If the groundwater is not potable because of e.g. arsenic or pesticide contamination, I think that homeowners are usually aware of that and therefore are more likely to use the water only for washing purposes.

The HOA where the condo is has an on-site water sanitation facility which recycles toilet, shower, sink water.

They don’t consider the recycled water potable, but I guess they consider it safe enough for watering plants, for re-use in toilet water, etc.

TLDR: in the above case, it’s bacterial risk or the use of a water sanitization facility that doesn’t provide guarantee around portability.