This is the second installment in our 4-part series discussing the typical steps for a California real estate buyer when defects are not disclosed in a real estate sale, which are likely similar to the steps you may encounter for other real estate disputes as well. In the first installment, we covered the basics of the duty to disclose under California real estate law. In this installment, we will look at the first step in pursuing a nondisclosure allegation: mediation.
Real estate deals are complex transactions with many possibilities for dispute, and even minor disagreements can quickly become heated and land the parties in lengthy, expensive court battles. Therefore, Real Estate Purchase Agreements now typically include dispute resolution clauses, and these often mandate that parties sit down to mediation as an opportunity to try to resolve disputes through a structured negotiation before entering litigation. Nondisclosure allegations are a common cause of such disputes, and thus mediation is likely the first step when such issues arise.
For example, one common purchase agreement for residential purchases in California is the California Association of Realtors (CAR) Residential Purchase Agreement (RPA). The CAR agreement includes such a standard dispute resolution clause, in a section entitled “Alternative Dispute Resolution” (ADR), which covers mediation and arbitration.
Litigation is likely to cost both parties thousands of dollars and create greater contention, rendering resolution even more difficult to attain. Mediation is an informal opportunity for parties to resolve their dispute equitably without resorting to more formal (and costly) legal mechanisms—mediation is voluntary, confidential, and non-binding.
Although the CAR agreement states that mediation is “mandatory,” mediation is by definition voluntary, and therefore dispute resolution clauses typically include punitive measures to encourage compliance. For example, the CAR agreement states that a party who refuses to participate in mediation will be prohibited from being awarded attorney fees or costs, even if they prevail in litigation. If the opposing party might be on the hook for their legal fees and yours, they will probably be more likely to compromise, so refusing to participate in mediation means giving up significant leverage. Failing to offer mediation before filing a lawsuit can even leave the attorney open to a malpractice claim.
Mediation also has the advantage of being inexpensive and expeditious. However, parties have not yet had any opportunity for discovery, where the parties are compelled to disclose evidence, so the process also often fails, particularly in high-stakes disputes. It is still a crucial step in the resolution process, though, and trying to avoid court is never a waste of time.
Mediation is facilitated by a mediator (or mediation panel), a neutral third party agreed upon by both parties. The mediator is often a retired professional such as a judge, attorney, or even real estate professional, but there are no specific legal requirements for who can serve as mediator. Each party provides the mediator with a written explanation of the facts (a “brief”) from their perspective, along with any supporting evidence; if represented by an attorney, the briefs may contain specific references to law or precedents.
The mediator will often begin by holding a meeting in a conference room with all parties. In a nondisclosure dispute or for other issues relevant to the CAR agreement, the RPA requires the buyer and seller to both participate in the mediation. Sometimes attorneys will appear in lieu of their clients, if allowed by the contract, and sometimes situations will force a party to participate via telephone or teleconference, but it is highly recommended that the principal parties appear in person: the opposing party might take a failure to personally appear as a slight or sign that you do not take the proceedings seriously, dooming the mediation to failure and escalating tensions.
After the initial meeting, the mediator will then speak with each party (and their attorney, if any) separately, as well as speaking separately with any witnesses. While gathering information in these individual conferences, the mediator may ask further questions or begin to negotiate with each party what a satisfactory resolution might consist of. Because the mediation is confidential, the mediator cannot share parties’ comments without consent. The mediator will continue to talk to each party, going back and forth, with the hope of reaching a mutually agreeable resolution. If successful, there will be a written Settlement Agreement which all parties will sign. The resolution may be monetary, or it might be as simple as mandating that one party fulfill a promise within a certain timeframe. Otherwise, the dispute will then continue to arbitration or litigation