Overview

California condo owners spent the past couple of years absorbing record-high special assessments and dues increases that seemed to have come out of nowhere. Some of that traces back to California’s insurance crisis, the balcony law (SB 326), and deferred maintenance and repairs. Most recently, Fannie Mae and Freddie Mac became a source of those increased assessments when they changed the rules for financing condo purchases (something that occurred on three separate occasions in 2026 alone) and announced further changes for early 2027.

The most important change already happened. For years, lenders could approve a condo loan without examining the HOA’s finances at all, as long as the buyer put enough money down. That shortcut disappeared on August 3, 2026. Lenders now have to pull the HOA’s full financial package on nearly every condo purchase in California, which means thousands of HOAs are having their books examined for the first time in a decade. Plenty of them won’t like what turns up.

The change still ahead is the one that should have every California condo owner asking questions right now. On January 4, 2027, the minimum amount an HOA must set aside for reserves rises by half. A condo project that satisfies both Fannie Mae and Freddie Mac today can fail the same test in just a few months. In fact, lenders will start applying the new number in December.

The timing puts a lot of California HOA boards in a bind that many haven’t even begun planning to address. HOA boards adopt their budgets months in advance, and the Davis-Stirling Act limits how much a board can raise assessments without putting the increase to a membership vote. An HOA that waits until winter to deal with it will have far fewer legal options than an HOA that starts now, and the homeowners are the ones who will pay for that delay.

This Fact Sheet explains what changed, what’s coming, and what it means for your condo. It covers why your lender suddenly wants three years of your HOA’s financial records, what the new reserve requirement will do to your dues, what your HOA can do about it without seeking your approval, what you should ask before you list your condo or make an offer on one, and what your options are when your HOA refuses to take the problem seriously.

Key Points

Fannie Mae and Freddie Mac changed their condo financing rules three times in 2026, and the biggest of those changes took effect on August 3. A further change takes effect on January 4, 2027. Together they decide whether a buyer can get a conventional loan on a condo in your building, which decides what your unit is worth. The points below explain what each change does, why your HOA’s 2027 budget matters more than any budget it has adopted in years, and what the Davis-Stirling Act permits your HOA to do about it. They also cover the questions you should ask before you list your condo or make an offer on one, and what you can do when your HOA ignores the problem.

• Lenders used to skip the HOA’s finances entirely, but that stopped on August 3, 2026. Fannie Mae called the old shortcut “Limited Review” and Freddie Mac called it “Streamlined Review,” but both worked the same way. If a buyer put enough money down on a condo in an established HOA community, the lender could approve the loan without examining the HOA’s budget, reserve balance, delinquency rate, or insurance coverage. Both Fannie Mae and Freddie Mac retired that shortcut for loan applications dated on or after August 3, 2026. Every one of those purchases now goes through a “full review,” where lenders now pull HOA budgets, reserve studies, insurance certificates, delinquency reports, litigation disclosures, and meeting minutes. Understand what that means for a condo community that’s been coasting for years. HOAs that would’ve failed these standards years ago never found out because nobody ever looked. That’s no longer the case.
  • Some condo communities are exempt from the full review. Fannie Mae calls it a “Waiver of Project Review,” and Freddie Mac calls it “Exempt From Review.” Both now cover new and established condo projects with 10 or fewer units. When a lender uses that route, it skips the HOA’s financial examination completely, meaning no budget review, no reserve percentage test, and no delinquency calculation. Fannie Mae doesn’t even require general liability or fidelity insurance for projects that qualify. In addition, communities falling within that exemption won’t face the 15% minimum in 2027 that I discuss below. Two conditions limit that exemption, however. First, communities with 5-10 units can’t be part of a master association, which disqualifies plenty of small HOAs sitting inside master-planned communities (e.g., like Ladera Ranch or Coto de Caza). And second, the project still has to clear the basics, including a clean status with Fannie Mae, compliant insurance, and no critical repairs or evacuation orders. If you own a condo in a complex of this size, ask your buyer to ask their lender whether it’s taking advantage of the waiver. Because if it’s not, the buyer’s lender is making it harder for the loan to go through.
  • Your lender wants years of your HOA’s records because it no longer has any choice. Homeowners keep asking why a condo purchase that took three weeks in 2024 now takes six weeks or more. The answer is the full review, which forces lenders to collect documents from a third party (e.g., the management company) that has no incentive to move quickly. Ask for the HOA’s financial package before you go under contract rather than after, because a delay you discover during week four could cost you the deal.
• The reserve minimum rises from 10% to 15% on January 4, 2027, and your dues will reflect it. Reserves are your HOA’s savings account for the large common area components that eventually wear out (e.g., roofs, roads, pool equipment, etc.), and Fannie Mae and Freddie Mac currently require HOAs to put at least 10% of what they collect from owners each year into that account. Both Fannie Mae and Freddie Mac have raised that minimum to 15% for loan applications dated on or after January 4, 2027. In an HOA collecting $1,000,000 a year in assessments, the contribution goes from $100,000 to $150,000, and that money has to come from somewhere. So expect higher dues, cuts to the operating budget, or special assessments. HOAs funding below the minimum can still qualify by relying on a reserve study, but that route narrowed on August 3, 2026 because the budget now has to match the highest funding recommendation in the reserve study rather than the cheapest one. [For more on how reserve studies work and how HOAs manipulate them, read my Fact Sheet, “How California HOAs Manipulate Reserve Studies and What Homeowners Can Do to Protect Themselves.”]
  • For practical purposes, treat December 2026 as the real deadline, not January 2027. Lenders sell the loans they originate, and a loan they intend to deliver in January will have to satisfy January’s new standards. That pushes enforcement into December 2026, when underwriters start applying the 15% figure to applications they expect to close after the first of the year. If you’re planning on listing your condo in the spring of 2027, you should assume the new number will affect any buyer who applies after Thanksgiving.
• Your HOA can’t fix a reserve shortfall by simply raising your dues as much as it wants. When it comes to general assessments (i.e., member dues) and special assessments, Civil Code 5605 caps what an HOA board can do without homeowner approval. An HOA can’t impose a regular assessment more than 20% above the prior fiscal year’s regular assessment, and it can’t impose special assessments that together exceed 5% of the budgeted gross expenses for the fiscal year, unless a majority of a quorum of members approves in a secret ballot vote. Civil Code 5615 then requires individual notice of any increase at least 30 days, and no more than 60 days, before the increased assessment comes due. Those two statutes turn a January problem into an October problem because an HOA that needs member approval has to run a vote, and a vote takes time your HOA won’t have if it starts the process too late. [To read more about the limits on assessment increases, take a look at my Fact Sheet, “When Can a California HOA Raise Assessments Without a Vote?”]
  • Don’t let your HOA call this an emergency to escape the necessary member vote. Civil Code 5610 lets an HOA exceed the Civil Code 5605 limits without member approval in three situations only. The first covers an extraordinary expense a court orders the HOA to pay. The second covers an extraordinary expense needed to operate, repair, or maintain the development after the HOA finds a threat to personal health or safety or another hazardous condition on the property. And the third covers an extraordinary expense needed to repair or maintain the development that the HOA board couldn’t have reasonably foreseen when it prepared the annual budget report. [Notice that the third category leaves out the word “operate,” which appears in the second. This means that despite what many HOA-side attorneys tell their HOA clients, HOAs can’t use the unforeseeable-expense route to cover ordinary operating costs.] A reserve funding increase that Fannie Mae and Freddie Mac announced in March 2026 also fails the third category on its own terms because nothing about it was unforeseeable by the time your HOA prepared (or will prepare) its 2027 budget. If your HOA tries to pass this crisis off as an emergency, demand the written resolution that Civil Code 5610 requires be distributed along with the notice of assessment, read the findings in it, and then contact the homeowner-side HOA attorneys at MBK Chapman.
• There’s a gap in the Davis-Stirling Act that the Legislature should get around to fixing. Your annual budget report tells you about FHA and VA approval, but says nothing about Fannie Mae or Freddie Mac. This should bother every California condo owner. Civil Code 5300 requires condominium HOAs to state in the annual budget report, on a separate sheet of paper, whether the project is approved by the FHA and VA. The statute contains no comparable requirement for Fannie Mae or Freddie Mac. So you receive a mandatory disclosure every year about two programs that finance a small share of condo purchases, and no disclosure at all about the two enterprises standing behind most of them. Reading your annual budget report cover to cover teaches you nothing about the thing most likely to cost you a buyer. So, until the Legislature addresses that gap, you need to address it yourself by asking your HOA a series of questions directly, in writing. And make sure that their answers are in writing as well.
  • Ask these questions before you list your condo or make an offer on one. Whether you’re selling or buying, the same short list tells you where a condo building stands:
    • Ask what percentage of annual assessment income the current budget allocates to reserves, and whether the 2027 budget allocates at least 15%.
    • Ask whether the HOA relies on a reserve study to justify funding below the minimum, and if so, whether the budget matches the study’s highest recommended funding amount rather than a lower option.
    • Ask whether the HOA has checked its status with both Fannie Mae and Freddie Mac, and ask for the date and the result.
    • Ask whether the HOA completed its SB 326 balcony inspection and whether the inspection identified any repairs that remain unfinished. [For more on that requirement, read my Fact Sheet, “California HOA Balcony Inspection Law: What SB 326 Requires.”]
    • Ask what the HOA’s delinquency rate is and how many units are 60 days or more behind.
• Your HOA can check its standing with both enterprises for free, so a board that claims ignorance is choosing it. Fannie Mae runs a free online tool that lets HOA board members, property managers, and authorized advisors search a project and see whether Fannie Mae has identified any condition that fails its requirements. Freddie Mac accepts a form from an authorized representative of the HOA that reports the project’s status and starts an appeal. Neither one costs a dollar. Put a written request on the record asking your HOA to run both checks and report the results at an open meeting. [If your HOA discovers a problem, my Fact Sheet, “Why Fannie Mae Flagged Your California Condo ‘Unavailable’ and How to Fix It,” explains what the designations mean and how HOAs get them removed.]
• If your HOA won’t act, call the HOA attorneys at MBK Chapman. The HOA attorneys at MBK Chapman are among the most respected homeowner-side HOA lawyers in California, and they know what a financing problem does to your property values and how to force an HOA board to confront one. If your HOA refuses to check its status, adopts a 2027 budget that ignores the reserve requirement, or claims an emergency to avoid a membership vote, contact us today.

Fannie Mae and Freddie Mac spent 2026 rewriting the rules that determine whether anyone can borrow money to buy a condo in your building, and they aren’t finished. The August 3 change stripped away the shortcut that kept weak HOAs invisible, and the January 4 change raises the bar those HOAs now have to clear in full view. Your HOA gets one meaningful chance to respond, and that chance runs through the 2027 budget it adopts this fall. Watch what your board does with the reserve line in that budget, ask for the number in writing, and pay attention to whether anyone on the board can tell you where the project stands with both enterprises. Owners who ask those questions in the fall of 2026 will be selling their condos in 2027. The ones who wait will be explaining to a buyer’s agent why the last three deals in the building fell apart.

FAQs

About Michael Kushner

Michael Kushner is a California attorney with over 30 years of experience representing homeowners in disputes with their HOAs. He is widely regarded as California’s leading homeowner-side HOA attorney, and has built one of the state’s most prominent law practices dedicated to holding HOAs accountable under the Davis-Stirling Act and California law.

In addition to his law firm’s work, Michael is a recognized lecturer, author, and the host of the hit HOA HELL podcast, where he provides homeowners living in HOA-governed communities with clear, practical strategies for dealing with bad HOAs. He’s also the author of the best-selling book, HOA HELL | California Homeowners’ Definitive Guide to Beating Bad HOAs, which has become a go-to resource for both homeowners seeking real-world solutions to their HOA disputes, as well as those good HOA board members who are interested in doing a good job.

About MBK Chapman Fact Sheets

Homeowners searching for answers online will often come across articles that appear authoritative, but are actually written as search-engine marketing content rather than by an experienced HOA lawyer. These pieces tend to prioritize keyword density over clarity, accuracy, or legal context, which often leaves homeowners more confused than informed.

At MBK Chapman, our Fact Sheets are part of our HOA Law Library and are written by Michael Kushner, an HOA lawyer with decades of hands-on experience representing California homeowners. In fact, Michael Kushner is the HOA lawyer who pioneered the systems and strategies used by some of California’s most successful homeowner-side HOA law firms.

Each Fact Sheet is deliberately concise, statute-based, and designed as a quick-reference guide to help homeowners understand key HOA laws and enforcement rules at a glance.

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