A family was in the process of purchasing a downtown condo in Long Beach after moving from another state. They passed the appraisal and income verification without issues, but at the last minute, their loan approval was put on hold. The reason was not the condo itself, but the financial status of the HOA (Homeowners Association) managing the building. The lender pointed out that the reserve fund contribution rate was low and the percentage of delinquent units exceeded acceptable limits.

This situation is not uncommon. According to Fannie Mae's condo project review standards, lenders assess not only individual units but also the overall HOA's delinquency rate, reserve fund ratio, ongoing litigation, and the proportion of commercial space. If these criteria are not met, the property may be classified as a non-warrantable condo, leading to loan denial or unfavorable interest rates. While it may be easy to overlook the price of the listing when looking for condos, the financial health of the HOA is a crucial factor in whether a contract will be successful.

In the Long Beach condo market, monthly HOA fees in popular areas like Belmont Shore, downtown, and Naples range widely from $250 to over $600. Compared to the average monthly fees in nearby Los Angeles, which are around $340 to $388, Long Beach falls within a similar range. These fees typically cover building maintenance, master insurance, management of common facilities like pools and lobbies, landscaping, trash collection, and contributions to the reserve fund.

The Long Beach condo market features a mix of mid-rise buildings constructed between the 1960s and 1980s, along with newly built high-rises from recent years. Older buildings often approach the replacement point for major systems like plumbing, roofing, and elevators, making it essential to closely examine the reserve fund status. Conversely, new developments may have lower management fees in the initial years, so it's important to verify through a reserve study whether these amounts can be maintained in the future.

The documents that lenders review during condo assessments are more detailed than one might expect. They include the HOA budget, recent audit reports, the ratio of reserve fund balances to target contributions, and the number of units that are more than 60 days delinquent on fees. If any of these criteria are not met, the entire condo project may be put on hold for review, and in such cases, the buyer's credit score or income may not matter, leading to a loan blockage. Requesting HOA financial documents from the agent early in the process can save time.

California's Civil Code Section 5550 requires HOAs to conduct and update reserve studies regularly. Additionally, following the Surfside condo collapse in 2021, SB 326 mandates that buildings with three or more units must inspect exterior elevated elements like balconies and decks every nine years, with the first inspection deadline set for January 1, 2025. The results of these inspections must be reflected in the reserve fund plan, and HOAs that miss deadlines may face fines of up to $5,000 per violation. Older buildings should be mindful of the potential increase in reserve fund burdens following these inspections.

Key items to check before signing a contract include:

• Recent 2-3 years of HOA financial statements and reserve study results
• Delinquency rates and ongoing litigation
• Compliance with SB 326 balcony inspection and future special assessment plans
• Details of CC&Rs such as rental restrictions and pet policies

Rather than just comparing monthly management fee numbers, it's important to also consider how robust the reserve fund is, as this can ultimately reduce the risk of loan approval issues and future special assessments. This article does not constitute investment or legal advice, and it is recommended to consult with a real estate professional and loan officer before finalizing any contracts.