Ventura, CA · Member since 2018 · 11 posts · 9 votes
A partner and I recently closed a purchase of a property in Los Angeles. In speaking with the tenants we found out that there was a REAP (Rent Escrow Account Program) on the property. Doing some research, I found out the particulars of the program, the most concerning is that tenants would be paying 50% of their rent and they have the option of paying the city rather than the owners. In essence, we would not be collecting any rent on the property until the REAP is lifted. Honestly, I am surprised that the bank didn't catch it.
The REAP was not formally disclosed to us in any of the disclosures, but it was on the preliminary title report.
I wanted to see if anyone has had a similar experience with non-disclosure or REAP properties to help me understand what my options are.
That was my initial inclination as well, but after consulting with a few local attorneys and pointing out my status as a real estate broker, they indicated that I did not have a very strong case since the REAP was on the title report. Although it was not disclosed anywhere else, defense could argue that we should have known so as a result no lawsuit was pursued.
Thankfully, we were able to get some hold backs worked out with escrow so that the REAP would have to be remediated prior to releasing some of the funds. A quick update is that we recently cleared all of the REAP issues and it should be cleared soon.
Investor · Santa Ynez, CA · Member since 2008 · 375 posts · 175 votes
6y
@Chung Cam - While suing probably won't be beneficial since it was on title, you should definitely have some strong conversations with the listing agent & their broker (if they weren't a broker), and title company. A good title company will point out specific issues to you.
I have multiple experiences in REAP dating back to 2003. Once a property is in REAP, the city Housing Department is in charge ( HCIDLA as they are known before their website switches back to Housing Department, as they were known since the passage of the Rent Control Ordinance in 1978 creating a large bureaucracy charging fees to the landlord to feed themselves and at the same time making life miserable to the mom and pop landlord who does not have the resources to comply with their draconian rules).
Please refer back to your original prelim, there should be a notice to comply filed and recorded by the city of LA. The title company should have picked up this recorded lien. Go to another title company and ask them to research all recorded documents against your property. If the original title company missed it, you can file a claim against them for all the expenses and costs of missing 1/2 of your rents. However, you should feel lucky that the title company did not pick up the notice filed (may be your property has several APNs and Housing filed the lien against only one). Without the lien, you have been able to obtain conventional financing, otherwise, you would have dropped this investment or have gone the hard money/private lender route.
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
4y
You really don't have a case against the brokers involved. It says time and time again throughout the paperwork that Brokers are not a party to the transaction and it is the Buyer's responsibility to do their own due diligence. Plus you not only sign off on the prelim, it is also listed on the contingency release, which has to be actively removed.
I'm sorry this is happening and wish you best of luck.