HOA and condo association loans in California

Davis-Stirling hands this question to corporate law. Section 4805 gives every association, incorporated or not, the powers a nonprofit mutual benefit corporation has under the Corporations Code. Those include the power to assume obligations, enter into contracts, incur liabilities, borrow or lend money or otherwise use its credit, and secure any of those obligations by mortgage, pledge or other encumbrance of all or any part of its property and income.

That is a real grant, and it is conditional twice over. Section 4805 applies it unless your governing documents provide otherwise, and the Corporations Code makes it subject to any limitations contained in the articles or bylaws. Your own documents are the first thing a lender reads, and they are the one place a loan can be stopped outright rather than slowed down.

At least once every three years the board must have a visual inspection conducted of the accessible areas of the major components the association is obligated to repair, replace, restore or maintain, as part of a study of its reserve account requirements. The requirement bites where the current replacement value of those components is at least half the association's gross budget, excluding reserves.

The study must identify the components with less than 30 years of remaining useful life, estimate their remaining life and their cost, estimate the annual contribution needed to cover them, and set out a reserve funding plan. The board must review the study annually and adjust.

This is the balcony inspection law California first enacted in 2019 as SB 326, now in Civil Code § 5551 as since amended. At least once every nine years, the board of a condominium association must have a licensed structural or civil engineer or architect visually inspect a random and statistically significant sample of exterior elevated elements. Those are the load-bearing components and their waterproofing on decks, balconies, stairways and walkways with a walking surface more than six feet above ground and supported in whole or in substantial part by wood or wood-based products.

The first inspection was due by January 1, 2025, and then every nine years after that in coordination with the reserve study inspection. Buildings for which a permit was applied for on or after January 1, 2020 are inspected within six years of the certificate of occupancy instead.

The coordination is the part worth planning around. The inspector's report is incorporated into the reserve study, so the report that says what needs repair and the study that plans how to fund it arrive together. A reserve study is not a quote for work; current bids override study estimates.

The board may not impose a regular assessment more than 20 percent greater than the regular assessment for the preceding fiscal year, and may not impose special assessments that in the aggregate exceed 5 percent of budgeted gross expenses for that year, without the approval of a majority of a quorum of members.

That limit binds regardless of what your governing documents say, and it applies to the assessments that repay a loan exactly as it applies to any others. It is the number to model against before a board commits to a repayment schedule.

There is a statutory exception for emergencies. Section 5610 lets a board go beyond those limits for an extraordinary expense required by a court order, for one needed where a threat to personal health or safety is discovered on the property, or for repairs the board could not reasonably have foreseen when it prepared the budget. For that last kind, the board must first pass a resolution with written findings on why the expense was necessary and could not have been foreseen, and send it to members with the notice of assessment.