How SB 326 Is Shaping Home Values and HOA Stability

SB 326, Condo Lending, and What It Means for Homes in HOAs

When board members think about their role, they usually focus on budgets, maintenance, rule enforcement and long term planning. Rarely does anyone think about how the financial health of their community affects a buyer’s ability to get a loan. That changed when California introduced SB 326.

This episode of The Uncommon Area features guest John Farrell, a mortgage advisor who has spent the last several years watching condo lending transform in real time. He joined host Matthew Holbrook to explain how SB 326 has created one of the most complicated lending environments California has ever seen, and why HOA boards are now at the center of it.

What emerged in the conversation was a clearer picture of how inspections, reserves and deferred maintenance intersect with the lending rules that govern nearly every condo loan in the state.

A Bill That Changed More Than Safety

SB 326, also known as the Balcony Bill, was passed to ensure the safety of elevated structures like balconies, walkways and stairways. Associations must perform engineered inspections and act on the findings. For many communities, especially older ones, these inspections revealed long standing issues that had gone unnoticed.

John explained that this created an unexpected ripple. As soon as these inspection reports became part of the lending file, lenders began treating them as indicators of financial stability. A deck repair that once felt like a simple maintenance project now influences whether a buyer can secure a mortgage.

In the podcast, Matthew pointed out that even associations with strong reserve funding can suddenly look unstable once the true cost of repairs is documented. John confirmed this. A community might appear 85 or 90 percent funded, yet still face several million dollars in repair obligations once the inspections are complete.

Once that happens, lenders start asking difficult questions.

The Moment an HOA Lands on the Declined List

During the episode, John walked through one of the most alarming outcomes of this new lending landscape. If a community cannot demonstrate that repairs have been completed or funded, it risks being placed on the declined list by Fannie Mae and Freddie Mac.

That single designation shuts out almost all traditional financing options. According to John, roughly 80 to 90 percent of buyers rely on these programs. Without them, the only people left are cash buyers, and cash buyers are not interested in paying premium prices.

During the discussion, Matthew noted that this essentially pulls the floor out from under homeowners who want to sell. A buyer’s loan can collapse even when the individual unit is in perfect condition. If another building in the community has an unsafe balcony, the entire HOA becomes ineligible for financing.

John shared real examples where escrows fell apart days before closing because another lender updated the community’s file at Fannie Mae. A single change in inspection status triggered a chain reaction that halted multiple transactions.

Why Values Are Shifting in Opposite Directions

One of the most interesting insights from the conversation was the growing divide between strong HOAs and struggling ones.

Communities with completed inspections, completed repairs and stable reserve funding are seeing stronger demand. Buyers and lenders both gravitate toward stability. The safer the community, the higher the value.

Meanwhile, communities with deferred maintenance or incomplete repair plans are trending the other direction. They attract cash buyers who factor risk into their offers. Owners who cannot keep up with rising assessments often sell quickly, which pushes prices down. Investors step in, but at a discount.

Matthew and John agreed that these dynamics are accelerating. Two communities on the same street can now have very different financial outcomes based solely on their response to SB 326.

The Escrow Surprise That Board Members Need to Understand

A key theme in this episode is timing. A community might appear healthy during the early stages of escrow, yet fall out of eligibility once a new inspection occurs. Lenders examine the entire community, not just the unit being sold. If another unit has unsafe conditions, that becomes a lending problem shared across the HOA.

This situation is creating scenarios no one anticipated. Buyers strip their contingencies. Appraisals are done. Move-in dates are set. Then one new report arrives, and the loan can no longer be sold to Fannie Mae. The lender has to pull out. The buyer is left in limbo.

John described this as one of the most painful parts of the job. Buyers are eager and prepared, but the HOA’s repair obligations stop the deal.

How Boards Can Stay Ahead

The episode ends with a simple message from John. Boards must understand the role they now play in the lending ecosystem. Financial decisions do not just shape maintenance cycles. They shape salability, home values and the buying power of every owner.

He outlined four clear steps boards should take:

1. Complete inspections early.
Waiting increases the odds of surprises, and surprises disrupt lending.

2. Update reserve studies with real numbers from SB 326 reports.
Old projections cannot support new repair data.

3. Communicate the stakes to homeowners.
Owners are more willing to support assessments when they understand how financing works.

4. Work with professionals who understand how inspections and lending intersect.
This is no longer a simple facilities conversation. It is a market stability conversation.

A Market That Rewards Prepared Communities

The conversation with John Farrell on The Uncommon Area makes one thing clear. SB 326 did not only reveal structural realities. It revealed financial ones.

Communities that confront those realities head-on are already seeing stronger demand and higher values. Communities that postpone decisions or hope for leniency are discovering how quickly they can lose access to the lending programs that support home sales.

Board members often look for ways to improve value, protect owners and plan responsibly. In this new environment, inspections, reserves and transparency are some of the most powerful tools they have.

And as John said on the show, working with the right experts can make the difference between a community that thrives and a community that finds itself on the outside of the lending system.

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