Mandatory Mediation in Home Purchase Contracts in California
Real estate purchases are among the largest and most complicated transactions many of us will ever make. While we all hope it won’t happen to us, it’s not surprising when disputes occur. If you purchase or sell a property in California, and a conflict arises, it is likely that you will be required to participate in mediation.
When is mandatory mediation required? When the transaction contract uses the California Association of Realtors Residential Purchase Agreement (“RPA”), the parties are obligated to participate in mandatory mediation before instituting litigation or arbitration. Since most real estate purchases in California use the RPA, your transaction will most likely be subject to mandatory mediation.
What is mediation? Mediation is a non-adversarial process in which an unbiased third party, usually an attorney or a retired judge, helps both sides reach a mutually agreeable settlement of the dispute. The mediator guides the process, but does not impose their own judgment. Nor can the mediator force the parties to settle the dispute. Settlement terms become binding when a written agreement is signed after the parties mutually agree on terms.
Mediation can be a useful way of helping parties resolve their disagreements expeditiously, while avoiding the time, hassle, and expense of going to court or arbitration. In fact, the majority of disputes over real estate transaction do settle at mediation due to the high cost of subsequent litigation or arbitration if there is no settlement.
Each party may bring their own counsel who can assist them in the mediation process,
Are you required to resolve the disagreement via mediation? No. While mediation is highly effective and can resolve many disputes, that is not always the case. In the case that an agreement is not reached, buyers can still proceed to arbitration or court, depending on whether they have pre-determined as part of the contract that arbitration will be mandatory. Even when arbitration or court proceedings become necessary, we find that mediation was still helpful in helping each party narrow their focus and determine their priorities.
What happens if you don’t proceed with mandatory mediation? If the parties entered into the RPA, included in that document is an agreement to participate in mediation. Failure to comply with the terms of the contract can result in a waiver of that party’s right to collect attorney fees and costs if that party ultimately is successful in any future litigation or arbitration. In other words, failure to mediate carries a potentially extremely costly financial burden. If you find yourself in this situation, do NOT refuse to mediate!
For more information on mediation, your rights and responsibilities, and seeking counsel in the event of a dispute, contact our real estate attorneys. We can help you understand the terms of your contract and proceed with resolving your situation according to requirements.