Navigating SGMA Compliance in California Ag Loan Applications: Key Steps to Verify Water Rights Without Delays — Practical verification process to avoid closing issues

6/9/2026 • By Alan Eidinger
Navigating SGMA Compliance in California Ag Loan Applications: Key Steps to Verify Water Rights Without Delays — Practical verification process to avoid closing issues

You submit a loan application for a 100-acre property. Water is sourced from a groundwater well in a SGMA-designated basin.

Lender comes back: "We need documentation that the property is SGMA-compliant. Applicant has 60 days to provide proof."

You panic. What is SGMA compliance? How do you prove it? Where do you get documentation? Can you lose the deal over this?

The answer: SGMA compliance is verifiable, but it requires early action. Do it before the lender asks, and you avoid closing delays. Wait until the lender requests it, and you're scrambling to gather documents while your closing window closes.

Here's the practical process.

What SGMA Compliance Actually Means**

SGMA = Sustainable Groundwater Management Act (2014 California law)**

By 2040, every groundwater basin in California must achieve "sustainable" groundwater use, meaning:

  • Annual groundwater extraction ≤ annual groundwater recharge
  • No permanent groundwater level decline (no "mining" the aquifer)
  • No significant surface subsidence from over-pumping

For your property, this means: Can you extract the water you need without violating your basin's sustainability plan?

SGMA-designated basins (the ones lenders care about):** Any basin producing >10,000 acre-feet annually gets designated. In California, ~850 subbasins exist; ~260 are SGMA-designated.

Your lender's concern: If your basin is over-allocated or overdrawn, your property's future income is at risk. Lender wants proof you're not betting on unsustainable water use.

The SGMA Verification Checklist**

Step 1: Determine if your property is in a SGMA-designated basin (Week 1)**

Go to the California Department of Water Resources website (water.ca.gov), find the SGMA basin map, and identify your basin by location.

If your basin is NOT on the SGMA-designated list, you're done. Lender has no SGMA concerns. Move on.

If your basin IS designated, proceed to Step 2.

Step 2: Get your basin's Groundwater Sustainability Plan (GSP) (Week 1-2)**

Each SGMA-designated basin is required to have a Groundwater Sustainability Plan. This document defines:

  • How much water the basin can sustainably extract
  • What groundwater allocations or pumping limits apply
  • What penalties exist for over-use

Download the GSP from your county water agency or regional water authority website. It's a public document.

Key sections to find:

  • Current allocation for your area/basin (does it exist?)
  • Sustainable yield (the max the basin can support)
  • Current usage vs. sustainable yield (are we in deficit?)
  • Pumping reductions required by 2040 (how much less will you be allowed?)

Step 3: Document your current water use (Week 2-3)**

Lender will ask: "How much water does this property currently use annually?"

Gather documentation:

  • Well meter data (if available from prior owner)
  • Crop water requirement estimates (based on acreage and crop type)
  • Prior owner's water bills (if available)
  • Irrigation records (what's been applied historically?)

Example: 100-acre almond orchard typically uses 3-4 acre-feet per acre per year = 300-400 acre-feet annually.

Step 4: Verify the property isn't over the basin's sustainable limit (Week 3-4)**

Compare:

  • Your property's current water use: 350 acre-feet/year (example)
  • Your basin's sustainable allocation for your area: 500 acre-feet/year per property (example)
  • Assessment: You're using 70% of your sustainable allocation. COMPLIANT.

If your use exceeds the basin's allocation, SGMA compliance is questionable. Lender will be cautious or decline.

Step 5: Get formal documentation from water authority (Week 4-5)**

Write to your county water agency or GSA (Groundwater Sustainability Agency) and request:

  • "I am refinancing a property at [address]. The property uses approximately [X] acre-feet annually. Can you confirm this is consistent with the [Basin Name] Groundwater Sustainability Plan allocation? Please provide written confirmation."

Agency will respond with a letter confirming the property is compliant (or flagging concerns).

Step 6: Provide documentation to lender (Week 5-6)**

Package for lender includes:

  • Copy of GSP for your basin
  • Letter from water authority confirming SGMA compliance
  • Documentation of your property's current water use
  • Summary memo explaining: "Property uses X acre-feet annually, which is consistent with basin allocation of Y acre-feet. No SGMA compliance concerns."

Common SGMA Issues And Solutions**

Issue: "Our basin is in overdraft—we're pumping more than we recharge."**

This doesn't automatically mean your property is non-compliant, but lender will be cautious. Solutions:

  • Show that your property's current use is below allocation (even if basin is in overdraft, your specific allocation is sustainable)
  • Document water conservation improvements (drip irrigation, soil monitoring) that reduce use
  • Show plan to comply with future reductions (phased reduction strategy by 2040)

Issue: "The GSP hasn't been adopted yet for our basin."**

Some basins are still developing GSPs (deadline is January 2023, but many are delayed). If no final GSP exists:

  • Request interim water authority guidance (what's the expected allocation for your area?)
  • Ask lender if they'll accept interim documentation or require final GSP (some will, some won't)
  • Get lender approval in writing that they'll accept interim doc

Issue: "The water authority says we have no formal allocation—it's unregulated groundwater."**

Some areas don't have formal allocations (California's groundwater historically had "rule of capture"—pump what you want). For these:

  • Get written confirmation from water authority that no allocation restrictions currently apply
  • Document that SGMA may eventually impose allocations, but current use is compliant
  • Lender may apply a higher risk discount (uncertain future allocation), but deal is usually workable

Timeline Matters**

Good timeline (no delays):** You start SGMA verification in week 1 of loan application. By week 5, you have documentation. Lender gets it during underwriting. Closes on time (45-65 days).

Bad timeline (delays closing):** You wait for lender to ask about SGMA. Lender asks in week 6. You scramble for 4 weeks to gather docs. Underwriting is delayed. Closing pushed back 30 days.

Lesson:** Proactive SGMA verification prevents closing delays. Reactive verification creates them.

Your SGMA Compliance Checklist**

  • ☐ Determine if property is in SGMA-designated basin (DWR map)
  • ☐ If yes, download basin's Groundwater Sustainability Plan
  • ☐ Estimate property's annual water use (acre-feet)
  • ☐ Compare use vs. basin's sustainable allocation (is it compliant?)
  • ☐ Request written confirmation from water authority
  • ☐ Compile documentation package for lender
  • ☐ Provide to lender in week 1-2 of application (proactive, not reactive)

Ready to navigate SGMA compliance for your property? Call (408) 260-5900 or apply for a SGMA verification consultation. We'll help you gather documentation and confirm your property is compliant before the lender even asks.