How do you tell if an LA condo's HOA reserves are too weak to buy?
Start with the reserve summary and the Assessment and Reserve Funding Disclosure Summary in the seller's disclosure packet, which show the percent funded, the deficiency per unit, and whether reserves are projected to last 30 years. Then check the budget's reserve line: for loan applications dated on or after January 4, 2027, Fannie Mae and Freddie Mac require projects reviewed under their full condo review to budget at least 15% of annual assessment income to reserves, up from 10%. Buildings of 10 or fewer units can often skip that review. A thin reserve makes a special assessment more likely while you own the unit, and a building that misses the lender test can be harder to finance when you sell.
Updated October 9, 2026: This version adds California's AB 2050, signed in September, and expands the sections on the 2027 lender reserve rule and the balcony inspection report sellers must deliver. Earlier versions said the disclosure packet includes the full reserve study (it includes the reserve summary and disclosure form, not the full study) and described the lender rule loosely as 15% of the budget (the test divides budgeted reserves by annual budgeted assessment income, and applies to full project reviews on applications dated from January 4, 2027).
A weak reserve study doesn't automatically kill a condo deal. It does change what you're really paying, because a special assessment is a delayed part of the purchase price, and for conforming loan applications dated from January 4, 2027, it can decide whether a buyer can get a Fannie Mae or Freddie Mac loan in the building at all.
This update covers three rules that now shape a condo purchase. Fannie Mae and Freddie Mac set a new 15% reserve test that applies to loan applications from January 4, 2027. California passed a separate 15% rule for associations in September that doesn't start until 2032. And since January 1, 2026, sellers have had to hand buyers the building's balcony inspection report.
Here's how each one plays out when you're buying a condo in West Hollywood, the Fairfax District, or the Hollywood Hills, and what to request before you remove contingencies.
WHAT THE RESERVE NUMBERS ACTUALLY TELL YOU
A reserve study is the association's long-range savings plan for big repairs: roofs, elevators, plumbing, waterproofing, and decks. Under Civil Code 5550, the board has to get one at least every three years if the replacement value of the major components is at least half the association's gross budget, not counting the reserve account. It's based on a visual inspection of the accessible areas, and the board has to review it every year.
You usually won't start with the study itself. The numbers you'll see first come from the annual budget report (Civil Code 5300), which the seller includes in your disclosure packet. Two pieces of it matter most:
- The reserve summary (Civil Code 5565). It shows the percentage of required reserves the association actually has in cash, which is the percent-funded figure, plus the current deficiency per unit.
- The Assessment and Reserve Funding Disclosure Summary (Civil Code 5570). It answers yes or no: will projected reserves be enough over the next 30 years? If not, it states what additional assessments would be needed. It also shows the percent funded now and for each of the next five budget years.
The per-unit deficiency is the number we point clients to first. It's the shortfall translated into your share.
For percent funded, a common industry rule of thumb treats 70% or higher as strong, 30% to 70% as the middle where you read the details, and under 30% as a red flag. That's a convention, not a legal or lender standard. You'll see claims online that Fannie Mae requires reserves to be 70% funded. That's false. Fannie and Freddie don't test percent funded. They test the budget.
THE LENDER RULE: 15% OF ASSESSMENT INCOME
This is the change most likely to affect LA condo financing next. In Lender Letter LL-2026-03 and Bulletin 2026-C, both dated March 18, 2026, Fannie Mae and Freddie Mac raised the minimum reserve allocation from 10% to 15% of the association's annual budgeted assessment income. It applies to loan applications dated on or after January 4, 2027, when the lender uses Fannie's Full Review or Freddie's Established Condominium Projects review.
If a building collects $600,000 a year in assessments, its budget needs at least $60,000 going to reserves today and at least $90,000 for applications from January 4, 2027.
Three details change how it lands:
- Limited Review is gone. For applications dated on or after August 3, 2026, Fannie retired Limited Review and Freddie retired Streamlined Review. At Fannie, established projects now go through Full Review or Waiver of Project Review.
- Small buildings may qualify for a waiver. Fannie's Waiver of Project Review and Freddie's Exempt From Review now cover projects of 10 or fewer units (2 to 10 at Freddie), as long as a 5- to 10-unit project isn't part of a master association (or, at Fannie, a larger development). Some smaller West Hollywood and Hollywood buildings may fall in that range.
- The reserve study workaround got tighter. A lender can still use a reserve study to show adequate reserves when the budget line falls short. But for applications dated on or after August 3, 2026, the budget has to include the study's highest recommended reserve allocation, and the baseline funding method, which lets the balance approach zero, is no longer allowed.
These rules govern loans sold to Fannie Mae and Freddie Mac. They don't bind jumbo loans, and portfolio lenders set their own condo criteria. If you're financing with a jumbo, ask your lender how it reviews the project and whether it looks at the reserve line.
The rule still matters to you because of resale. When you sell, any buyer using a conforming loan in a building that needs a full project review runs into the same test, and a building that can't pass it loses those buyers.
THE STATE RULE: AB 2050 STARTS IN 2032
California's version is a different 15%, and it isn't in effect yet. AB 2050 (Chapter 796, Statutes of 2026) was approved September 29, 2026, and its substantive rules are operative January 1, 2032.
Starting then, the reserve study must include a minimum reserve contribution level that keeps the projected reserve balance from falling below zero over the next 30 years, and the association has to fund at least that level every year. If the balance is projected to go below zero at any point in that window, the association must transfer at least 15% of its gross annual budget to reserves each year until it isn't. If the budget can't fund the minimum, the association must levy a reserve funding special assessment, and if the normal vote cap blocks the full amount, members vote on exceeding it. It can levy one of these no more than once every nine years.
Nothing in AB 2050 changes what you receive or what an association has to do from now through 2031. A related bill, SB 1238, was vetoed on September 20, 2026, so the sections of AB 2050 that depended on it never take effect.
Why care now? If you plan to own past January 1, 2032, which is a little over five years for anyone buying now, the building will be under the new system. An association with a thin reserve and a "no" on the 30-year question is the one most exposed to mandatory transfers or a reserve funding assessment, and your share comes out of your pocket.
SPECIAL ASSESSMENTS AND THE BALCONY REPORT
When reserves fall short, the bill shows up as higher dues or a special assessment. Under Civil Code 5605, the board can't raise regular assessments more than 20% over the prior year, or levy special assessments totaling more than 5% of budgeted gross expenses, without approval from a majority of a quorum of members. Civil Code 5610 carves out emergencies: court-ordered expenses, a discovered threat to health or safety, and unforeseeable repairs, which require a written board resolution. Emergency assessments skip the member vote.
Two recent stories show the scale, both outside the neighborhoods we cover. ABC7 reported on September 7, 2026, that owners in a 499-unit Torrance complex face a special assessment of more than $49,000 each for a podium rebuild, repiping, and elevators. The Los Angeles Times reported on October 2, 2026, on a $26,000 per-unit emergency roof assessment in San Clemente. An HOA attorney quoted by ABC7 attributed the rise in assessments largely to insurance costs and the balcony law.
That balcony law is SB 326 (Civil Code 5551). In buildings with three or more attached multifamily units, a licensed structural or civil engineer or architect has to inspect a random, statistically significant sample of the association's wood-supported exterior elevated elements more than six feet above ground, like balconies, decks, and walkways, at least every nine years. The first inspection was due January 1, 2025. Buildings whose permit application was submitted on or after January 1, 2020, must be inspected within six years of the certificate of occupancy. The findings go into the reserve study, and anything posing an immediate threat must be reported to local code enforcement within 15 days, with access blocked.
Since January 1, 2026, SB 410 (Chapter 516, Statutes of 2025) has required the seller to give you the report from the most recent inspection (Civil Code 4525(a)(11)). Reports issued since January 1, 2026, have to show on the first page how many elements pose an immediate threat. On an older report, look for the condition findings and any immediate-threat language.
WHAT TO REQUEST BEFORE YOU REMOVE CONTINGENCIES
Under Civil Code 4525, the seller provides the disclosure documents as soon as practicable before transfer of title. The association has to deliver within 10 days of a written request (Civil Code 4530), and the seller pays the fee. Ask for the packet as soon as you're in contract, so you aren't reading it on the last day of your contingency period.
Here's what to have in hand:
- The annual budget report, including the reserve summary (percent funded and per-unit deficiency) and the summary of the reserve funding plan. You get this by right.
- The 5570 disclosure form and its yes or no answer on 30-year reserve sufficiency. By right.
- Approved assessment changes that aren't yet due (Civil Code 4525(a)(8)). By right.
- The most recent SB 326 balcony inspection report, if the building has three or more attached units and wood-supported elevated elements. By right since January 1, 2026.
- The last 12 months of approved board minutes, excluding executive session. You get these only if you request them, so request them.
- The full reserve study. The packet carries the summary, not the full study. Members can get the full plan on request, so ask the seller to request it from the association.
Read the minutes for bids, engineer reports, and assessment talk that hasn't reached a vote. That's where you find the sentence that never makes it into the listing.
Your real exposure depends on the building's age, its systems, and how the board has handled money. That's the read we give our clients before they remove contingencies, and if a pending assessment turns up, who pays it can be negotiated in the contract.
FREQUENTLY ASKED QUESTIONS
What percent funded should an HOA reserve be?
There's no legal or lender minimum. A common industry rule of thumb treats 70% or higher as strong, 30% to 70% as a range where you read the funding plan closely, and under 30% as a red flag. Fannie Mae and Freddie Mac don't require any percent-funded level; they test whether the budget allocates enough assessment income to reserves.
Does the 15% reserve rule apply to my jumbo loan?
Not directly. The 15% minimum in Fannie Mae's LL-2026-03 and Freddie Mac's Bulletin 2026-C applies to loans sold to those agencies when the lender uses a full project review, for applications dated on or after January 4, 2027. Jumbo and portfolio lenders set their own condo criteria, so ask yours how it reviews the project, and remember that when you sell, a buyer using a conforming loan will face the rule unless the building is small enough for a review waiver.
When does AB 2050 take effect?
Its substantive reserve rules are operative January 1, 2032. From then, associations must fund a minimum reserve contribution level and, if reserves are projected to go below zero within 30 years, transfer at least 15% of the gross annual budget to reserves each year until the balance is no longer projected to go below zero. It doesn't change what a buyer receives or what an association must do before 2032.
Does an HOA in California have to give me the reserve study?
Not the full study. Civil Code 4525 requires the seller to provide the annual budget report, which includes the reserve summary, a summary of the reserve funding plan, and the Assessment and Reserve Funding Disclosure Summary. Members can request the full reserve plan, so ask the seller to request it from the association during your contingency period.
Who pays a special assessment, the buyer or the seller?
Your purchase contract decides, so negotiate it before you remove contingencies. Civil Code 4525(a)(8) requires disclosure of assessment changes the board has approved but that aren't yet due, so an approved assessment should show up before you close. Spell out in the contract who pays any installments that come due after closing.
A reserve study won't tell you whether you'll love the condo, but the reserve summary, the 30-year answer, and the budget's reserve line will tell you what owning it is likely to cost and how easily it will sell. If you'd like the same kind of market read we share with our clients every month, sign up for Real Brief, our monthly insights into the LA luxury real estate market, delivered straight to your inbox.
Alexis Ramos and Luke Abbott are the founders of Ramos & Abbott Homes, a luxury real estate team with Sotheby's International Realty in Beverly Hills. Together they specialize in architectural and historic homes, new construction, and income properties across West Hollywood, Sunset Strip, Hancock Park, Hollywood Hills, Beverly Hills, Melrose District, Fairfax District, Sunset Square, and Spaulding Square.
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