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Arbitration and Mediation for Real Estate

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Arbitration and Mediation

No one likes to talk about legal action when it comes to real estate, whether it’s arbitration, mediation, or a lawsuit. Let’s face it, no agent wants to be involved in lawsuits or complaints against them and no consumer wants to have their home tied up in litigation or any serious legal problems. The fact is, it does happen. While we all work to make sure it doesn’t, legal matters do come up in the world of real estate.

There are many different ways to resolve legal conflict in real estate and it’s good to know the difference between two of them: arbitration and mediation. Often the two are confused as the same thing. Of course, as this is a real estate law discussion, we must note that we are not a lawyers. Although we deal with contracts and clients on a daily basis, we are not here to give legal advice and advise all clients (and all readers of this site) to read through their contracts carefully and seek a qualified real estate attorney if they are uncomfortable with anything they find in their contracts before signing them. Now that we’ve cleared that up, let’s continue.

Arbitration

A few years ago, arbitration become a buzzword in San Antonio real estate, when residents of Hills of Rivermist found themselves battling it out with Centex Homes over a hillside that began to collapse, causing damage to homes. According to news reports at the time from Tech News Bulletin News, there was a mandatory arbitration clause in the homeowners’ purchase agreements, which held the owners back from suing and forced them to use arbitration instead.

So what is arbitration? A form of alternate dispute resolution, both parties agree to submit their case to a third party and act upon their decisions (binding arbitration). Non-binding arbitration does exist, but it is more similar to mediation (see below for more on that). The decision, when passed on is legally binding for both parties.

Home builders like mandatory binding arbitration to resolve disputes because it can be quicker, more efficient, and much cheaper than a lawsuit. When it comes to home building, having your money and time tied up in the courts could be more costly than just face value of the legal action. Some opponents say it can also favor the home builder as the builder is a constant supply of work for the arbitration company, thereby weighting the judgements in their favor (this can be said about many industries that use this type of dispute resolution).

Mediation

Mediation is similar to arbitration in that it involves a third party as a means of alternate dispute resolution. We use mediation quite often to resolve buyer and seller conflicts in San Antonio (and Texas overall). In Paragraph 16 of the “One To Four Family Residential Contract (Resale)” promulgated by the Texas Real Estate Commission, mediation is covered:

Paragraph 16. Mediation: It is the policy of the State of Texas to encourage resolution of disputes through alternative dispute resolution procedures such as mediation. Any dispute between Seller and Buyer related to this contract which is not resolved through informal discussion will be submitted to a mutually acceptable mediation service or provider. The parties to the mediation shall bear the mediation costs equally. This paragraph does not preclude a party from seeking equitable relief from a court of competent jurisdiction.

Using mediation to resolve these disputes allows for buyers and sellers to work with a mediator to find a middle ground to their dispute, but it is non-binding. Neither party must obey the decisions of the mediator (who works with the parties as opposed to arbitration, where the arbiter makes their decision independently of the parties) and there is still potential for legal action if the parties can not come to terms.

Mediation is encouraged as a first step to resolve any legal conflict arising from home buying and selling as it can be less costly, more timely, and resolve the issues without legal action and the mounting legal costs associated with such action. If the issues are not resolved, a real estate attorney should be contacted and options discussed from there.

image courtesy of Woody H1

Mediation in Real Estate

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Mediation

What is Mediation?

An unfortunate reality of real estate is that there is the potential for things to go wrong – often very wrong. Mediation can be the one option to resolve these wrongs or any disputes about a contract and it is built into Texas real estate contracts. Paragraph 16 of the 1-4 Family Residential Contract provides the option for buyers and sellers to decide in advance of these potential conflicts that they will pursue the mediation option before lawyering-up, so to speak. A simple check box is all it takes to agree to pursue mediation and we highly recommend it when buying or selling your home.

If you think you’ve reached the point where simple back and forth communications have broken down in your real estate negotiations, here are some things to know about mediation:

  • Both parties select a mutually acceptable mediation service or provider.
  • There is a fee for this mediator or service.
  • The fee is to be split between parties (although payment of the mediation fee can be negotiated as a part of its resolution).
  • Parties can have attorneys present to represent them through the mediation but are not required to do so.
  • Mediation is not just reserved for disputes between buyers and sellers, but can be used between agents, between agents and clients, and between parties to a contract and service providers as well.
  • It can be quick – usually dates can be set within a few weeks and resolution takes only a few hours or days.

What Does Mediation Look Like Exactly?

Step 1: All parties arrive at the mediator’s office and the mediator gives a brief overview of the process. The object of mediation is to find a resolution that all parties can live with, not to prove someone right or wrong or more right or more wrong. After the mediator sets the ground rules, the parties separate into different rooms.

Step 2: The mediator will meet with one party first, listening to their concerns and coming to a proposed settlement that this party wishes to present to the opposing side. Any information given to the mediator is confidential unless specifically authorized to be released to the other side.

Step 3: The mediator then proceeds to meet with the second party and listen to their concerns. The mediator (if authorized) presents the proposal from the first party and then hears and prepares a response, or counter. Again, any information presented or discussed during this mediation is strictly confidential unless express permission is given to release that information to the opposing side.

Step 4: The mediator presents the counter to the first party and then proceeds back and forth between the two sides until one of the proposals is accepted as satisfactory to both sides.

In general, there is no “winner take all” scenario with mediation. Instead, the goal is to come to a middle ground through compromise. Neither side should expect to walk away with absolutely everything. Mediation is designed to solve the conflict with the best outcome for both parties, while the other option, getting lawyers involved, often results in a clear cut “winner.”

Other important things to note:

  • Resolution of mediation is confidential.
  • The mediator does not represent either side and makes no decisions on behalf of the parties. They must come to an agreement themselves, the mediation process is just meant to assist in finding that common ground resolution.
  • The mediator has no power to enforce the agreement.
  • If mediation is not successful, meaning both sides can’t agree, then the parties would then still have the option to pursue litigation and it is also easy to find maritime lawyer in Florida who can help you in this case.

Overall mediation can be a valuable as a time and money saving option to help resolve major disputes in a real estate transaction. Be sure you note whether the mediation checkbox is marked in Paragraph 16 of your contract – whether you want to use mediation or not – it is important knowledge in your transaction.

image courtesy of dalbera