More Inspectors. SB 326 (the “Balcony Bill”) passed almost five (5!) years ago, requiring associations with residential buildings that have three or more units to have their wooden “exterior elevated elements” inspected by a licensed architect or structural engineer prior to January 1, 2025.  Many associations have not completed this work, some citing inadequate availability of these inspection professionals. California’s legislature responded this week, by passing AB 2114. Effective immediately, community associations can also utilize Civil Engineers for balcony inspections.

Who’s Checking?  Clients, some of which face imposing six-figure assessments on their members to accomplish inspection and repair, have asked the necessity of compliance with this expensive bill. Besides the obvious liability facing the community should someone be injured on a failing walk or stairway, the real impact has been decertification by the federal government’s FHA, VA and FNMA secondary lenders, who ask management or seller the status of such inspections and repairs using a “HOA Cert” questionnaire during the underwriting process.  This has severely limited the secondary market for lenders offering financing on the units. While not lowering home values to a “cash value”, the pool of financing available to buyers within non-compliant communities becomes substantially more expensive.  For example, where FHA or FNMA might purchase a 6.6% note on the secondary market, the remaining investors may not bite until that return is 9 or 10%. The net result is a substantial lowering of the value of the units in non-inspected communities when compared to similar units in communities which have performed the inspections and repairs.    

Make it Less Painful to Maximize Value. It is our opinion that Boards of Directors should actively work to undertake the inspections and repairs – whether to prevent injury, comply with the law, or to maximize the value of units. Perhaps more importantly, we believe Board’s should approach their members at those meetings with funding solutions – including local loan professionals offering a “second” home equity lines of credit helping younger owners protect their underlying 3% loans, or “reverse” mortgages to free up equity which fixed-income or seniors may need to meet this and other future extraordinary expenses. Solution based approaches help owners understand that they have options and free them to make a “big picture” decision rather than feeling trapped by a lack of liquidity in their residence.