The City of Los Angeles has what is arguably the most onerous program to deal with. Given the vast number of vacant and distressed properties within the City of Los Angeles, it is no surprise that the City has taken steps to protect its residents and neighborhoods. Registration with the City of Los Angeles is triggered by the commencement of a non-judicial foreclosure proceeding on residential property located within the city limits. Within 30 days following recordation of a notice of default, either the “lender or beneficiary or trustee who holds or has an interest in the deed of trust” (any of the foregoing is a “Responsible Party”) must register the property on the City’s online registry.
The annual fee of $155 must be paid at the time of registration and by January 31st of each year thereafter. Thereafter, the Responsible Party who registered the property must have the property inspected on a monthly basis and upload the inspection report on the registry website. The monthly inspection, which is an exterior inspection, must include photographs and answer a few questions on the registry. If there is any change in the property’s status (e.g., sold, foreclosure cancelled, etc…), then that information must be updated within 10 days of the change. This change in status includes a discovery (upon inspection) that the property is vacant. Once vacant, a declaration must be recorded with the county recorder that the property is now vacant, it shall remain vacant, and it has been secured against trespassers. Curious though is that the Responsible Party may have no way of knowing whether the property will remain vacant (what if the property owners are temporarily away?) and entry onto the property may very well be an act of trespass, the very thing the ordinance is supposed to prevent. As the lender, you have to be more vigilant than you have been in the past.
If the foreclosure completes and the property reverts to the foreclosing beneficiary, then the property’s status must be changed to REO and a fee of $356 must be paid. The penalties for non-compliance or delayed compliance are severe. The City of Los Angeles imposes a $250 per day penalty for each day that the registration or inspection is late up to a maximum of $100,000 per property per calendar year. The penalty is not enforced until 30 days after the City of Los Angeles sends a notice to the address on the notice of default advising that the property needs to be registered. Failure to pay within the 30 day window results in the assessment of the $250/day penalty from the time that the property should have been originally registered. The notice is only required to be sent by first class mail, not registered or certified mail. If you do not receive the notice, the City’s position is that it does not have to prove the notice was sent.
Adding a further burden, if the property has a structure that remains vacant for more than 30 days, failure to take the actions stated in the Los Angeles Municipal Code (e.g., securing and posting the property) can result in a penalty of $1,000 per day up to a maximum of $100,000 per property. Hopefully we will never discover whether the penalties for failure to register and failure to maintain a vacant property are cumulative.
For those of you who are not familiar with the City of Los Angeles, be aware that it is comprised of many localities that do not have “Los Angeles” as their mailing address. Accordingly, you should proactively check the foreclosure registry to determine whether compliance is required. Please make sure that your organization is aware of these ordinances and that they are in compliance with all of the requirements. After all, with 58 counties and 482 municipalities in California, there are well over 100 different ordinances that must be complied with.
Lenders must take an active role in their loans whether the loans are performing or non-performing. Regular inspections and contact with the borrowers is a must. Also, lenders must take into consideration when pricing their loans these added costs and obligations to which they may be subjected.