HOA Litigation & Condo Financing in California: What Buyers Must Know in 2026

I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. HOA litigation is one of the most common reasons California condo financing falls apart — and one I navigate regularly with portfolio and non-QM lenders. Call (800) 239-1103.

You found the perfect California condo. Your credit is strong, you have a solid down payment, and your pre-approval is in hand. Then your lender comes back with bad news: the HOA has active litigation, and the building is non-warrantable. Your loan is denied.

HOA litigation is one of the most common — and most misunderstood — reasons condo financing falls apart in California. This guide explains exactly what lenders look for, which types of lawsuits are deal-breakers, and what options you have when standard financing won’t work.

Why Does HOA Litigation Affect Your Mortgage?

When you get a conventional loan, Fannie Mae or Freddie Mac ultimately buys the loan. They have strict rules about what types of properties they’ll accept — and buildings with active HOA litigation fail their project review standards.

The logic: HOA litigation creates financial uncertainty. A lawsuit could result in a large judgment against the HOA, depleting reserves, increasing dues, or even making units harder to sell in the future. Fannie Mae doesn’t want to hold loans on properties with that kind of exposure.

Types of HOA Litigation: What Matters to Lenders

Not all lawsuits are treated equally. Here’s how lenders categorize HOA litigation:

Deal-Breaker Litigation (Almost Always Non-Warrantable)

• Construction defect lawsuits — These signal potential structural issues with the building. Lenders almost universally refuse to fund in buildings with active construction defect litigation.
• Personal injury lawsuits involving common areas — Slip-and-falls, elevator accidents, or other injuries in common areas can trigger non-warrantable status.
• Environmental litigation — Mold, contamination, or HVAC-related claims affecting common areas.
• Insurance coverage disputes — When the HOA is fighting its own insurer, it signals potential gaps in coverage that make lenders nervous.

Gray Area Litigation (Depends on the Lender)

• HOA-vs-HOA disputes — Two HOAs fighting over property boundaries or shared costs. Some lenders accept this; others don’t.
• Contractor payment disputes — HOA suing a vendor over unpaid invoices or substandard work. Minor enough that some portfolio lenders overlook it.
• HOA internal governance disputes — Board member disputes, election challenges, or bylaw fights. Usually not a concern for lenders.

Typically Not a Problem

• Resolved litigation — Lawsuits that have been settled or dismissed with no ongoing financial exposure
• Litigation where the HOA is the plaintiff, not the defendant — HOA suing a delinquent owner for dues, for example
• De minimis claims under $25,000 — Some lenders have thresholds below which litigation doesn’t trigger non-warrantable status

How Lenders Find Out About HOA Litigation

Lenders learn about litigation through the condo questionnaire — a document the HOA or property management company completes during the loan process. One of the standard questions asks whether the HOA is involved in any pending litigation.

Here’s the important part: HOAs are legally required to disclose active litigation on the questionnaire. If they fail to disclose and it’s discovered later, the lender can demand repayment of the loan. So the HOA won’t hide it.

I order the condo questionnaire early in the process — before you’re deep into escrow — precisely to catch this kind of issue before it wastes everyone’s time.

Options When Your Condo Has Active HOA Litigation

Option 1: Portfolio Lending

Portfolio lenders keep loans on their own books rather than selling to Fannie/Freddie. They make their own rules about what they’ll accept. Many portfolio lenders will fund loans in buildings with HOA litigation if the litigation doesn’t involve structural issues or construction defects, the building has adequate reserves to survive a judgment, the HOA has appropriate umbrella insurance coverage, and the loan-to-value is conservative (20%+ down payment).

Option 2: Non-QM Lenders

Non-QM lenders have even more flexibility. They evaluate condo litigation case-by-case, often accepting situations that both agency and portfolio lenders won’t touch. Rates are typically 0.5%–1.5% higher than market.

Option 3: Larger Down Payment

Some lenders will accept buildings with minor litigation if the loan-to-value is low (often 70%–75% LTV or below). A larger down payment reduces lender exposure and can unlock financing that wouldn’t be available at higher LTV.

Option 4: Wait for Resolution

If the litigation is expected to resolve soon — and it resolves favorably — the building becomes warrantable again. If the timeline works with your purchase, sometimes waiting is the right call.

California-Specific Context: SB-326 and New Litigation Risk

California’s SB-326 (effective January 2025) requires balcony and elevated element inspections for condo buildings with 3+ stories. Buildings that discover significant structural damage during their SB-326 inspection may face construction defect lawsuits against the original developer, disputes with contractors over repair costs, and insurance claim disputes.

I’m seeing an uptick in buildings becoming non-warrantable as SB-326 inspections reveal deferred maintenance that triggers litigation. This is most common in SF, LA, and San Diego buildings from the 1970s–1990s.

👉 SB-326 Condo Mortgage Guide →

Questions to Ask Before Making an Offer

1. Is the HOA involved in any pending litigation?
2. If yes — what type of litigation, and who is the plaintiff/defendant?
3. What are the HOA’s current reserve levels?
4. Has the building completed its SB-326 inspection?
5. Are there any pending special assessments?

Ask your real estate agent to pull the HOA’s recent board meeting minutes. Litigation is typically discussed at board meetings and will show up there before the formal questionnaire process.

I Specialize in Financing These Situations

Condo buildings with HOA litigation aren’t necessarily unfinanceable — they just require a lender who knows which portfolio and non-QM lenders have appetite for them, and how to structure the deal. I’ve closed dozens of transactions in buildings with active litigation by matching the right lender to the specific situation.

Call me before you give up on a building. I’ll review the litigation details and tell you honestly whether financing is achievable and at what terms.

Related Reading: California Condo Mortgage Hub | Non-Warrantable Condo Loans California | SB-326 Condo Mortgage California | Condo vs. House in California: Financing Comparison