The Overlooked Consequence of SB 326

If you own a condominium in California, the ripple effects of SB 326 may be closer to home than you think.

The law was enacted in 2019 after the tragic 2015 Berkeley balcony collapse that killed six people. It requires condo associations with three or more units to inspect wood-framed balconies, decks, walkways, and stairs six feet or higher every nine years, and to make repairs when structural issues are found.

While the goal is safety, these inspections often expose significant repair needs — dry rot, termites, water damage, or structural deterioration — that bring another consequence: FNMA ineligibility.

How It Happens

Here’s the common scenario:

A condo owner lists their unit for sale, finds a qualified buyer, and enters escrow. Just before closing, the lender discovers that the HOA’s SB 326 inspection report identified balconies or walkways needing repair. Suddenly, the sale collapses — not because of the unit, but because the HOA’s repairs remain incomplete.

The HOA may have followed SB 326 to the letter, completing and filing its report. But from Fannie Mae’s (FNMA) perspective, compliance alone isn’t enough. Once “critical repairs” are identified, FNMA can classify the entire project as non-warrantable, blocking conventional loans and lowering property values across the community.

“My Unit Doesn’t Have a Balcony — So I’m Fine, Right?”

Unfortunately, no.

If any critical repairs are flagged within the association, the entire project can lose warrantability — regardless of whether your individual unit is affected. Buyers using Fannie Mae or Freddie Mac loans will be unable to close, shrinking the buyer pool and depressing home prices for everyone.

Where SB 326 and FNMA Standards Collide

SB 326 was designed to prevent tragedy, but FNMA’s post–Surfside Tower-collapse lending standards created a heightened focus on deferred maintenance and critical repairs.

Since 2022, FNMA has disqualified communities where:

• Critical repairs have been identified
• Required safety or structural repairs are pending
• There is evidence of deferred maintenance or litigation

Even if your HOA believes it is “compliant” with state law, unfinished or unfunded repairs can still make your project non-warrantable, freezing conventional loan approvals.

Freddie Mac applies nearly identical standards under its Project Assessment Request system, meaning that both agencies can effectively restrict lending until documentation of completed repairs is provided.

The Financial Fallout

Once a community becomes non-warrantable:

• Sellers may be unable to close escrows
• Buyers must use cash or “non-warrantable” loans (often 1.25% higher interest and 20% down vs. 3% for conventional loans)
• Boards that delay repairs risk value declines for all owners

Industry experts estimate 5,000 condo associations nationwide are already on Fannie Mae’s unavailable list — growing by 200–400 each month. And as interest rates drop, the market will heat up and the list will grow exponentially.

How to Check FNMA Project Status

Most HOAs only discover they’re ineligible after a sale falls through — but you can check proactively. This process must be completed by a Community Manager or Board Member.

Steps to Check Your Association’s Status

1. Visit condostatus.fanniemae.com/landing
2. Create a free account and log in
3. Search for your condominium association by name or address
4. If the project is listed as Ineligible, follow Fannie Mae’s on-screen instructions to submit updated documentation for review

Tip: If a lender says your project isn’t FNMA-eligible but the community doesn’t appear on the ineligible list, the issue may be related to the lender’s internal “blacklist”, not Fannie Mae itself.

Possible Search Results

1. No Findings Result

Meaning: Fannie Mae located the project and has no adverse information about its eligibility.
Note: This does not mean the condo is officially approved or reviewed — just that it isn’t flagged as ineligible.

2. Ineligible Conditions Result

Meaning: The project has one or more issues that don’t meet Fannie Mae’s requirements (e.g., deferred maintenance, litigation, or low reserves).
Next Step: Review the brief issue summary and use the provided link to submit documentation for reevaluation.

3. No Project Result

Meaning: Fannie Mae couldn’t locate the project based on the entered details.
Next Step: Try again using different search terms, and keep in mind that Fannie Mae doesn’t maintain data for every condominium project in the U.S.

What Managers and Boards Can Do

Be proactive and transparent — don’t wait until a sale fails to address SB 326 impacts.

• Educate Residents: Explain how SB 326 findings can affect financing and resale value.
• Prepare Realtors: Make sure your homeowners’ agents understand the community’s status and that buyers may need non-QM (non-qualified mortgage) or portfolio loans if the project is temporarily ineligible.
• Compile Lender Options: Keep a list of lenders experienced with non-warrantable condos so transactions can continue even under tighter lending conditions.
• Pursue FHA or VA Approval: FHA and VA maintain separate eligibility lists with different requirements, offering alternative financing paths for qualified buyers.

By expanding financing options and keeping owners informed, your community can minimize surprises, preserve marketability, and maintain liquidity in the resale market even when FNMA eligibility is temporarily lost.

Why This Matters

There’s a widening gap between legal compliance and lender compliance:

• SB 326 ensures inspections happen.
• FNMA requires those repairs to be completed and funded.

If your SB 326 report lists “0–1 year” repairs and the board hasn’t acted, your community faces more than a safety risk — it faces a marketability crisis.

The Bottom Line

SB 326 was meant to protect homeowners, not trap them. But until HOAs complete both inspections and repairs, many California condo owners will remain compliant with Civil Code but unfinanceable — caught between a well-intended safety law and a lending system that doesn’t bend.

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