Once a property is formally accepted into REAP, an escrow account is established by the Los Angeles Housing Department (LAHD). Rent payments from tenants of the property may be deposited into the escrow account. Interestingly, the tenants are not required to pay their rent into the REAP escrow account. However, the City of Los Angeles may seek a court order forcing the property owner to remand any rents received from the tenants while in REAP. The City of Los Angeles can only seek this relief if: 1) the units have been in REAP for at least six months; and 2) an average of less than 50 percent of tenants in the building have been paying into REAP on a monthly basis.
Each month while the property is in REAP, LAHD will provide the property owner with an accounting for all rents paid into the REAP escrow account and any deductions. Once a property is removed from REAP, a full accounting of rents paid into, and deductions taken from, the escrow account will be provided. All rent money deposited into the escrow account and not expended will be returned to the legal owner of the property at the time the property is released from REAP. If there is an ownership, foreclosure or control dispute and an objection to the release of the funds is filed, LAHD will retain the funds until the dispute is resolved either by court order or private agreement.
I will cover LAHD-mandated rent reductions while a property is in REAP and situations when a property owner is allowed to make withdrawals from the REAP escrow account in later posts.