Your Lender Says the Condo Is OK. But Is the Building Actually in Compliance?

Recently, I visited a 6-unit San Francisco condominium building while on Broker Tour.

As I walked through the property, something caught my attention: the building had an exterior staircase and railing elevated more than six feet above the ground.

Given the increased attention being paid to exterior elevated elements in California condominium buildings, I asked the listing agent when the building’s last structural engineering report had been completed.

Her answer:

2019.

A few days later, the agent called me with an update.

She had contacted one of the traditional bank lenders she works with and asked whether the age of the report would create a financing problem.

According to the agent, the lender told her the condominium was fine. The bank could finance the unit without requiring a newer structural engineering report because the project contained fewer than 11 units.

That certainly sounds reassuring.

But here’s the question I would ask:

Is the building really OK?

Yes—and no.

The bank may very well be correct that it can finance the condominium under its particular lending guidelines.

But that’s only one question.

A completely different question is whether this 6-unit San Francisco condominium building has satisfied the applicable California and San Francisco inspection requirements.

And that’s where this situation becomes interesting.

Mortgage Eligibility and Building Compliance Are Not the Same Thing

Condominium transactions increasingly require us to look at several different sets of rules:

1. The mortgage lender’s condominium requirements
2. California’s SB 326 requirements for condominium buildings
3. California’s SB 410 disclosure requirements
4. San Francisco Housing Code Section 604

For apartment buildings rather than condominiums, California SB 721 may also enter the picture.

These requirements can overlap.

But they are not interchangeable.

A lender saying:

“We can make this loan.”

does not necessarily mean:

“The HOA has complied with every applicable state and local inspection requirement.”

Likewise, an HOA’s compliance with California and San Francisco inspection requirements does not guarantee that every mortgage lender will approve the condominium project.

That distinction is becoming increasingly important for real estate agents, sellers, buyers, HOA boards and mortgage professionals.

Does an Exterior Staircase More Than Six Feet High Automatically Require a Fannie Mae Engineering Report?

No.

This is an important point to clarify.

I would not tell a seller or real estate agent that Fannie Mae automatically requires a structural engineering report simply because a condominium building has an exterior staircase, balcony, walkway or railing more than six feet above the ground.

Fannie Mae’s condominium project requirements are more nuanced.

Project size matters.

The type of project review matters.

Known structural deficiencies matter.

Critical repairs and significant deferred maintenance can matter.

Mandatory government inspections can matter.

And the lender still has responsibility for determining whether the condominium meets applicable Fannie Mae requirements.

Fannie Mae also provides different project-review treatment for very small condominium projects. In particular, Fannie Mae generally provides a waiver of project review for 2–4-unit condominium projects, subject to its other applicable requirements.

That distinction is important in our example because this San Francisco building doesn’t contain two, three or four units.

It contains six units.

Therefore, we should not conclude that Fannie Mae requires an engineering report merely because we see a staircase more than six feet above the ground.

But neither should we assume that a 6-unit condominium escapes the broader structural, safety, deferred-maintenance or mandatory-inspection issues that can become relevant during condominium underwriting.

The Bank’s “Fewer Than 11 Units” Rule Is a Different Question

This is where the agent’s conversation with her bank becomes especially interesting.

The bank apparently has a guideline or review procedure allowing it to finance this 6-unit condominium without requiring a newer structural engineering report.

That’s useful information.

The bank may be completely correct about its own loan program.

But we shouldn’t confuse a lender’s “fewer than 11 units” guideline with California or San Francisco law.

The government requirements use different thresholds.

And one number deserves particular attention:

Three Units

California SB 326: Condominiums With Three or More Attached Units

California SB 326 established inspection requirements for certain exterior elevated elements in condominium projects. Those requirements are now contained in California Civil Code §5551.

The statute applies to buildings containing three or more attached multifamily dwelling units when the exterior elevated elements meet the statutory requirements.

That means a condominium building doesn’t have to contain 11, 20 or 100 units before SB 326 potentially becomes relevant.

A 3-unit attached condominium building can potentially be within the statute.

So can a 4-unit building.

A 6-unit building.

A 10-unit building.

Or a 100-unit condominium project.

But there is another important qualification.

The Six-Foot Rule Isn’t the Entire Test

SB 326 doesn’t simply say:

“If there’s a balcony or staircase more than six feet above the ground, an inspection is required.”

The statutory definition is more specific.

It addresses qualifying load-bearing components and associated waterproofing systems that generally:

• Extend beyond the exterior walls of the building;
• Have a walking surface elevated more than six feet above ground;
• Are designed for human occupancy or use; and
• Are supported in whole or substantial part by wood or wood-based products.

Depending upon the building, qualifying exterior elevated elements can include such things as:

• Balconies
• Decks
• Exterior stairways
• Walkways
• Landings
• Railings
• Associated waterproofing systems

The HOA is generally responsible for arranging the required inspection of qualifying exterior elevated elements for which the association has maintenance or repair responsibility.

Following the initial statutory inspection requirements, inspections generally recur at least once every nine years.

What About 1- and 2-Unit Buildings?

This is another distinction worth making clear.

For the particular requirements we’re discussing here, 1- and 2-unit buildings fall outside these specific three-unit thresholds.

That doesn’t mean a 1- or 2-unit property is exempt from every possible building, safety, engineering, insurance or mortgage-lending requirement.

It simply means we shouldn’t apply these particular 3-unit thresholds to them.

That’s also why unit count is one of the first questions I would ask when evaluating a condominium building with exterior elevated elements.

SB 410: Why This Matters When the Condo Is Sold

The issue became even more important for California real estate transactions with SB 410.

SB 410 amended California’s condominium laws and made the most recent Civil Code §5551 exterior elevated element inspection report part of the documents that may need to be provided to a prospective purchaser through the condominium resale disclosure process.

That changes the practical importance of these reports.

What might once have been viewed primarily as an HOA maintenance or building-safety matter can now become directly relevant when an owner decides to sell a condominium.

For listing agents, that creates an important question:

Why wait until the property is already in escrow to find out whether the required documentation exists?

San Francisco Adds Another Layer: Housing Code Section 604

For our 6-unit condominium, California law isn’t the end of the analysis.

The property is in San Francisco.

San Francisco has its own inspection requirements under Housing Code Section 604.

Section 604 applies to qualifying San Francisco apartment buildings and residential condominium buildings containing three or more dwelling units.

Once again, notice the number:

Three units—not 11.

That means San Francisco’s requirements aren’t limited to large condominium towers.

They can potentially affect the small condominium buildings found throughout San Francisco’s neighborhoods.

A 3-unit building.

A 4-unit building.

Our 6-unit building.

An 8-unit building.

A 10-unit building.

And, of course, much larger projects.

What Does San Francisco Section 604 Cover?

Section 604 addresses weather-exposed structural components, including qualifying wood and metal:

• Decks
• Balconies
• Landings
• Exit corridors
• Stairway systems
• Guardrails
• Handrails
• Fire escapes

The inspection is intended to identify hazardous deterioration, decay, dry rot, improper alteration and other conditions affecting these exterior structural components.

San Francisco currently requires the Section 604 Compliance Affidavit every six years.

That’s worth emphasizing because older information may refer to a five-year cycle. San Francisco changed the cycle in 2026.

And there is another important distinction:

San Francisco Section 604 and California SB 326 are not the same inspection requirement.

Their scopes, definitions and procedures differ.

So having documentation relating to one requirement doesn’t automatically tell us everything we need to know about the other.

What About San Francisco Apartment Buildings?

San Francisco also has a tremendous inventory of multifamily apartment buildings with balconies, exterior stairs, decks, walkways and other elevated structures.

That’s where California SB 721 becomes relevant.

SB 721 applies to qualifying exterior elevated elements in buildings containing three or more multifamily dwelling units and generally applies to multifamily rental properties rather than condominium associations governed by SB 326.

SB 721 and SB 326 have similarities, but they aren’t the same law.

And an apartment building in San Francisco may also have to consider the City’s separate Section 604 requirements.

This is one reason I’m hearing more discussion of these issues among both residential and apartment real estate professionals.

Now Let’s Return to Our 6-Unit Condo

Remember where this story started.

The building:

• Is located in San Francisco;
• Contains 6 condominium units;
• Has an exterior staircase and railing elevated more than six feet above the ground; and
• Reportedly has a structural engineering report dating from 2019.

The listing agent’s bank apparently told her:

“We’re OK. There are fewer than 11 units.”

From a mortgage perspective, that particular bank may be completely correct.

But from my perspective, that answer would lead to several additional questions.

What Exactly Was the 2019 Report?

The date alone doesn’t answer the question.

I would want to know:

Was it an SB 326/Civil Code §5551 inspection?

Was it related to San Francisco Section 604?

Was it simply a general structural engineering evaluation?

Which exterior components were inspected?

Did the report identify deficiencies?

Were repairs recommended or required?

If repairs were required, were they completed?

Does the HOA have the appropriate current compliance documentation?

Those answers would tell me much more than simply knowing that a structural engineer visited the property in 2019.

So Is the Agent’s Condo “OK”?

Possibly.

But we need to define what “OK” means.

Is it financeable by the particular bank the agent contacted?

Apparently, according to the bank, yes.

Does the fact that it has fewer than 11 units exempt it from California SB 326?

No.

The applicable threshold can begin with buildings containing three or more attached multifamily dwelling units, assuming the other statutory requirements are met.

Does having only six units automatically exempt the building from San Francisco Section 604?

No.

The relevant San Francisco threshold begins at three dwelling units.

Does the staircase being more than six feet high automatically mean Fannie Mae requires a structural engineering report?

No.

Fannie Mae’s requirements are more nuanced than that.

And that brings us to the most important lesson from this story.

Three Different Numbers—Three Different Issues

This particular transaction gives us a useful way of remembering the distinction:

2–4 Units

Fannie Mae provides special project-review treatment, including a general waiver of project review for certain 2–4-unit condominium projects, subject to its other applicable requirements.

3+ Units

California SB 326 and San Francisco Section 604 can potentially become relevant beginning at three units, assuming their other requirements are satisfied.

Fewer Than 11 Units

That was apparently the particular bank’s lending guideline communicated to the listing agent.

It should not be mistaken for the threshold under California or San Francisco law.

And our subject property?

Six Units

That places this particular San Francisco condominium directly in the area where these distinctions become important.

Broker’s Edge Tip

Don’t confuse a lender’s unit-count guideline with a government compliance threshold.

A bank may have a perfectly legitimate lending program allowing it to finance a particular condominium.

But that doesn’t determine whether the HOA has complied with SB 326, SB 410 or San Francisco Housing Code Section 604.

Conversely, an HOA can satisfy its government inspection requirements and still encounter a mortgage lender with more restrictive condominium underwriting requirements.

Mortgage eligibility and building compliance are related—but they are not the same thing.

Who Benefits Most From Understanding This?

Listing Agents

Investigating these issues before putting the property into contract may help identify documentation or repair issues before a buyer’s lender discovers them.

Buyer’s Agents

Understanding the distinction can help agents ask better questions while reviewing HOA documents and disclosures.

Condominium Owners and HOA Boards

Inspection requirements aren’t simply a financing issue. They involve building safety, maintenance, disclosures and potential financial obligations.

Apartment Building Owners

SB 721 and San Francisco Section 604 create their own set of inspection considerations.

Buyers

A condominium purchase isn’t simply the purchase of the space inside the unit. The condition and financial health of the building and HOA can directly affect ownership and financing.

Mortgage Professionals

Knowing which questions to ask early can help prevent a condominium project issue from appearing late in escrow.

Common Misconception

“It’s a small condo building, so the balcony and structural inspection laws don’t apply.”

Not necessarily.

A small 3-, 4-, 6- or 8-unit condominium building shouldn’t automatically be treated as exempt simply because it doesn’t resemble a large condominium complex.

For some California and San Francisco requirements, three units can be the important threshold.

Questions to Ask Before Listing or Buying a San Francisco Condo

When a condominium has exterior elevated structures, I would consider asking:

• How many units are in the building?
• Does the building have balconies, exterior stairs, decks, walkways or other elevated elements?
• Which elements are the HOA’s maintenance responsibility?
• Are qualifying components supported by wood or wood-based materials?
• When was the most recent inspection?
• What type of inspection was performed?
• Does the HOA have an SB 326/Civil Code §5551 inspection report?
• Has the building complied with San Francisco Housing Code Section 604?
• Is the applicable Section 604 documentation current?
• Did an inspection identify deterioration or structural concerns?
• Were repairs recommended or required?
• Have those repairs been completed?
• Were special assessments required or anticipated?
• Has the buyer’s particular lender reviewed the condominium project?

The best time to ask these questions is generally before the transaction is halfway through escrow.

Key Takeaway

The lesson from this real-world conversation isn’t that the listing agent was wrong.

And it isn’t that her bank was wrong.

The bank may very well be willing to finance the condominium under its particular guidelines.

The bigger lesson is that:

“My lender will finance it”

and

“The building has satisfied its applicable inspection and compliance requirements”

are two different statements.

California SB 326, SB 410, San Francisco Housing Code Section 604 and mortgage condominium underwriting requirements can intersect—but they don’t replace one another.

Here in San Francisco, where we have thousands of condominium and apartment buildings with exterior staircases, decks, balconies, walkways and railings, I expect these issues to receive increasing attention from real estate agents, brokerage managers, HOA boards, property managers, lenders and buyers.

And for a small condominium building, don’t assume the issue begins at 10, 11 or 20 units.

Sometimes the important number is three.

This article is intended for general educational purposes only and should not be considered legal, engineering, building-code or compliance advice. California law, San Francisco requirements and mortgage lending guidelines can change. Property owners, HOAs and real estate professionals should consult appropriate legal, engineering and government professionals regarding a specific building, and borrowers should confirm current condominium eligibility requirements with their mortgage professional or lender.