirement, unit owners resistant to the special assessments needed to fund inspections and any resulting repairs, and management companies inconsistent in escalating the issue.

Consequences of non-compliance:

• Civil penalties up to $500 per day for continuing violations
• Potential “negligence per se” finding in any injury litigation involving an inspected element that should have been inspected
• HOA insurance carriers may deny coverage or refuse renewal
• Lender scrutiny during unit sales
• Board member personal liability exposure in some circumstances

Current state of the market. As of 2026, many older LA and OC condo buildings still have not completed SB 326 inspections or have completed inspections that revealed repair requirements the HOA has not yet funded. Buyers looking at older beach-adjacent Long Beach condos, older Marina del Rey inventory, older SGV condo complexes, and older OC condo tracts are more likely to encounter compliance gaps.

Why lenders now care about SB 326 (and everything else)

The June 2021 collapse of Champlain Towers South in Surfside, Florida killed 98 people and exposed a nationwide pattern of deferred maintenance in aging condo buildings. Fannie Mae and Freddie Mac responded within months by tightening condo project financing requirements.

Temporary Requirements (October 2021). Fannie Mae and Freddie Mac issued lender letters requiring specific HOA questionnaire responses about significant deferred maintenance, unfunded repairs, and structural inspection reports. Buildings with unresolved issues became ineligible for Fannie or Freddie financing.

Permanent Requirements (2023-2026). The temporary requirements evolved into permanent standards. Every condo loan now requires a Condo Project Questionnaire (Fannie Mae Form 1076 or Freddie Mac Form 476) completed by the HOA or management company. Lenders review the responses for red flags.

2026 updates. In March 2026, Fannie Mae issued Lender Letter LL-2026-03 and Freddie Mac released a corresponding bulletin, further tightening standards. Notable: Fannie Mae raised the required HOA reserves contribution to 15% of assessments (up from 10% previously). Some changes phased in through 2026 and into early 2027.

What this means practically. A buyer applying for a Fannie- or Freddie-backed loan on a condo in LA or OC in 2026 needs the HOA to demonstrate:

• SB 326 inspection completed with no unresolved unsafe conditions (California-specific)
• Adequate reserves (Fannie: 15% of annual assessments minimum, or reserve study support for lower)
• No significant deferred maintenance
• No special assessment in progress that would affect the unit
• HOA insurance with required coverages
• Delinquency rate below 15% (Fannie) among unit owners
• Investor concentration below 50% (owner-occupancy requirements)
• No litigation threatening the association’s financial viability

Buildings that fail one or more of these checks are non-warrantable. Non-warrantable condos can still sell, but buyers need portfolio lender financing (typically 15-25%+ down, higher rates, tighter qualification) or cash. Both options shrink the buyer pool and reduce the sale price.

Warrantable vs non-warrantable: what the labels actually mean

Warrantable condo. Meets Fannie Mae and/or Freddie Mac project standards. Buyers can use conventional 30-year fixed-rate financing with as little as 3% down (first-time buyer programs) or 5% down (standard conventional). FHA and VA also have condo project approval processes with parallel standards.

Non-warrantable condo. Fails one or more Fannie or Freddie standards. Common reasons:

• Investor concentration above 50% (too many rentals)
• Single owner controls more than 20% of units
• HOA in significant litigation
• Inadequate reserves
• Significant deferred maintenance including unresolved SB 326 issues
• Commercial/retail space above allowable percentage
• Insurance shortfalls
• Delinquency above 15%
• Special assessment in progress that materially affects the buyer

Financing paths for non-warrantable condos:

• Portfolio lender loans (higher rates, larger down payments)
• Bank statement loans (self-employed borrowers)
• Cash purchase
• Some private jumbo lenders willing to work outside Fannie/Freddie standards

Price implication. Non-warrantable status reduces the price meaningfully. A comparable warrantable unit and non-warrantable unit in the same LA or OC market can differ by 10-20% in sale price simply because the warrantable unit has a much larger buyer pool with better financing terms.

What buyers need to get ahead of

Step 1: verify condo project warrantability before writing an offer.

The listing agent or seller can typically confirm whether the building is Fannie-approved, Freddie-approved, FHA-approved, and/or VA-approved. If any of these are unclear, get the HOA questionnaire completed and returned before serious pursuit. Team Sanchez requests project status early in any condo transaction.

Step 2: request the SB 326 inspection report.

Ask specifically: “When was the SB 326 inspection completed? By whom? Were any elements found unsafe? What is the repair status?” A California condo HOA that cannot produce this report as of 2026 is a red flag.

Step 3: review the HOA reserve study and financial statements.

The reserve study (typically updated every 3 years) projects long-term capital needs. Compare projected needs to actual reserves. A building with a $5M projected 10-year capital plan but $200K in reserves has a special assessment coming, and buyers pay for it either directly or through reduced sale price.

Step 4: read HOA meeting minutes for the past 12-24 months.

Minutes reveal: pending litigation, discussion of major repairs, insurance issues, board disputes, delinquency trends, plans for special assessments. Boilerplate minutes with no substance signal a management gap. Detailed minutes with substantive discussion signal an engaged board (positive) or ongoing problems (mixed).

Step 5: verify HOA insurance.

Master policy should include:

• Hazard/property (building coverage at full replacement)
• General liability
• Directors and officers (D&O)
• Fidelity/crime (protects against theft by management or board)
• Earthquake (California-specific; often excluded and needs separate purchase)

Post-Surfside, lenders increasingly scrutinize insurance shortfalls. A building with inadequate coverage cannot support Fannie/Freddie financing.

Step 6: check for special assessments in progress.

Any current special assessment, or one likely within 12 months, materially affects the buyer’s cost of ownership. Ask directly, and read the last 24 months of minutes for warning signs.

Step 7: verify investor concentration and owner-occupancy percentage.

For Fannie/Freddie eligibility, investor concentration below 50%. For FHA condo approval, owner-occupancy at least 50%. Concentrations outside these thresholds create financing limits.

Step 8: understand pending litigation.

Some litigation (routine contractor disputes) is normal. Significant litigation involving the building itself (structural claims, developer disputes, insurance disputes) can render the building non-warrantable and can create surprise assessments if the HOA loses.

What sellers need to get ahead of

Step 1: order HOA docs before listing.

Don’t wait for the buyer’s due diligence. Request the current HOA questionnaire (Fannie Mae Form 1076 or Freddie Mac Form 476), reserve study, financial statements, 12-24 months of minutes, insurance certificate, and SB 326 inspection report. Cost: typically $100-$400 depending on management company.

Step 2: confirm SB 326 compliance and any repair status.

If the inspection was completed and revealed no unsafe conditions: the report is a marketing asset. If the inspection revealed conditions that required repair: confirm repair completion and get documentation. If the inspection has not been done: contact the board about scheduling.

Step 3: verify current warrantable status.

Ask the HOA or management company directly: “Are we currently Fannie Mae approved? Freddie Mac approved? FHA approved? VA approved?” Get written confirmation. If the building has fallen off any list, address before listing or price accordingly.

Step 4: address any known deferred maintenance disclosure obligations.

California disclosure law requires sellers to disclose known material facts. Deferred maintenance in common areas, ongoing repair projects, and known SB 326 issues typically qualify. Non-disclosure creates post-close liability. Better to disclose fully at listing and price accordingly.

Step 5: understand any pending special assessments.

An assessment already voted on but not yet collected transfers to the buyer at close (buyer inherits the payment obligation, or the seller pays it at close depending on agreement). An assessment being discussed but not yet voted on is disclosure-required.

Step 6: pre-empt buyer concerns with a disclosure package.

Team Sanchez condo listings include a pre-assembled buyer disclosure package with all major HOA documents. Buyers who see the package upfront submit stronger offers because they have already done their initial due diligence.

Step 7: understand pricing implications of non-warrantable status.

If the building is non-warrantable and cannot be brought into warrantable status before listing, the pricing must reflect a smaller buyer pool. Cash and portfolio lender buyers pay less than warrantable financing buyers. Pricing a non-warrantable unit at warrantable comparable value creates a stale listing.

How these issues typically break deals

Failure mode 1: buyer discovers non-warrantability during loan underwriting. Buyer submits an offer assuming standard financing works. Loan officer requests HOA questionnaire. Response reveals non-warrantable status. Loan cannot close as structured. Buyer either walks (loses deposit if past contingency period, keeps deposit if within) or renegotiates for larger down payment plus higher rate portfolio loan, often with price concession.

Failure mode 2: HOA cannot deliver required documents in time. Buyer’s lender requires the current condo questionnaire within a specific timeframe. Management company slow to respond, or HOA refuses to complete questions accurately. Loan does not clear underwriting. Escrow extended, sometimes indefinitely.

Failure mode 3: SB 326 inspection uncovers unsafe conditions mid-escrow. Rare but possible when an HOA is completing inspections during an active listing period. If unsafe conditions are found, the HOA typically funds emergency repairs through special assessment. Buyer inherits the assessment obligation or renegotiates.

Failure mode 4: appraiser flags visible deferred maintenance. Even independent of SB 326, an appraiser who observes obvious deferred maintenance in common areas (cracked concrete, peeling paint, damaged balconies) may condition the appraisal on repair. Fannie Mae appraisal condition rating C6 (severe deferred maintenance) typically blocks conventional financing.

Failure mode 5: seller disclosures conflict with HOA financial reality. Seller states no special assessment is pending. HOA minutes reveal an assessment in active discussion. Buyer’s attorney raises the discrepancy. Escrow stalls.

What buyers and sellers most often get wrong

Mistake one: assuming all condos are financially interchangeable. Two identical-looking units in adjacent buildings can have very different financing paths. Verify at the building level before assuming warrantability.

Mistake two: skipping the reserve study. The reserve study is the single most predictive HOA document about future special assessments. Buyers who read it avoid surprises. Sellers who understand it price appropriately.

Mistake three: not reading HOA minutes. Board minutes tell the truth about the association’s health. Buyers who skip them miss red flags. Sellers who read their own building’s minutes before listing can prepare for buyer questions.

Mistake four: waiting to check warrantability. Warrantability check should happen before offer, not during loan underwriting. Buyers who defer this create last-week-of-escrow surprises.

Mistake five: assuming a beautiful lobby means a healthy HOA. Cosmetic maintenance and structural maintenance are different. A polished lobby with unresolved balcony repairs is common.

Mistake six: not verifying SB 326 status specifically. California-specific issue that generic condo checklists miss. Every LA or OC condo built before ~2000 with wood-framed balconies needs SB 326 inspection status verified.

Mistake seven: seller not disclosing known issues. California disclosure law is strict. Non-disclosure of known material HOA issues creates post-close litigation exposure. Full disclosure at listing time protects the seller.

Mistake eight: buyer not budgeting for post-close special assessments. A building may be currently warrantable and pass all checks but still have foreseeable capital needs that will trigger assessments within 5-10 years. Reserve study projections indicate this. Buyers who ignore projections get surprised.

The closing thought

Condo transactions in LA and OC in 2026 are more complex than they were before Surfside and before SB 326. Fannie Mae and Freddie Mac scrutinize HOA financials and structural integrity in ways they did not five years ago. California requires balcony inspections that many HOAs still have not completed. Non-warrantable condos face smaller buyer pools and lower sale prices. Special assessments arrive with less warning than owners expect.

The buyers who navigate this successfully do the due diligence early: request HOA docs before writing offers, check warrantability up front, read the reserve study and minutes carefully, verify SB 326 status specifically. The sellers who navigate this successfully get ahead: assemble the disclosure package before listing, confirm compliance status, address disclosure obligations honestly, and price to the reality of the current building’s warrantability.

Team Sanchez Real Estate handles condo due diligence for both sides of the transaction and coordinates with lenders on warrantability verification. Elizabeth’s dual license as a residential broker and mortgage loan originator (NMLS #1934440) means condo clients get aligned guidance across HOA document review and financing structure. Contact Elizabeth at elizabeth.sanchez@compass.com, (323) 599-3563, or through the Compass profile to discuss a specific condo purchase or listing.

Frequently asked questions

What is SB 326?

California Civil Code §5551, enacted in 2019 and effective January 1, 2020. It requires condominium HOAs to have exterior elevated elements (balconies, decks, walkways, stairs) inspected by a licensed structural engineer, architect, or civil engineer. First inspection deadline was January 1, 2025. Subsequent inspections every 9 years.

What is the difference between SB 326 and SB 721?

SB 326 applies to condominium associations. SB 721 applies to apartment buildings (rental multifamily). SB 721 initial deadline was January 1, 2026. Both cover similar exterior elevated elements.

My condo HOA did not do the SB 326 inspection by January 2025. What happens?

The HOA is out of compliance. Consequences include daily penalties up to $500, negligence exposure in injury cases, potential insurance coverage issues, and lender scrutiny during any unit sale. The inspection should be completed as soon as possible.

Do all condos require SB 326 inspection?

Only buildings with 3+ multifamily units that have exterior elevated elements supported substantially by wood or wood-based products. Newer concrete-frame buildings without wood-supported elements are exempt. Verify at the building level.

What is a warrantable condo?

A condo in a project that meets Fannie Mae and/or Freddie Mac project standards. Warrantable status allows buyers to use conventional 30-year fixed-rate financing with lower down payments and standard rates. Non-warrantable requires portfolio financing or cash.

How can I find out if a condo is warrantable?

The listing agent or HOA management company can typically confirm current Fannie Mae, Freddie Mac, FHA, and VA project approval status. A lender can also verify by requesting the Condo Project Questionnaire.

What is the Condo Project Questionnaire?

Fannie Mae Form 1076 or Freddie Mac Form 476 (equivalent). A standardized document the HOA or management company completes to confirm the project meets Fannie/Freddie standards. Now required on every condo loan.

What are the 2026 Fannie Mae condo reserve requirements?

Fannie Mae requires HOAs to allocate at least 15% of gross assessments to reserves, or provide reserve study documentation supporting a lower amount. Below this threshold flags the project for additional review.

Does an FHA loan work on any condo?

Only if the condo project is FHA-approved. FHA condo approval is a separate process from Fannie/Freddie warrantability. Many condo projects are approved for one and not the other.

Can VA loans finance condos?

Yes if the condo project is VA-approved. Similar to FHA, VA condo approval is a separate process. Verify project approval status before offering with VA financing.

What is a non-warrantable condo?

A condo project that does not meet Fannie or Freddie standards. Common reasons: high investor concentration, deferred maintenance, insufficient reserves, HOA litigation, single-owner concentration, insurance shortfalls, delinquency above 15%.

Can I still buy a non-warrantable condo?

Yes, with different financing. Portfolio lender loans (larger down payment, higher rate), private jumbo lenders, or cash purchase. Non-warrantable status typically reduces the sale price 10-20% compared to warrantable equivalent.

How much are typical SB 326 repair costs if my building fails inspection?

Varies widely. Minor issues: a few thousand dollars per element. Major issues: $500K-$5M+ for a full building rebuild of wood-framed balcony systems. Repair costs typically flow to unit owners through special assessments.

Should I get the HOA docs before making a condo offer?

Yes, if possible. At minimum, verify warrantability and confirm SB 326 status before writing. Full disclosure package review (financials, reserve study, minutes, insurance) should happen during your contingency period.

Does a special assessment affect the buyer or the seller?

Depends on timing. Assessments already voted on but not yet collected typically transfer to the buyer at close unless negotiated otherwise. Assessments being discussed but not yet voted on are disclosure-required.

What if the HOA refuses to provide documents?

California law requires HOAs to provide certain documents to prospective buyers upon request (subject to fees). A management company that refuses or delays creates escrow risk. Team Sanchez escalates directly with management when this happens.

How long is an SB 326 inspection valid?

9 years from the initial inspection date, unless conditions change or repairs are made.

Are surrounding units in my building affected if one unit’s balcony is unsafe?

Yes, potentially. Load-bearing structural issues can extend beyond a single unit. The SB 326 inspection assesses the building’s shared exterior elements, not just individual units.

This guide is informational and reflects 2026 California SB 326 requirements and 2026 Fannie Mae / Freddie Mac condo lending standards as of publication. Requirements are subject to change and interpretation varies by inspector, lender, and specific project. This guide is not legal advice. For a specific condo transaction, consult with a California real estate attorney experienced in HOA matters, a lender experienced in condo project reviews, and a residential broker familiar with condo due diligence in your target submarket.