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All Things Real Estate: Arbitration and mediation … a good idea?

All Things Real Estate: Arbitration and mediation … a good idea?

I do not recommend that you sign the arbitration provision in the purchase contract. Period. Mic drop.

However, that certainly doesn’t mean I’m opposed to arbitration or mediation; quite the contrary. There are times when arbitration makes a great deal of sense.

First though, you need to understand the difference between mediation and arbitration.

Mediation is nothing more than a formal “can’t we all just get along” session. It is an attempt, with the help of a neutral mediator, to settle a dispute before everybody pours time and money into litigation and has to deal with the uncertainty of the outcome.

Settlement at mediation provides a way for the parties to cap any potential loss and move on with their life.

Generally, this is a good idea.

On the other hand, it can be expensive. You might pay $2,000 for your attorney to be there, plus your share of the mediator’s fee which could be $1,000 or more.

However, in potentially complicated litigation, holding mediation too soon, before everybody has had a chance to research the facts of the case, can be useless.

The preprinted portion of the California Association of Realtors’ contract dealing with mediation requires an attempt to mediate before filing a lawsuit. Failure to abide by this requirement means that if a party prevails in the suit, they won’t be able to get a judgment for their attorney fees. This can force people to spend money in a mediation that is conducted too soon and without a prayer of settling the case.

I just got involved in such a prelitigation mediation. The plaintiff wants hundreds of thousands of dollars. My client, the seller, doesn’t think he’s liable for a penny. Nobody has all the facts, or actually any real facts, since a lawsuit hasn’t even been filed. The chances of settling are nil, but the other attorney is insisting on holding my client to the prelitigation mediation requirement in the contract.

Read the complete article here.

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