Fall/Winter 2020 • Issue 70, page 5

When Is An 'As-Is'/'Where-Is' Sale Not An 'As-Is'/'Where-Is' Sale?

By Brooks, Marc*

Selling real property as a Receiver is often done on an ‘as-is’/‘where-is’ basis. Receivers must be careful to consider any applicable City, County and State ordinances and regulations. Every jurisdiction has different requirements that must be complied with, generally prior to closing. Even if a sale as “as-is,” it is imperative that all requirements are met when a Receiver is selling real property. Let’s examine just a few of the State of California and City of Los Angeles requirements.

Final Public Report (aka White Report): Prior to entering into a contract of sale or lease, a White Report is required by the California Business and Professions Code when there is a Common Interest Subdivision compromised of FIVE (5) or more Units and there is a sale to an Individual buyer by the owner (Subdivider or Agent). To obtain this White Report (which is issued both to an Entity and a Project), all the documentation the Buyer encounters (with the exception of conventional loan documents) must be approved by the California Department of Real Estate. Failure to properly comply with the rules and regulations can result in up to a $10,000 fine, one year in jail or both, per occurrence.

The City of Los Angeles Residential Property Records (aka the ‘9a Report’): “Section 96.300 L.A.M.C. requires that the seller of Residential Property within the City of Los Angeles shall apply to the City for a Report of Residential Property Records and Pending Special Assessment Liens and deliver such report to the buyer prior to entering into an agreement of sale or exchange of the Residential Property or prior to close of escrow in connection therewith. There is a fee of $70.85 for this service. Residential Property is defined as: a. Any real property improved with one or more buildings or structures which in whole or in part are used for or are legally permitted to be used for dwelling unit or guest room purposes. b. Any vacant real property located in a zone wherein dwelling units or guest rooms are legally permitted.”

Some of the physical compliance, installation burdens, responsibilities, and requirements can be shifted from the Seller to the Buyer. In a Receivership Sale these requirements should be shifted to the Buyer, for both cost and liability purposes. Briefly, here are the are nine different components to the ‘9a Report’, you should be familiar with;

  1. Pending Special Assessment Liens: The most common assessment is Brush Clearance in Hillside-Fire Areas associated with homes in the Santa Monica Mountain Range.
  2. Water Conservation Devices: Any commercial or residential building containing plumbing fixtures shall comply with the City's Water Conservation Ordinance.
  3. Security Lighting and Locks: All apartment buildings (buildings containing three or more dwelling units) shall be provided with security lighting and locks. Both exterior lighting and interior lighting have specific requirements.
  4. Seismic Gas Shut-Off Valves (SGSOV) or Excess Flow Shut-Off Valve (EFSOV): Any commercial or residential building containing fuel gas piping shall require the installation of an SGSOV or EFSOV.
  5. Metal Bars, Grills, Grates, Security Roll-Down Shutters, And Similar Devices Installed Over Emergency Escape: Every sleeping room below the fourth story shall have at least one operable window or door approved for emergency escape or rescue that shall open directly into a public street, public alley, yard or exit court.
  6. Smoke Detectors: Smoke detectors, shall be mounted on the ceiling or wall of each existing room used for sleeping purposes.
  7. Carbon Monoxide Detectors: An owner of a dwelling or sleeping units intended for human occupancy shall install a carbon monoxide device.
  8. Impact Glazing/Approved Film for sliding glass panels of sliding-type doors: Existing glass in every sliding glass panel of sliding-type doors, bathroom shower doors and French-type wooden doors shall be impact hazard glazing or an approved film may be installed on the glass.
  9. Protected Trees: “Protected Tree" means many Southern California native Oak Tree species with a cumulative diameter that measures four inches or more, and is taller than four and one half feet above the ground level at the base of the tree may be protected.

The Los Angeles Department of Water and Power ‘Certificate of Compliance’ (Ordnance No. 172075) requires that ALL properties must have Low-Flow Showerheads. Residential properties must have Ultra-Low Flow toilets prior to the close of escrow. An inspection must be completed by a licensed contractor or valid Water Conservation Retrofitter, who shall complete a ‘Certificate of Compliance.’ This certificate must be executed by Buyer and Seller prior to the close of escrow, then filed with the City of Los Angeles no more than 15 Days after the completion of the inspection (plus the cost of compliance).

It is very common for parties to a transaction indicate that they are going to “wave” the ‘9a Report’ and/or the ‘Certificate of Compliance,’ or the Buyer will receive these items after the close of escrow. Additionally, parties believe they can agree to ‘indemnify’ for failure to comply with these requirements. Waving the reports and indemnifying the parties from failure to deliver them is all too common. These types of laws, however, cannot be waived and an indemnity agreement to break the law is unenforceable. These activities, however happen all too frequently.

In summary, during Receiver Sales, the Receiver really needs to utilize the services of experienced vendors that will not only administrate the transaction properly, but make sure the Receiver is in compliance with all City, County and State Ordinances and Regulations.

*
Marc Brooks is the Executive Vice President, Development, of Escrow of the West with offices in Beverly Hills, Westlake Village and Woodland Hills providing real estate escrow services for commercial sales, receiverships, 1031 exchanges, REO’s, trust sales, probate, new construction and other specialty escrows.