Q:   I recently purchased a residence and I signed a standard California Association of Realtors Residential Purchase Agreement.  I now believe that there are defects in the home that were not disclosed to me by the seller and I want to file a lawsuit and recover my attorney fees.  The Agreement has a provision for mediation, but do I need to request mediation before filing a lawsuit?

Mediation is Required to Obtain Attorney Fees in a Dispute Arising Out of a Residential Purchase Agreement A:  It depends.  There is no requirement to mediate before filing a lawsuit against the seller or any broker involved in the transaction, unless there has been an agreement to arbitrate.  If the parties agree to arbitrate and one of them files a lawsuit, the other party can file a motion with the court to stay the lawsuit and compel the arbitration.

However, pursuant to paragraph 26(A) in the recently revised C.A.R. Residential Purchase Agreement, both the buyer and seller agree to mediate any dispute or claim arising between them out of the Agreement, or any resulting transaction, before resorting to arbitration or court action.  The mediation provision applies even if the parties have not agreed to arbitrate.  The buyer and seller also agree to mediate any disputes or claims with brokers who agree in writing to such mediation prior to, or within a reasonable time after, the dispute or claim is presented to the Broker.  Except under certain circumstances described below, any party who commences a lawsuit or arbitration without first attempting to resolve the dispute through mediation, or refuses to mediate after a request has been made, is not entitled to recover attorney fees even if they prevail.

The inability to recover attorney fees is a severe penalty for failing to offer mediation or refusing to mediate because the Residential Purchase Agreement provides in paragraph 21 that the prevailing party is entitled to recover attorney fees.  Therefore, either party can recover attorney fees if they prevail in a lawsuit or arbitration if they do not violate the mediation provision.  However, the party that violates the mediation provision cannot recover its attorneys fees, even though the other party can still recover its fees if it prevails.

Matters that are excluded from the mediation provision include judicial or non-judicial foreclosure or another action to enforce a deed of trust, mortgage or installment land sale contract, an unlawful detainer action, filing or enforcement of a mechanic’s lien, and any matter within the jurisdiction of a probate, small claims or bankruptcy court.  An action filed to enable the recording of a notice of pendency of action (aka lis pendens), for an order of attachment, receivership, injunction or other provisional remedy is not a waiver or violation of the mediation provision.  Brokers are not obligated to mediate unless they agree to do so in writing, and any participation in the mediation does not make the broker a party to the Residential Purchase Agreement.

Although offering mediation is a requirement to obtain attorneys fees as the prevailing party, it is also an effective method of resolving disputes before the expenditure of significant time and money in litigation.  Mediation is the term used to describe an informal meeting of the parties with a neutral third party called the mediator to attempt to negotiate a settlement.  The mediator cannot impose a resolution on the parties, but his or her involvement frequently enables the parties to have an independent person convey settlement offers and demands and can be very effective assistance in helping the parties understand how a negotiated compromise can be a mutually beneficial resolution of their dispute.

Mediation is often confused with the process of arbitration that involves a third party called the arbitrator who acts as a judge and jury and renders a decision that can be binding and enforced as a civil judgment.  A mediator does not have the authority to render a binding decision. The mediator can only facilitate discussions and the negotiations of the parties to assist them in fashioning a resolution.

Because of the increase in litigation in recent years, most judges will direct the parties to mediation as early in litigation as the parties may agree.  Litigation is the term given to the adversarial process of a lawsuit or binding arbitration.   As a result of recent court of appeal decisions, the courts can no longer compel the parties to participate in mediation unless they agree to participate because it is a voluntary process that cannot be imposed on the parties.

The advantage of mediation is it may be the first time in the litigation when the parties meet face to face and can express their feelings regarding their goals and concerns.  Because mediation is non-adversarial, the parties can explore a “win-win” outcome and avoid a final decision by a judge or jury where one wins and the other loses.  Many judges and mediators will remind the parties that a bad settlement is preferable to a good trial because the settlement is a result the parties can fashion themselves, and they both can obtain a favorable result, even if it is only a portion of their goals.

Every mediator has a unique style and method, and the experienced mediators adapt their styles and techniques to the nature of the dispute and the personality of the parties and their counsel.  There is no requirement in California for any license or certification to be a mediator, but it may be difficult for mediators to be effective without having legal training and experience.

The cost of mediation depends on many factors depending upon the association providing the service or the individual mediator. The Southland Regional Association of Realtors offers mediation to the public for a non-refundable administrative fee of $50 per party paid to the SRAR, and the parties pay the mediator $400 per party for the first three hours, and $150 per hour per side thereafter.

Mediation is always a good idea that should be explored before beginning expensive and time consuming litigation, and it is a requirement to recover attorneys fees if the parties have signed the standard residential purchase agreement.  If the mediation is successful, the mediator confirms the agreement in writing and no arbitration or lawsuit is necessary.  The involvement of a skilled mediator can often turn a nasty dispute into a mutually agreeable and early settlement.

The opinions expressed in this article are those of the author, and they do not create an attorney-client relationship or constitute legal advice.  Individual circumstances may vary and professional advice is recommended before making any decisions concerning legal matters.

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Forry Law Group: Real Estate and Civil Attorneys

15501 San Fernando Mission Blvd., Suite 309
Mission Hills, CA 91345
Office: (818) 361-1321
Fax: (818) 365-6522

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