Real Estate Contracts and Mediation

Real estate attorneys often handle cases arising from the California Association of Realtor’s form California Residential Purchase Agreement. Most houses in Los Angeles (and the rest of the State) are purchased using this contract. One provision of the Purchase Agreement provides that the parties will mediate any dispute arising from the contract and, if a party commences an action without first attempting to mediate or refuses to mediate once a request has been made, then that party cannot collect attorneys fees, even if they prevail in litigation.

The Mediation Clause

The contract’s mediation clause states in part: “Buyer and Seller 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. 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.

California Real Estate Litigation and Mediation

Attorneys fees arising out of a failure to disclose case were recently addressed in a California Court of Appeal case. The trial court awarded attorneys fees to a party who refused to mediate but who claimed that mediation would be useless before depositions, written discovery and a motion for summary judgment.

The California Court of Appeal first reiterated existing California law: “The new provision barring recovery of legal fees by a prevailing party who refuses a request for mediation means what it says and will be enforced.”

Lis Pendens First, Mediation Afterward

There are some instances—explicitly stated in the contract—where the failure to mediate is excused. The most common example would be a lawsuit filed for purposes of recording a lis pendens on the property. The lis pendens, or Notice of Pending Action, is recorded with the County in which the property is located so that any potential buyers are aware that there is an adverse claim to the ownership or possession of the property.

However, the contract still provides that the other party may request mediation after such a lawsuit is filed.

Mediation First, Motion for Summary Judgment Afterward

Plaintiff’s attorney argued that mediation would be meaningless before a motion for summary judgment could be heard. The California Court of Appeal noted that the plaintiffs could “act on these convictions as a matter of strategy” but that the contract language still controls.

The attorneys fees provision of the mediation clause “is designed to encourage mediation at the earliest possible time.” Moreover, “opponents accordingly are not entitled to postpone it until they feel that they have marshaled the strongest possible support for their positions in litigation and mediation.” The court also noted that there is a strong public policy in favor of mediation as a preferable alternative to judicial proceedings because it is less expensive and more expeditious.

The Court of Appeal therefore reversed the trial court’s award of attorneys fees to plaintiff based on plaintiffs’ failure to mediate prior to proceeding with litigation.

Real Estate Litigation Lessons

Real estate litigation attorneys should take heed. In most cases mediation makes sense for both parties. It gives both sides a chance to settle the case before spending thousands of dollars on litigation. Moreover, being able to collect your attorneys fees can change the cost-benefit analysis of a case and is an important consideration for most clients. Real estate attorneys should always remember to request mediation before filing suit on a dispute arising from a California Association of Realtors Purchase Agreement.

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