Residential Real Estate Disputes in a Mandatory Mediation Setting: First Draft

TO: PROFESSOR X
FROM: STUDENT Y
SUBJECT: RESIDENTIAL REAL ESTATE DISPUTES IN A MANDATORY MEDIATION SETTING
DATE: 4/7/2005

Issue

Whether New York State should implement a mandatory mediation program for residential real estate transaction disputes.

I. Introduction

Alternate dispute resolution (ADR) is an alternative to adjudication. Business executives and other professionals are discovering the benefits of (ADR) compared with traditional litigation. Today many businesses routinely include ADR clauses in their agreements. The two basic ADR methods are arbitration and mediation. 12 – Aug Prob. & Prop. 22

The advent of ADR has had a dramatic impact upon litigation practice in the United States. The past decade has seen a tremendous increase in the number of alternative dispute resolution programs nationwide, as lawyers, judges, and litigants increasingly seek to resolve disputes outside the traditional litigation process. In 1980, there were approximately one hundred institutionalized ADR programs at state and local levels in the United States. By 1993, there were more than four hundred such programs in all fifty states, the District of Columbia, and Puerto Rico. In some jurisdictions, alternative dispute resolution is now mandatory, while in other jurisdictions, judges have discretion in referring cases to ADR. Several jurisdictions provide for court-ordered mediation or arbitration upon motion of a party. Alternative dispute resolution is designed to resolve cases prior to trial, eliminating the costs and delays inherent in the litigation process. 57 Am. Jur. Trials 555

Arbitration is private litigation outside the court system. The parties agree by contract that a neutral arbitrator or panel of arbitrators will hear evidence and make a binding decision (called an award) on the disputed claims. Streamlined hearing procedures, limited discovery and restricted appeal rights are hallmarks of arbitration. Arbitration can be more efficient and speedier than a court trial, but it is not as expeditious as mediation. 12 – Aug Prob. & Prop. 22

Mediation is essentially a facilitated negotiation. A neutral mediator helps the parties negotiate an agreement for a binding resolution of their legal dispute. Most mediations are concluded in one day. 12 – Aug Prob. & Prop. 22

Mediation is the most common ADR technique in use today. In mediation, a neutral third-party assists the parties (either with or without their attorneys) in resolving their dispute. Mediation is unlike either arbitration or the adjudication process in that the role of the third party is not to impose a decision, but rather to aid the parties in reaching a settlement. Mediation is a voluntary process and neither side is required to accept a settlement. 38 Real Prop. Prob. & Tr. J. 697

The decision whether to mediate or to resort to the courts in a real estate dispute is not one that should not be made lightly. The facts of each case should be carefully analyzed and the advantages and disadvantages of mediation should be weighed. 79 Am. Jur. Trials 159

II. Advantages of Mediation

(A) Creative Resolutions

Mediation has several distinct advantages over litigation. Mediation's non-adversarial nature creates certain advantages. While the adversarial process produces winners and losers, mediation allows the parties to creatively fashion a non-coercive resolution of their dispute in which both parties benefit. Since the content of a mediated settlement need not be determined by the law of the jurisdiction where the mediation occurs, mediation allows creativity that is not possible in the litigation process, and allows the parties to tailor the resolution to fit the particulars of their situation. 57 Am. Jur. Trials 555

In residential real estate transaction (RRET) the most common dispute revolves around non-disclosure. 49 RI Bar Jnl. 23 A seller failing to disclose certain material facts about property to the buyer would lead the buyer to file for an action against the seller. In such situations the ability of the parties to create solutions is of vital importance. Because usually the buyer has already moved into the new home and does not want to be inconvenienced with the hassle of moving out. Mediation provides the parties to meet together and with the aid of a mediator come up with solutions that are unique to the needs of the parties.

(B) Client Control

Litigation may and often does, produce fair and just results, mediation affords a far greater degree of flexibility over its resolution. In mediation, the parties become active participants in resolving their cases. In litigation clients often have far less control, parties may even feel as though their wishes and desires are being ignored. 57 Am. Jur. Trials 555

In a RRET setting, there are a number of interested parties. 16 NO. 2 GP Solo & Small Firm Law. 18 Usually there are a number of attorneys and a number of brokers involved and all whom have a stake in the outcome of the dispute. In a residential real estate transaction, agents and lawyers insulate the buyers and sellers from each other. 49 RI Bar Jnl. 23 Client control in a real estate setting can help remove or in the least limit the influence these external forces have on the client. Through mediation parties, the seller and buyer can discuss the dispute, without the pressures of lawyers and brokers. In essence they are in complete control of the discussions.

(C) Informal Process

The relative informality of mediation has often been cited as another advantage of the process. This informality appeals to some clients who are particularly apprehensive about testifying at trial. 57 Am. Jur. Trials 555

This is a benefit that applies to all types of mediation, in RRET disputes this can prove useful for clients who are not educated in the formal processes of law. Because the mediation process is informal and usually only controlled by the mediator, there is no need for court rules and regulations. This creates a comfortable setting, one in which the disputants are made to feel like they are not in an adversarial setting. Removing this veil allows the parties to see the needs, interests, and concerns of each other, which in turn increases the probability of successful resolution.

(D) Client Education

A thorough understanding of all aspects of the case is the first step toward successful resolution, and mediation is invaluable as a means of imparting an understanding of the strengths and weaknesses of a case to the client. Mediation forces a client to hear and consider an objective view of the case. It may, in fact, force a client to face the reality of his or her situation, including potential weaknesses, for the first time. By providing an objective third-party viewpoint, a mediator is often able to soften client expectations more effectively than an attorney. By the same token, an effective mediator also maximizes the strengths of the case so that the opposing party is encouraged to view the case in its best possible light. Because the mediation process forces the parties to realistically evaluate their positions, it may be helpful in establishing groundwork for further negotiations between parties, in narrowing the issues for trial and in simplifying the preparation for adjudication it is valuable as an educational process, even in a case in which it does not produce a settlement. 57 Am. Jur. Trials 555

This is another advantage that serves all types of mediatable disputes. In real estate this is important because, it allows the buyer to relate to the seller what the exact problem is. It also allows the mediator to bring the parties to a place of reality. The mediator serves as a reality check for the expectations of the parties. The buyer, who has a leaky facet, will probably be told by the mediator that the seller is not going to build you a new bathroom. This reality check is very important because it allows the parties to see the situation from the other disputant's point of view, and secondly, allows them to realize that what they may be asking as a reward may be unrealistic and or unreasonable.

(E) Savings of Time and Saving of Costs

The chief advantage of mediation is that it saves the parties the time and expense of litigating. In many areas of the country, litigation of a typical personal injury case through the jury trial stage may take two or more years at an expense of thousands of dollars. The time and expense involved in litigation tend to make it a much less efficient means of dispute resolution than mediation. The time and expense saved when a dispute is mediated allows parties to focus on resolving a dispute, rather than "winning." 57 Am. Jur. Trials 555

In residential real estate transaction the most important advantage is saving of time and costs. Real estate litigation can be time-consuming and costly. Real estate cases usually involve extensive negotiations, sophisticated economic issues and voluminous documents. 16 NO. 2 GP Solo & Small Firm Law 18 Litigation, with its inherent time delays, is the worst enemy to parties desiring to move into or out of a residence. Very few people are willing to put their life on hold while they wait for a trial. A prompt process providing both parties the ability to air their concerns and design a resolution keeps a residential real estate transaction on track. 49 RI Bar Jnl. 23. Because real estate transactions involve so many parties, the benefit of saving time is not only an advantage for the buyer and seller but this advantage also affects lawyers and other agents involved in the transaction.

III. Disadvantages of Mediation

While mediation is an attractive alternative to trial in many cases because of numerous advantages it offers over litigation, it also has some disadvantages which must be weighed by the attorney before he or she recommends mediation to a client. 57 Am. Jur. Trials 555

(A) Appearance of Weakness

Many attorneys believe that mediation is harmful to settlement negotiations because agreeing to mediate creates an appearance of being too eager to settle. To a certain extent, the fear that seeking mediation will create an appearance of weakness is unjustified and may be attributed to the general distrust which many lawyers display for processes outside the adversarial arena. However, this fear often inhibits the successful use of mediation. To the extent that one or both parties enter the mediation process tentatively or reluctantly, the possibility for meaningful progress toward settlement is diminished. Therefore, whether real or perceived, the fear of appearing weak in the eyes of opposing counsel by being the first to suggest mediation does work against the successful use of mediation and is, in that sense, a disadvantage of the process. 57 Am. Jur. Trials 555

In the residential real estate transaction setting this appearance of weakness can be compounded with the emotional strain of having a large amount of money involved in the dispute, an opposing party may interpret a party's willingness to enter into mediation as that party having a weak case. Though this disadvantage is not unique to real estate transactions it is usually a major concern because of the large sums of monies involved.

(B) Client saying too much

There may be a certain degree of danger in allowing the client to speak freely during mediation, however. Mediators often pledge that the mediation session will be confidential, and confidentiality has been cited as a major advantage of the mediation process. Under current law, however, it is not clear whether the mediator may realistically promise that everything said in a mediation session will remain confidential. While several states have enacted statutes designed to protect the confidentiality of mediation, counsel should carefully research the law of the jurisdiction before advising a client with regard to the confidentiality of the mediation session. 57 Am. Jur. Trials 555

In mediation, this can turn into a major concern for an attorney, especially if he/she is not present at the mediation. In real estate transaction disputes as well is in any other mediation, the process is kept confidential. One party cannot use the words of the other party in any litigation involving the matter or dispute that was the basis for the mediation. However, even if the parties do not disclose this information at trial they still have information that they themselves can use. This is just a inherent and unintended consequence of mediation.

IV. Court Ordered Mediation for Residential Real Estate Disputes

In order to ease court congestion in court calendars, a number of states have adopted a system whereby all civil actions where the plaintiff seeks recovery for less than a stated amount, noticed for trial in the county courts or other courts of first instance, are referred to a panel of arbitrators. 4 Am. Jur. 2d Alternative Dispute Resolution §24

Numerous states have enacted compulsory procedures for the resolution of medical malpractice actions, including screening panels and compulsory arbitration. Of these states, in at least one jurisdiction, a "mediation" system has been adopted which is similar to compulsory arbitration. The system is used to determine damages in tort cases in which liability is acknowledged and assigns the determination of damages to a panel consisting of a judge and two lawyers. Similarly, the process called mediation in federal courts in Michigan has been construed as "mandatory conciliation" in cases designated by the court. In this program if conciliation fails, the parties select an attorney-mediator to assist the parties in resolving their dispute. 4 Am. Jur. 2d Alternative Dispute Resolution §47. The courts have discretion, because not all types of cases are permitted to go to mediation. Constitutional cases or certain cases that are not amenable, for emotional reasons, such as lawsuits against police officers for brutality or prisoner complaints are usually excluded.

There are a number of successful programs that have mandated some form of ADR. Arizona implemented a program in 1991. 80 Judicature 222 Likewise, North Carolina also started a Mediated Settlement Conference Pilot Program in 1992. 82 Judicature 224 North Carolina's program required that the plaintiff claim at least $10,000.00 in damages. These parties were ordered to a mandatory settlement conference, and to settle or go to trial if the conference was unsuccessful. Though many of the cases that went through this program involved negligence claims or contract disputes, the program was open to all disputes.

New York does not have any such program for residential real estate transactional disputes. In New York, if the parties wish to go to mediation they must find a mediator on their own, this removes their case from the courts and essentially has them deal with it as they wish. Parties are forced to find their own mediator, and this is only the case if both parties are in agreement on whether they wish to mediate.

Residential real estate transaction disputes are very unique and different from many other disputes. First, there are a large number of parties who have a stake in the outcome of the dispute. Secondly, they usually involve a large sum of money. Thirdly, buyers and sellers both want to move out of the old residence into a new residence.

A typical transaction involves a Purchase and Sale Agreement, once this document is executed, the parties perceive this transaction more as an agreement that the seller will move out and the buyer will move in. Buyers and sellers of residential real estate want to move out and into their new home. The last thing buyers and seller want is to delay moving day, or worse having the deal collapse. Litigation does not serve the goal of these types of disputants, speed. Litigation can not give the parties the result they are seeking, however a mediator can. Lawyers often shy away from the benefits mediation can offer.

Many lawyers have been reluctant to steer their client in the direction of ADR methods. It has been suggested that since attorneys are trained in the adversarial system which requires staunch advocacy and aggressiveness, their orientation is basically incompatible with mediation and negotiation. In addition, attorneys may feel threatened by mediation as a possibly reducing their income and future client base. 4 Am. Jur. 2d Alternative Dispute Resolution §5.

In residential real estate transaction disputes nothing can be farther from the truth. Lawyers and agents themselves have a stake. Every attorney should realize the benefits that mediation can bring to this type of dispute. Mediation allows the parties to participate directly, without the external effects of lawyers, brokers, and other agents. This allows the disputing parties to improve communication with the aid of a mediator.

Mediation is particularly suited for resolving residential real estate disputes, because of its speed, low costs. No buyer and seller wishes to wait and put their life on hold while they wait for trial. The mediation process provides both parties to come to consensus quickly and move on with their lives.

New York should follow in the footsteps in many other states and implement a mandatory mediation plan for residential real estate transaction disputes. North Carolina's mandatory program results show that before the program was mandated the majority of attorneys practicing in the state opposed the program. Once the program was mandated the views of these attorneys shifted. Statistically, after the program was in place attorneys stated that 83% of the time mediation is usually or always appropriate for real property disputes. They also stated that mediation speed up the discovery process, knowledge that mediation is pending encourages settlement sooner that would otherwise happen, most mediator were fair, and finally that mediation gave the litigant greater control over the outcome of the case.

These are only some of the misconceptions that can be overcome once mediation has been mandated. Residential real estate disputes are settled out of court roughly 72% of the time. Mandatory mediation can provide attorneys with the motivation and structure needed to settle cases earlier. The usual negotiation involves a few phone calls, letters, and meetings with the client, sometimes with the opposing counsel. This process is usually quite long, each side taking longer than necessary to get the other side to budge. With a trial date set, few attorneys are willing to settle until the trial date comes near. This strategy is counter-productive to the needs of residential real estate transaction disputants. Mandatory mediation can provide attorneys with a significant event around which negotiations can occur. Dead lines tend to facilitate settlements. Mandatory mediation can provide a dead line that is in advance of the trial date.

One major concern that attorneys have when told to advise their clients to mediate is that negotiations can be seen as a sign of weakness. When a court orders or mandates mediation, there is no reason for an attorney to fear his opposing counsel will think that his/her case is a weak one. Mediation also allows for attorneys to begin the discovery process informally. An attorney can get leads for discovery and ideas about how the other side may present their case, this can in turn speed up the actual trial if there is a need for a trial.

A major reason why mediation should be mandated is because it offers clients control. Litigants who were surveyed in North Carolina's program stated that when the attorney was there only for legal advice they were far more satisfied with the process and outcome, 75% stated satisfaction. This was different when the attorney spoke on behalf of the client and the client only listened, in this situation only 25% stated satisfaction. 82 Judicature 224 This reiterates clients need to be heard. 78% of clients who attended mediation stated that they had a chance to tell their side of the story. Once a client has vented through storytelling he is more willing to negotiate and settle. Allowing a client to speak his/her mind allows them to understand the viewpoint of the opposing side and also help initiate negotiations. An often cited statistic is that 80% of disputes submitted to mediation are resolved. CITE

Mediation is a voluntary process. Implementing a mandatory mediation process as a first step to litigation can only help the concerns that courts have. Mandated mediation serves the courts by freeing up the overflowing docket. This allows the courts to concentrate on cases that deal with complex issues of law and policy, in other words cases that are not mediatable. Mediation helps the disputants realize savings in cost and time. It also allows the parties a chance to be heard, and affords them the ability to control the process. Mediation unlike arbitration, only allows for agreement when both parties are in agreement. Mediation provides a win-win process for all parties, and the disadvantages of mediation are miniscule when compared to the benefits that mediation can provide. By mandating mediation as a first step to litigation courts have nothing to lose and everything to gain.