Real Estate Mediation & Arbitration (ADR) under the California PSAG
When you get involved in a real estate dispute in California in a residential purchase or sale (either as the buyer or the seller) it is important to NOT FORGET the contractual duty to mediate any disputes that arise under the transaction. This assumes you are using the standard C.A.R. residential purchase and sale agreement. As mentioned in this BRE publication regarding basic real estate contract provisions for California residential transactions:
"Dispute Resolution The parties agree to mediate, absent some exclusions, all disputes and claims before resorting to arbitration or court action. A mediator is impartial and may facilitate resolution of a dispute but cannot impose a settlement. However, mediation can result in a binding settlement document signed by seller and buyer. For mediation, which is not successful, the contract may afford the option of proceeding to arbitration. An arbitration, conducted in accordance with the rules of either the American Arbitration Association (AAA) or Judicial Arbitration and Mediation Services, Inc. (JAMS), results in a binding decision."
This blog will explore this legal topic and present some key tips for the real estate buyer, seller and practitioner.
Typical typical types of disputes that can arise from a real estate transaction
There are a lot of different types of disputes that can arise between a buyer and a seller in a real estate transaction, here are a few of the common ones:
4. Disputes involving earnest money deposits and liquidated damages
5. Request for specific performance of the contract by the buyer
6. Financial elder abuse (bad faith taking of money or property)
There are many other types of problems that can arise in a residential transaction, but these are the more well-known disputes.
What does the C.A.R. residential contract say?
Here is what your contract MIGHT say (make sure you have a real estate lawyer review this as the forms change from time to time and sometimes you may not actually be using the CAR standard form (CAR FORM RPA-CA):
1. Section 22A:
'MEDIATION: The Parties agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action through the C.A.R. Consumer Mediation Center or through any other mediation provider or service mutually agreed to by the Parties."
Attorney Steve Tip: As this section indicates, you can use the CAR mediation services, or agree on a different mediation service (such as a mediation service we offer).
Section 22A also notes:
"The Parties also agree to mediate any disputes or claims with Broker(s), who, in writing, agree to such mediation prior to, or within a reasonable time after, the dispute or claim is presented to the Broker. Mediation fees, if any, shall be divided equally among the Parties involved. If, for any dispute or claim to which this paragraph applies, any Party (i) commences an action without first attempting to resolve the matter through mediation, or (ii) before commencement of an action, refuses to mediate after a request has been made, then that Party shall not be entitled to recover attorney fees, even if they would otherwise be available to that Party in any such action. THIS MEDIATION PROVISION APPLIES WHETHER OR NOT THE ARBITRATION PROVISION IS INITIALED.
This is what the "mediation" privilege covers. As you can see, it creates a CONTRACTUAL DUTY TO MEDIATE whether or not the arbitration clause is initialed (section 22B). If you do not request mediation, you can LOSE THE RIGHT TO RECOVER ATTORNEY FEES, which can be a significant leverage for you to help you resolve your dispute since the other party will have to be concerned about paying your attorney fees if you win (for example in a financial elder abuse lawsuit which provides for attorney fees under California law).
Bonus materials: Click on the picture above to watch our video discussing the duty to mediate residential real estate disputes in California under the standard C.A.R. forms. Make sure to click on the RED "V" in the corner of the video for FREE business and real estate law updates!!
2. Section 22B:
This is the "arbitration section" of the CAR PSAG. This section MUST BE SIGNED TO BE EFFECTIVE and to create a duty to arbitrate the real estate dispute.
"The Parties agree that any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration. The Parties also agree to arbitrate any disputes or claims with Broker(s), who, in writing, agree to such arbitration prior to, or within a reasonable time after, the dispute or claim is presented to the Broker. The arbitrator shall be a retired judge or justice, or an attorney with at least 5 years of residential real estate Law experience, unless the parties mutually agree to a different arbitrator."
This section also informs the buyers and sellers that by signing the arbitration clause they are waiving their right to a jury trial. Specifically, this section states:
“NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.”
Some real estate investors do not want to sign these clauses in the PSAG because it binds them to arbitration their disputes, and the decision will be BINDING (subject to limited grounds to vacate the arbitrators award). Others like to sign this, especially sellers, because if there is a dispute over non-disclosure, at least the dispute can be decided in a quicker fashion that filing a state or federal lawsuit. If you are not sure whether or not to agree to this provision, contact a real estate lawyer for advice BEFORE YOU SIGN THE CONTRACT.
Once you sign a contract, you will normally be held to it (absent fraud, duress, unconscionability, etc.)
Is there a duty to mediate the real estate dispute even if the arbitration section is not initialed?
Yes. According to the California Bureau of Real Estate under the CAR agreement cited above:
"Dispute Resolution The seller and broker agree to first mediate any dispute regardless of the arbitration election. After mediation the parties will arbitrate, if initialed by all parties to the contract. There are certain exclusions from mediation and arbitration, most notably foreclosure, probate, bankruptcy and small claims actions."
Are there exceptions to the duty to resort to alternative dispute resolution ("ADR") in real estate disputes in CA?
Yes. As the standard C.A.R. form indicates:
"ADDITIONAL MEDIATION AND ARBITRATION TERMS: (1) EXCLUSIONS: The following matters are excluded from mediation and arbitration:
(i) a judicial or non-judicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage or installment land sale contract as defined in Civil Code §2985;
(ii) an unlawful detainer action; and
(iii) any matter that is within the jurisdiction of a probate, small claims or bankruptcy court."
Attorney Steve Tip: This section means that if you want to resolve your dispute in probably the quickest fashion possible, you can seek to file a small claims lawsuit. In California, small claims cases can be filed for up to $10,000. If you have more at issue than that you need to look to a Superior Court, or following the mediation and arbitration guidelines set forth above. We have a very popular video on how to win your small claims case that now has over 25,000 views.
Is arbitration required if the mediation does not settle the case?
If you initialed the arbitration clause you will need to submit to binding arbitration of mediation is not successful. At this stage if you have not already done it, discussing your case with a real estate attorney is extremely important.
What is the difference between arbitration and mediation?
Mediation involves a third party (usually a lawyer) who will hear the arguments of both sides to the dispute and make recommendations, point of strengths and weaknesses of both party's cases and try to promote a settlement. The mediation is NON-BINDING (unless otherwise stated) and no decision is rendered by the mediator. Basically, this is just a way to try to get the parties to voluntarily agree to a monetary settlement.
On the other hand, a binding arbitration is BINDING and the arbitrator will hear the arguments of all parties and render a written decision that is enforceable by a judgement in a court of law. Being represented by counsel in binding arbitration is of paramount importance.
Tips to help you win your Real Estate Mediation
Don't forget to view our page on tips for success in mediation cases. Click on the picture below to watch our video. SUBSCRIBE FOR FREE LEGAL UPDATES.
What happens if I fail to mediate and then file a lawsuit in Court?
This can result in the loss of your right to seek ATTORNEY FEES if you win your case. This can be a SERIOUS loss to the litigant especially if your money damages were low and you need to be reimbursed or compensated for your attorney fees to make you whole.
What types of laws in California allow for attorney fees in the real estate context (which I might waive if I do not first seek ADR)
There are many different types of California laws and statutes that can result in you recovering your attorney fees. Contact us below to discuss.
What to do if you are involved in a real estate dispute in California
If you are involved in a real estate dispute pertaining to a residential or commercial real estate transaction, we generally recommend the following things be considered:
1. It might not make the best sense to try to handle it yourself. No disrespect to the person, LLC or company that wants to resolve its own disputes, however, real estate transactions are complicated legal matters by their very nature (just look at all the documents you need to sign at closing - ex. title, escrow, loan docs, disclosures, etc.). While it is never fun to be involved in a lawsuit or ADR case, many times we have seen people make their problems worse by making admissions, concessions and putting things in writing that they should not be doing. These can be difficult problems to "unwind."
2. Save all your phone, email, text, fax, and voice messages that pertain to your transaction. You want to preserve all critical evidence that you may have. For example, cases have been won and lost on a lost email, lost fax confirmation page, etc. Be careful to preserve all evidence.
3. Contact legal counsel to help you prepare your case (whether you are the complaining party, or the responding party).
Contact a Real Estate Law Firm
We can help buyers, sellers, brokers and salespersons resolve real estate disputes. We offer real estate mediation and arbitration services, and we can help you as either a Plaintiff (complaining party) or Defendant (defending party) in either a binding arbitration or in a non-binding mediation. If you are facing a C.A.R mediation, give us a call. We offer affordable rates, including flat rate fees in some cases. Contact us at (877) 276-5084 to discuss.