Here's a comprehensive guide to SB 326, how it can affect your home sale, and what lenders and title companies can do to safeguard the process:
🛠 What Is SB 326?
Senate Bill 326, often called the “Balcony Bill,” took effect on January 1, 2020. It mandates that HOAs governing condominium or multi‑unit buildings (3+ units) inspect all Exterior Elevated Elements (EEEs)—such as balconies, decks, stairways, walkways, railings—supported by wood or wood-based materials and at least 6 feet above ground. These inspections, which must be done by licensed structural engineers, architects, or qualified contractors, aim to help prevent structural failures like the tragic 2015 Berkeley balcony collapse.
- Initial deadline: by Jan 1, 2025 (no extension for HOAs under SB 326)
- Re-inspection frequency: every 9 years
- Inspection scope: statistically significant random sample (95% confidence level, ±5% margin) of EEEs, with visual checks, moisture meters, borescopes, or infrared tech as needed; inspectors may dive deeper if they detect issues
- Reporting: findings must be documented in a stamped report and included in the HOA’s reserve study; emergency threats must be reported to the local building department within 15 days and access restricted
Non‑compliance may trigger fines, enforcement actions, liens, additional HOA liability, and threaten insurance coverage.
🏠 Impact on Home Sales & Escrow
1. Closing Delays or Cancellations
Lenders often require the HOA’s SB 326 compliance before funding a mortgage. If inspections aren’t complete or repairs are pending, escrow may be delayed or canceled.
2. Buyer Financing Issues
Without HOA inspection proof, lenders may refuse loans, forcing buyers to pay cash—or cancel the deal altogether .
3. Unforeseen Special Assessments
Buyers may inherit large repair bills if inspections reveal hazards and the HOA needs to levy special assessments via the sale process. Sellers should proactively check HOA compliance to avoid surprises .
🔧 How to Prevent Backing Out of Escrow
Sellers & Homeowners:
- Obtain inspection reports early: Request the HOA’s SB 326 compliance report before listing; attach it to your escrow documents .
- Verify compliance: Confirm all inspections, emergency repairs, and non-emergency plans are in order.
- Share with lender: Provide reports to buyer’s lender to confirm financing eligibility
When Selling:
- Clarify obligations ahead: Work with the HOA to ensure inspections are done and funds for any repairs are reserved.
- Document disclosures: Clearly disclose pending SB 326 requirements to avoid contract surprises.
🏦 What Your Lender Can Do
- Review SB 326 report: Confirm lender requires inspection documentation from HOA.
- Coordinate with title/escrow: Ensure inspections and repairs are tracked during escrow.
- Include contingencies: Insert clauses allowing cancellation or renegotiation if HOA compliance is absent or repairs exceed expected costs.
🏢 How Title/Escrow Companies Can Help
Title Companies:
- Preliminary title report: Identify any recorded liens related to unpaid compliance fees or special assessments.
- Municipal lien letters: Check for outstanding local fees or code violations related to SB 326.
- Title insurance: Issue policies post-closing, but only after title defects are cleared.
Escrow Officers:
- Track HOA documentation: Ensure receipt of SB 326 reports before scheduling closing.
- Assess escrow impounds: Set up funds for repairs or HOA dues if needed.
- Maintain timeline: Coordinate signings, lender closing disclosures, and funding with SB 326 compliance in mind.
✅ Summary Checklist
PartyAction
Seller: Request and share SB 326 report, verify repairs & compliance
Buyer: Review HOA compliance prior to escrow, confirm with lender
Lender: Require compliance documentation, include contingencies
Title: Request municipal lien letters, ensure title clarity impound funds if necessary, align milestone schedules
Final Thoughts
SB 326 is an essential safety law but poses practical hurdles in real estate transactions if overlooked. By proactively verifying HOA inspections, sharing documentation early, and coordinating between lenders, title, and escrow, you can avoid last-minute surprises and protect your escrow from falling apart. This level of diligence ensures smooth closings, avoids financing hiccups, and preserves both value and safety for buyers, sellers, and lenders alike.
Let me know if you'd like a sample HOA escrow clause, template review, or personalized guidance for your property.
Tina Lucarelli - Global Real Estate Advisor - (310) 738-8089 - DRE 02102354 - The ONE Luxury Properties, Inc.
