By: T. Keaton Turnipseed, Esq.
July 18, 2024
Money is often a major player if not the player in determining how a nondisclosure is handled on a practical level. If a buyer’s damages for fraud are $20, there is no rational economic justification for litigating that issue. Admittedly, this example is at least a little hyperbolic, mold remediation, HVAC repairs, and leaking roofs are all expensive especially when the buyer has just purchased a property and is likely not flush with cash. As such, pre litigation means of resolving a nondisclosure may be particularly attractive in situations where a buyer cannot fund litigation or the damages, while substantial are not so substantial to justify years of litigation.
Letters and Early Settlement
First up is a settlement letter. In practice, these take two forms, a demand letter from the buyer to the seller laying out the buyer’s claims and theories of liability and a response letter that goes the opposite way rebutting the buyer’s contentions. The goal of a letter is twofold, (1) to begin the litigation process in the broadest sense of the term and (2) to actually settle the matter quickly.
In lower value cases settling at the letter stage is a much more attractive option for both parties. For the buyer an early settlement is attractive because even if they forgo some recovery they would arguably otherwise be entitled to, they sidestep the need to pay attorneys to prosecute their case and more immediately put funds in their pocket to deal with the alleged problems with the property. For the seller, their liability is limited by entering into a settlement agreement and they avoid the cost of litigation and the risk associated with trial.
Included in every good demand letter is, on top of the actual demand for reimbursement, a demand for mediation.
Mediation
Mediation is an informal dispute resolution process where a third-party mediator assists in resolving the dispute. The process is both non-binding and confidential. Most mediators are former judges or very experienced attorneys who have practiced the area of law at issue. Most are also trained in dispute resolution tactics and ways to facilitate effective and productive negotiation. It is also worth noting that parties are not required to have an attorney representing them during the mediation process or any point in a non-disclosure dispute.
Under the current California Residential Purchase Agreement mediation is required before parties can recover their attorney’s fees at trial, assuming they prevail. Damages including attorney’s fees will be addressed in more detail in a later part of this series. For the purposes of this section the point is the parties need to mediate prior to formal litigation if the winner wishes to recover its attorney’s fees.
While most parties wish to mediate to protect their right to attorney’s fees, Mediation is both fast and low-cost. On the Con side, because the Parties have not been able to compel disclosure and evaluation of the other sides evidence, discovery, mediation may not be successful, particularly for larger claims.
Turning to the mediation itself, mediation is commenced by the parties agreeing to use a particular mediator or in rare cases a mediation panel. Prior to the day of mediation, each side will generally provide the mediator with a written explanation of the facts as they see them as well as any supporting evidence, the “mediation brief”. If prepared by an attorney the brief will contain references to specific law or cases supporting their clients’ position.
The day of mediation process generally consists of separate conferences between the Mediator and each party as well as their attorney (if any) and any witnesses. On theme, the medium of mediation is also very flexible. Post Covid 19 most mediations are conducted over video conference allowing both parties and their attorneys to be anywhere in the world. While it may be beneficial for parties to be in person in some cases, most mediators will say that the era of zoom has not negatively impacted their success rates.
Through this process, the Mediator is gathering information from each side and evaluating the available evidence which may be limited at this stage since Discovery has not as yet occurred. During the meetings with the Parties, the Mediator might ask further questions and initiate settlement negotiations. Significantly, these sessions are completely confidential, and the mediator may not share one party’s comments with any other party without the party’s consent. Hopefully through this back-and-forth process, a resolution can be reached. If so, the terms of the resolution are set forth in a written settlement agreement which is signed by all Parties. If not, then the matter may proceed to a lawsuit or arbitration.
Mediation is a flexible means of resolving a dispute even outside the context of a non-disclosure because it gives the parties control over their own destiny instead of having a court impose that destiny on them. This allows for settlements that involve creative solutions that can better address the parties’ needs. For example, a payment plan if the defendant cannot afford to make a lump sum payment or an agreement to perform work rather than a payment to the plaintiff.
Agents May Not Be Required to Mediate
One wrinkle at play in mediation is that agents are generally not required to mediate because they are not deemed signatories of the Residential Purchase Agreement. While some agents who are brought into a non-disclosure dispute will agree to global mediation others will not. As such, buyers and sellers may end up in mediation that does not involve all interested parties which undoubtedly changes the settlement potential. The exception is when there is a buyers representation agreement or a residential listing agreement which both contain a mediation provision.
The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.