SB 326: The New CA Law Quietly Affecting Condo Owners
This week I ran into a situation with a refinance client that perfectly illustrates how a relatively new California law is beginning to affect condominium owners across the state.
The law is California Senate Bill 326 (SB 326). It was passed after several tragic structural failures in residential buildings and requires condominium associations to inspect what the law calls “exterior elevated elements.” These include balconies, decks, walkways, stairways, and similar structures that are elevated above ground and supported by wood or wood-based framing.
Under SB 326, condominium associations must hire a licensed architect or structural engineer to inspect these elements and determine whether they are structurally sound and properly waterproofed. The purpose is straightforward: identify deterioration early so that safety issues can be addressed before they become dangerous. The inspections were originally required to be completed by January 1, 2025, but the state later extended the deadline to January 1, 2026 to give HOAs additional time to complete the process.
On its face, the law is a sensible safety measure. But it is now beginning to create very real consequences in the lending world. This week I was working on a refinance for a condo-owning client here in Los Angeles. The loan had already cleared underwriting. Income had been verified, credit approved, and the appraisal completed. We were literally about a week away from closing, and every condition on the loan had been cleared except one final item.
During the lender’s review of the condominium project’s questionnaire, they discovered that the HOA had recently completed its SB 326 inspection. The inspection report identified 18 balconies in the complex that require repairs. An important detail: my client’s balcony was not one of them. His unit passed inspection without any issues. Unfortunately, that didn’t matter. Once an inspection identifies structural repairs anywhere in the building, lenders must treat the entire project as having critical deferred maintenance until those repairs are completed. From a lending perspective, the issue is not tied to an individual unit—it applies to the entire condominium project.
The lender explained it to us very clearly. If repairs are in progress, the HOA must provide documentation outlining the repairs they intend to make, along with a maintenance schedule, projected costs, and a timeline for completion. Without that documentation, the project can be considered ineligible for financing due to critical repairs.
Even if the HOA does provide a repair plan, the lender may still need to submit the entire project to Fannie Mae for a second-level review. And that introduces another layer of risk. If Fannie Mae determines the repair plan is insufficient or the issues are too significant, they can designate the project as “Unavailable.” When that happens, the complex effectively becomes non-warrantable, meaning virtualy no lender in the country will finance units in the building until the repairs are completed.
In my client’s case, this means he cannot refinance his loan right now. Until the HOA completes the required repairs, the project remains extremely difficult for lenders to approve. But the larger issue this raises goes beyond refinancing. If my client decided he wanted to sell his condo tomorrow, a buyer who needed financing would likely run into the exact same obstacle. Even though his individual unit has no balcony issues, lenders would still evaluate the condition of the entire project. If unresolved structural repairs exist anywhere in the complex, a buyer’s loan could be denied.
That means the pool of potential buyers can suddenly become much smaller, often limited to cash buyers or alternative financing options. In situations like that, liquidity in the building can slow down and, in some cases, property values can come under pressure until the repairs are completed and the project becomes financeable again. This is why SB 326 is becoming more than just a building maintenance issue. It’s quickly turning into a financing and marketability issue for condo owners across California.
Now that the SB 326 inspection deadline has passed, many HOAs across California are finally completing their required balcony inspections — and the results are beginning to affect refinancing and resale transactions in real time. For HOA boards, having a clear repair plan, timeline, and funding strategy will be critical. For condo owners and buyers, it will become increasingly important to understand the condition of the building and how the HOA plans to address any required repairs. Situations like this serve as a reminder that in real estate, the condition of the entire building can sometimes matter just as much as the condition of the individual unit.
