What You Must Know About REAP in Los Angeles

     
REAP Los Angeles
 
Recently, I attended a REAP Workshop hosted by the Los Angeles Housing and Community Investment Department.  The department puts on information workshops every month that are worth attending if you have received a notice regarding REAP.  The city officials, as well as the third party resources who attended, were all VERY helpful, kind and knowledgable.  They want to help you and they want you to be successful.  However, the process itself is stressful and expensive.  And successfully getting through it depends entirely on you, the owner.

How Did I Get Here?

How does a property get into REAP?  All 2+ unit properties in Los Angeles receive violations from code enforcement from either a complaint or from a routine inspection by LA Department of Building and Safety.

I am Here, Now What Do I Do?  You need to read all the notices you receive, abide by the instructions and timeline and most importantly, do the necessary repairs.

REAP Inspections

Here are some important takeaways from that workshop.  As an owner, please show up at the first inspection and be ready to show all the units to the inspector, including common areas, garages, and any locked access areas.  The inspector must see every area or it will result in an incomplete inspection.  The inspector will have to come back to inspect any locked units or areas, which costs you money for inspection. There is a 40% additional charge for a reinspection.
 
The Notice to Comply lists violations.  Each violation has a different percentage by which rent is reduced for tenants while the violation is active.  Violations are graded in 3 categories:  low severity is 10%, medium severity is 15%, and high severity is 20%.  So, as an owner, you should prioritize completing the high severity violations first, so you can stop losing out on the higher rent reduction faster.

Notice of Acceptance into REAP

If you receive a Notice of Acceptance (into REAP), you can appeal within 15 days of the date of the notice.  Appeals are handled at the Los Angeles Housing and Community Investment Department (1200 West 7th, LA).  Appeals meetings are open to the public.  Note: a property must be reinspected before it can be resolved at a hearing.  So, if you get a notice and repair the code violation, you still need a reinspection to prove it's been completed.
 
After the hearing, a decision is made by the General Managers Appeals Board.  As a homeowner, you can also appeal the appeals’ board’s decision.  But that last decision is the final decision before being accepted into REAP.  Depending on the number and severity of the violations, there can be a rent reduction anywhere from 10% to 50% per unit.  Sometimes, only a few individual units are in REAP, but common areas count against all units. 
 

Tenants in a REAP Unit

Tenants are encouraged but not mandated to pay into the REAP account.  Tenant Outreach Coordinators work with tenants to educate them on REAP and how to pay into the escrow account so their rent will be utilized for repairs.  Tenant Outreach Coordinators work with owners, too, via calls, mailings and site visits.  Tenant Outreach Coordinators will give an advisory opinion ahead of an inspection to help landlords pass the re-inspection.  Advisory opinions are free, while re-inspections are expensive, so this can save the landlord money on fees.
 
Monthly account statements are sent to owners.  This can be difficult if a landlord needs to evict a tenant.  And landlords cannot recuperate the lost rent during or after the rent reduction.  Also, there are no rent increases allowed during this time and for the following 12 months after release.

Facts About Being in REAP

You will communicate with an inspector prior to REAP, then once in REAP, it goes to a case manager.  You can request money from the REAP account to pay a court-order, utilities, and relocation costs, as well as repairs (invoice or bill from a licensed contractor).  The company named on the invoice or bill will be paid directly from the account.
 
Typically, you have 35-40 days until the first re-inspection to fix all the violations.  If they haven’t been fixed, then the inspector will take photos of the violations for the senior inspector to review.  Then the property will be scheduled for discussion at a General Managers’ hearing.  Tenants and landlord/owners have the right to come.  The hearing date, time and location are posted at the property and on every unit’s door.  At the hearing, the photos of the violations will be reviewed.  If during the first re-inspection, enough has been completed, then there can be additional time given.
 
The LA City Council, which meets 2 to 3 times each week, receives a recommendation to remove properties from REAP and that recommendation is voted on.  Landlords and tenants are notified of the outcome of that vote.  If the vote passes to remove a property from the program, the removal process begins.  First, it takes 30 days to close an account.  Notice on title remains until all fees have been paid to the finance department.  The billing department will issue a bill that is due in 60 days.  It becomes delinquent 30 days after that.  There is a steep 100% penalty after 60 days plus an additional 1% of the outstanding bill is added to the bill every month.
 

Fees, Penalties, Costs

There is a $50 administrative fee per unit per month.  However, there are exemptions for vacant units, owner-occupied units and relatives not paying rent for their units, but REAP offices must be notified about these exemptions in writing.  Annual fees for being in REAP are due by February 28th of each calendar year for the previous year.  The current owner of the property is responsible for all past fees.
 
A demand is submitted to the City of LA Finance Department for a statement of money due (it will not be exact accounting).  A final bill is provided when all the other fees include legal, inspection and annual, and the corresponding delinquent fees have been calculated.  The time from sign-off to release can be anywhere from 90 to 180 days.  Interestingly, there is very small interest paid on REAP accounts, which is set by LA County.
 
Before a release is issued, they will make sure that no outside entities have any open orders and that there are no delinquent utility bills.
 
Still Confused?  This process must be actively managed by you, the owner/landlord.  There are lots of moving parts and different timelines and departments with whom you need to work. Just know that it can be done.  
 
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Jennifer Shenbaum

About The Author

Jennifer Shenbaum is a real estate investor based in Southern California. She is a veteran of the housing market crash of 2007. Best of all, she offers free remodeling ideas to all who ask.