Real Estate Mediation And Compliance With The Requirement For Pre-Litigation Mediation
This article is designed to review and provide an overview of the real estate mediation process with emphasis on review and requirements under the California Association of REALTORS® Residential Purchase Agreement (CAR form “RPA”).
INTRODUCTIONReal estate disputes and resulting real estate litigation come in all sizes and surround anything and everything imaginable pertaining to modern-day real estate transactions. Non-disclosure allegations and earnest money deposits are a common catalyst for disputes, but there is no end to the manner of disagreements that can form surrounding real estate. Foreseeing the potential for litigation, many modern purchase agreements, including those drafted by the California Association of REALTORS(R), contain provisions for "dispute resolution," often mandating the parties attend a "mediation" prior to filing a lawsuit or arbitration claim.
REQUIREMENT FOR MEDIATIONThe requirement for mediation prior to filing a lawsuit or arbitration is designed to allow the parties an attempt to resolve their dispute prior to dramatic escalation (typically resulting in spending thousands upon thousands in legal fees and deeper disagreement over resolution).
As voluntary mediation technically cannot be "forced", the contracts typically "punish" a party for not participating in mediation prior to filing a lawsuit or arbitration claim. The RPA states that if a party fails to request or attend mediation prior filing to a lawsuit or arbitration, they will not be awarded any attorney's fees or costs, even if they are ultimately the prevailing party in that litigation.
What does that mean? For example, the RPA and many contractual agreements contain a provision whereby the "prevailing party" in any lawsuit or arbitration will be awarded their attorneys fees and costs, on top of any actual recovery in the lawsuit or arbitration. These "attorney's fees provisions" can be extremely powerful tools in litigation. It is not uncommon for well over six-figures in attorney's fees and costs to be incurred in any type of dispute taken through a trial or arbitration.
Therefore, failing, refusing or forgetting to demand or attend mediation prior to litigation under the RPA can end up costing that party, even if they prevail, substantially. Moreover, given the inability to recover attorney's fees and costs, significant leverage is lost immediately to that party who fails to comply with the mediation requirement. An attorney who forgets this element before filing a lawsuit on behalf of their client is open to a malpractice claim (and will look foolish to the opposing party and their own client once they find out).
WHAT IS MEDIATION"Mediation" is a process in which a neutral third-party facilitates communication between the disputants to assist them in reaching a mutually acceptable agreement. Mediation is confidential, voluntary and non-binding - informal compared to court proceedings, often in an office conference room setting with no robes or clerks or deputies. If no mutually agreeable resolution is achieved at mediation, the parties are free to pursue their otherwise available remedies, generally a lawsuit, arbitration or administrative action. Any dispute can be mediated and resolutions are not always monetary.
WHO IS THE MEDIATOR"Mediator" means a neutral person who conducts a mediation. There is generally no requirement for who can be a mediator, but retired judges, attorneys and other professionals with ample subject matter experience are frequently selected as mediators.
WHO ATTENDS THE MEDIATIONWho is required to attend the mediation will depend on the contract(s) involved. For example, the RPA requires the buyer and the seller of the property to participate; however, it does not require any third-parties, such as the real estate agents/brokers, inspectors, contractors, or others that may be asked, to participate. Third-parties may be required to participate in a mediation pursuant to other related contracts (i.e. a seller may have a contract with their agent/broker that mandates mediation, in addition to the contract between the seller and buyer mandating mediation). Third-parties may voluntarily participate even if not required. However, unless contractually required, many third-parties will strategically stay away from a mediation between a buyer and a seller under a hope the matter will simply go away.
Everyone participating should plan to personally appear; but such a policy often cannot be forced. Out-of-area relocation or other factors may warrant telephonic or video conference appearances. Attorneys often appear with (or in lieu of) their clients and entity clients send attorneys or other corporate representatives. The contract may dictate who should attend. Attendance can often become a further and unfortunate catalyst for dispute (such as when one party sends an attorney to be present vs. appearing themselves with the attorney).
Real estate agents should take caution and consult with their broker before attending a mediation involving their own transaction. A real estate agent involved in the dispute should never, ever, act as their client's attorney (unless the agent is also a licensed attorney) - a line that is often and easily blurred, especially if showing up with their clients in some joint capacity and/or commenting about issues such as liability, damages or settlement terms. Real estate agents (and therefore their brokerages) often become parties to real estate litigation, with or without actual culpability.
IS AN ATTORNEY REQUIRED FOR MEDIATIONRepresentation by an attorney at this stage of a legal proceeding is highly recommended, but not per se required. Parties can represent themselves, but without specific knowledge of California (or that state's) real estate law it is often problematic and counter-productive to be without counsel during a mediation. It also places burden on the mediator and potential conflict as the mediator cannot act as counsel.
If one party has counsel, and another does not, there is already an unfortunate imbalance of leverage, perceived or actual.
Note - if you ultimately reach a settlement, or proceed to trial or arbitration, depending on the language of the settlement agreement or judgment and other factors, you are likely thereafter barred from bringing any claims relating to the same transaction. For many reasons, it is advisable to conduct a full review of the transaction before resolving any singular claim(s). Parties should consult with legal counsel before signing a settlement agreement or proceeding to trial or arbitration. Legal counsel may be able to advise of other potential claims and/or parties that should be addressed at mediation.
WHERE TO FIND A MEDIATORMediators can be easily found. There are many prominent companies providing dozens of available full-time mediators and mediation facilities, as well as countless well qualified professionals who act as mediators in their fields on a part-time basis.
They can be found through any variety of online or traditional business searches. Additionally, there are many trade organizations (i.e. the California Association of REALTORS(R) Real Estate Mediation Center for Consumers, www.car.org/mediation), county courthouses and community organizations that have "panels" or lists of available qualified mediators and/or mediation programs, facilities, etc.
COSTS FOR MEDIATIONThe costs for mediation can vary wildly and are negotiable (at least in the sense there is ample competition and alternative choices for consumers). Most contracts requiring mediation state the parties are to share the costs equally. Private mediation companies with retired judges and other highly experienced professionals can come at a hefty price - arguably worthwhile for complex and seven-figure and greater disputes - upwards and beyond $4,000 - $10,000 per day, often booked months in advance. On the other hand, many trade organizations such the California Association of REALTORS(R) Real Estate Mediation Center for Consumers, county courthouses and community organizations have "panels" or lists of available qualified mediators at a discounted rate, generally around $1,000 - $1,500 for a half-day or three hour session. It is even possible to find free dispute resolution services via some local programs.
HOW TO COMPLY WITH THE REQUIREMENT FOR MEDIATIONForemost, review the contract's provision(s) on mediation and dispute resolution prior to drafting to determine any specific language, demands or recipients that must be included. Also check for any requirements on method of delivery, addresses of delivery, etc. Absent the same, there is no code as to what must be included in a demand for mediation. The following is a simple commonsense approach to a demand for mediation:
- Send a letter to the other party demanding mediation. See example below.
Send the letter with some form of delivery confirmation. Email is fine, but send it via USPS, FedEx, etc., with delivery confirmation as well.
Reference the provision of the contract that requires mediation (i.e. Paragraph 22 of the current Residential Purchase Agreement, "Dispute Resolution").
Provide a general overview of the claim(s), so the other party has some idea of the dispute, but it can be brief (i.e. "We believe material facts were not disclosed, namely a prior roof leak...").
A proposed list of mediators should be provided (see section on "WHERE TO FIND A MEDIATOR"). Attach biographies and rates and/or identify websites where the other party can find more information on the mediator(s).
Give a deadline to respond. Generally 10-14 days is a good timeframe. Too short of a time is counterproductive, but do not allow months to pass.
- Agree on a mediator.
When the party responds, coordinate selection of the mediator.
This may require some back-and-forth, but the parties must ultimately agree on the mediator.
See WHAT IF THE OTHER PARTY DOES NOT RESPOND OR IS BEING DIFFICULT IN SELECTION OF A MEDIATOR OR SCHEDULING?
Payment is generally due weeks in advance to confirm the mediation.
- Pick a date for the mediation.
Once the mediator is determined, the mediator's office will typically coordinate the mediation date. Often the mediator will send available dates to all parties and/or ask the parties to provide available dates.
See WHAT IF THE OTHER PARTY DOES NOT RESPOND OR IS BEING DIFFICULT IN SELECTION OF A MEDIATOR OR SCHEDULING?
- Prepare for the mediation.
Review and gather documents (such as contracts, photos, email, invoices, etc.) and other information that may be helpful to the mediator or in your demand to the other party.
Coordinate attendance of any witnesses.
Calculate damages and rebuttals.
Be prepared to make a "demand" on the other party and response thereto. Often monetary, but it can be some form of action, such as to sell a property, or release a deposit from escrow.
- Send a mediation brief to the mediator. This may be optional, but highly advised.
It is advisable to send your brief to the other party as well - the more information they have, the better chance of properly evaluating and resolving the dispute - but many opt to make their brief "confidential".
Include a basic, yet brief, overview of the facts, a timeline is ideal.
Explain what you believe went wrong, what was the breach of contract, non-disclosure, etc.
Identify your damages.
Present a demand or opinion of how the matter should resolve.
- Attend to the mediation. See below.
EXAMPLE LETTER DEMANDING MEDIATION(NOTE - review the contract provisions on mediation and dispute resolution prior to drafting any demand letter to determine any specific language, demand or recipients that must be included, along with any requirements for method of delivery, addresses of delivery, etc.)
(NOTE - the California Association of REALTORS(R) Real Estate Mediation Center for Consumers has an online form which a party can complete to "initiate" the process, and the Center will generate a letter to send the other parties.)
(NOTE - There is a "Demand for Mediation" form available to REALTORS(R) within the REALTOR(R) forms software for members of the California Association of REALTORS(R), form DM.):
As you know, we had a Purchase Agreement [or other contract] for the sale of [property, etc.]. That contract obligates the parties to mediate any dispute pursuant to [identify provision of contract]. I/We hereby demand mediation in an attempt to resolve [provide a general overview of the claim(s), so the other party has some idea of the dispute, i.e. "material facts that I/we believe were not disclosed, namely a prior roof leak..." Provide additional details, such as costs, if applicable]. I/We propose to use mediator(s) [identify a mediator(s) or mediation provider/company of choice, attach biographies and rates and/or identify websites where the other party can find more information]. If you have a different mediator proposal, please provide biographies and rates. Please respond on or before [generally 10-14 days is a good timeframe; ensure to provide an address, phone, etc. where they can contact you]. A failure to timely respond may be interpreted as a refusal to mediate.
WHAT IF THE OTHER PARTY DOES NOT RESPOND OR IS BEING DIFFICULTPicking a mediator and dates for the mediation can often be a contentious process. Sometimes people are simply busy and coordination is difficult; sometimes parties are accused of creating artificial delays. There is no set rule for this debate - commonsense and good faith will dictate.
If the other party does not respond at all, then it would be wise to send at least one more attempt, and likely a few. If the other party does not respond after several reasonable attempts, then you have most likely satisfied your obligation to request the mediation and you can proceed to file a lawsuit or arbitration without having to attend mediation. Check with legal counsel before proceeding.
If the other party responds, but is simply being difficult in selecting a mediator and/or scheduling, you likely need to attempt to work with the other party and engage in a documented good faith effort. If the mediator selection is the problem, some mediation providers, such as the California Association of REALTORS(R) Real Estate Mediation Center for Consumers, will 'pick' a mediator for the parties from a list and/or based on availability, provided both parties agree to said process. At least offer this process prior to giving up. The same process can be used to pick a date (much like a Superior Court will merely assign a judge and the judge will pick a trial date, often without input from the parties).
If however, after much documented effort on your part, and unreasonableness or refusals on the other party's part, the other party still will not agree, then you have most likely satisfied your obligation to request the mediation and you can proceed to file a lawsuit or arbitration without having to attend mediation. Check with legal counsel before proceeding.
ATTENDING THE MEDIATION / PROCESSAs noted above, mediation is often informal, generally in a conference room setting. There is no dress code, but business or business casual is suggested. See above sections on who should attend, attending in person, etc.
Once you arrive at mediation, you will generally check in and proceed to a conference room. There, you will eventually meet the mediator who will go over the day's agenda and then begin to discuss the matter with you.
Mediators have different approaches to mediation. Some put the parties together to talk it through; some put the parties in separate rooms and go 'back and forth'. The two most commonly referred to styles of mediation are facilitative and evaluative (i.e. whereby the mediator 'facilitates' a dialogue between the parties, or, whereby the mediator 'evaluates' the claims and provides input and opinions). Many will use both styles or a combination of the two. If you feel your mediator is being tough on you, that is likely the mediator's style (to take the other side's position and inquire why you feel they are wrong) and generally the mediator is taking the same approach to the other parties.
As there is often 'down time' during the mediation - time where the mediator is meeting with the other parties - the participants are free to discuss with their counsel, each other, or bring a magazine, book, laptop, etc. as desired.
There is no set rule on how long a mediation must last. Generally a session is booked for several hours or even an entire day. A settlement can be reached within an hour, within the session, after the session, or not at all. The participation in mediation does not guarantee that a result will be reached; only the parties can ultimately decide if a settlement is to be reached at the mediation. That said, some mediations end early and/or parties "walk out" early, either because a settlement was reached, an impasse was reached, or, frankly, they have no desire to mediate and merely wanted to "check the box" off the requirement.
If a settlement is reached, it will generally be up to the parties and their counsel to draft and obtain signatures to a written settlement agreement. Some associations have blank forms available for this purpose. If you reach a settlement, do not leave the mediation without signing a settlement agreement. It can be brief; but check with legal counsel.
If the matter does not resolve at the mediation, the parties are then free to move forward, i.e. filing a lawsuit or arbitration claim.
It is important to remember the mediator is neutral and cannot act as an attorney or representative for any party and has no authority to make any binding decisions, impose settlements or require concessions from any party.
Even after filing a lawsuit or arbitration claim, it is common for the parties to attend another mediation later in the process (where the additional time and expense of litigation, and any new information learned, may, or may not, improve the ability to resolve the matter at a later date).
CONCLUSIONMediation is required by the California Association of REALTORS(R) Residential Purchase Agreement ("RPA") prior to filing a lawsuit or arbitration. Mediation can be an exceptional tool to avoid costly litigation. Parties should meet with legal counsel and review their contracts prior to commencing or attending a mediation. It is advisable to be represented by legal counsel during a mediation, but not required. Remember - mediation puts the parties in charge of the outcome; a lawsuit or arbitration will ultimately be decided by a judge or jury and is often analogous to as simply "rolling the dice" on the outcome.
ABOUT THE AUTHOR-Devin Lucas
Devin R. Lucas is a real estate attorney, broker and REALTOR(R) in Newport Beach. Mr. Lucas is on the panel of real estate mediators available via the California Association of REALTORS(R) Real Estate Mediation Center for Consumers. Mr. Lucas is a past Director of the California Association of REALTORS(R), a current Director of the Newport Beach Association of REALTORS(R), an active member of multiple local and statewide REALTOR(R) committees, the 2018 Secretary and Treasurer of the Orange County Bar Association's Real Estate Section, the past Chair of the Orange County Bar Association's Solo and Small Firm Section, and was named the "2014 REALTOR(R) of the Year" by the Newport Beach Association of REALTORS(R).
Mr. Lucas is a Broker-Associate with the Newport Center Office of Villa Real Estate, a leading luxury brokerage, specializing in Newport Beach, Costa Mesa and Orange County coastal communities.
Read Mr. Lucas full bio here.
Lucas Real Estate
Real Estate Attorney | Real Estate Broker | REALTOR(R)
lucas-real-estate.com | [email protected] | BRE No. 01912302
949.478.1623 office | 888.667.6038 fax
2901 West Coast Highway Suite 200
Newport Beach | California | 92663-4023
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