Interview with a Mediator - What every REALTOR® needs to know
By: Kathy Mehringer; Director Risk Management Training, Coldwell Banker Residential
And Mark Loeterman, Mediator, Mark Loeterman Mediation
More and more individuals and businesses are recognizing the benefits of alternative dispute resolution and the increasing popularity of mediation as a preferred method for settling differences.
A strong proponent of aggressive risk management techniques, I am always eager to learn as much as possible about the circumstances that lead real estate professionals into litigation or arbitration. It seems natural to approach a full time mediator with a specialty in real estate transactions to gain insight about how we can avoid disputes. That led me to Mark Loeterman, a well known and respected mediator in Century City. In a way, I see mediation as a clearinghouse for the many types of claims that eventually will be litigated.
It is important to note that the C.A.R. Residential Purchase Agreement all but requires mediation as a preliminary step in dispute resolution. A party who refuses a request to mediate, in most instances, waives their contractual right to recover attorney’s fees, even if they turn out to be the prevailing party in a subsequent legal proceeding.
As a full time mediator with a strong emphasis on real estate cases, I know Mark’s comments will be valuable.
Mehringer: Mark, can you give us a brief description of mediation?
Loeterman: Mediation is a non-binding process of negotiation in which a neutral person acts as a facilitator and honest broker, giving both sides a chance to resolve even the most complex problems in a confidential setting. It often results in a more creative resolution than could be obtained either in trial or arbitration.
Mehringer: What type of success rate do you see in mediation?
Loeterman: About 80% of the cases I handle settle on the day of the mediation. One reason for this high success rate is that the parties are actively involved. This promotes greater satisfaction, both with the process of resolving disputes and the outcome achieved.
Mehringer: Is mediation a tool that can be used if a dispute arises during the escrow period?
Loeterman: That’s a distinct advantage of mediation. It can be particularly effective in resolving disputes before they ever reach a courtroom. And for Realtors, mediation can be a tool to overcome hurdles when it appears that a deal may be in jeopardy of falling apart. The goal is to help parties negotiate agreements that serve their interests at a reasonable cost and in a much shorter time frame than protracted court cases.
Mehringer: If you could identify a common thread that leads to disputes what would it be?
Loeterman: Generally, a buyer sues when they discover some adverse condition that wasn’t disclosed affecting the property’s value or desirability. They’re angry about being surprised with new information they feel should have been communicated through escrow.
Mehringer: Is there anything, in general, that a sales associate can do to minimize the risk of being embroiled in a dispute?
Loeterman: Many disputes could be avoided if agents talked to their clients more frequently and otherwise showed they cared about putting the client's interests first.
Mehringer: What claim is most common in Buyer/Seller disputes?
Loeterman: Two categories of claims come to mind: first, seller disclosures that are just plain inaccurate, incomplete and misleading; and second, failure by one party or the other to comply with the contract requirements for cancellation.
Mehringer: What other issues arise, with respect to Seller’s disclosure obligations?
Loeterman: Sometimes, sellers fail to disclose past repairs, believing that if repair work has been completed, the problem no longer exists and any disclosure issue is mooted. I think sellers should disclose both the nature of the original problem and the repairs that have been done.
Mehringer: Do you see many disputes that stem from current or future use or enjoyment of the property?
Loeterman: Yes. There are instances where a seller either misrepresents or doesn’t disclose information concerning boundary lines, encroachments, and easements. If you see a “red flag,” such as improvements from a neighbor’s property that seem too close to the seller’s, be sure to ask and make a proper disclosure. I’ve also seen cases where the potential for development was misrepresented.
Mehringer: I would imagine that deposit disputes would find their way
to your conference table quite often; is that the case?
Loeterman: Disputes over the deposit are routine, and often arise because one party or the other doesn’t understand the "mechanics" for removal of contingencies. The seller may claim the buyer "breached" the contract and insist on keeping the deposit as liquidated damages. Contrast that with the buyer, who typically believes they are entitled to cancel and have their deposit refunded. This kind of dispute also comes up when there is a change in personal circumstances that causes someone to withdraw from the transaction.
Mehringer: How do you handle a situation like that?
Loeterman: In the course of mediation, one party or the other comes to realize they may not have understood or complied with the contract provisions for cancellation. Once a party recognizes that its assumptions about the contract are wrong, some fault their agent for neglecting to counsel them or adequately protect their interests. And while that conversation may actually help the buyer and seller to reach an agreement between the two of them, it may also result in the agent being blamed for a loss.
Mehringer: That certainly reinforces the need for sales associates to understand and be able to explain the contract provisions. What else comes up relating to Client/Realtor disputes?
Loeterman: Removal of contingencies. Notwithstanding that the contract was changed years ago from passive to written removal, some agents still do not understand how this works, and more than a few fail to advise clients as to how they can protect their interests, for example, by having the seller give a Notice to Perform.
Mehringer: Earlier you mentioned “disclosure of past repairs.” Can you touch on that?
Loeterman: In at least a couple of mediations I’ve handled, agents have readily admitted they told the seller they didn’t have to disclose repairs. They believed that because the one-time defect had been fixed, it was no longer relevant to the transaction. The risk is that if the repairs were not adequate or complete, and the defective condition causes new damage, there is an appearance that the seller and agent intentionally concealed important information. Agents generally don’t have the expertise to know whether repair work is sufficient or proper. And there’s no good reason for an agent to be put in that predicament.
Mehringer: Any other issues that you see on a regular basis?
Loeterman: Occasionally, agents haven’t used all the appropriate forms, correctly completed them and obtained the necessary signatures. This is something that every agent can control.
Mehringer: After years of unprecedented appreciation, we have seen equally unprecedented depreciation as a result of our current economic conditions; do you see disputes arising because of this?
Loeterman: Claims are made as a result of one party or the other asserting that they either paid too much or sold too low! On tip for agents would be to carefully research comparable price information before advising clients, either as to the listing price or purchase price. A prudent practice is to have the buyer or seller sign a copy of comparable sales data. That way, the agent can show they discussed price information with the client.
Mehringer: I agree with you on that! Regardless of market conditions creating a solid business record is a sound practice.
Mehringer: Mark, this has been very informative, is there anything else you would like to add?
Loeterman: If you stay focused on the basics and maintain a good working relationship with the client, letting them know that you really care about helping them, most disputes can be avoided.
Now a full-time mediator, Mark Loeterman has resolved hundreds of cases, concentrating on disputes involving Real Estate, Employment, Business/Contracts and Insurance. A lawyer with 20 years of experience in the real estate industry, Mark knows that conflicts are seldom black or white. In mediation, he develops realistic and creative options for settlement, and crafts agreements that serve client interests, saving the parties’ attorney’s fees, litigation costs and time. Special materials for Realtors can be downloaded from the Resources>Links page of his website. Mark is located in Century City and can be reached at (310) 556-8300 or online at www.MLmediation.com.
Kathy Mehringer CRB, Broker Associate, is Director of Risk Management Training, Coldwell Banker Residential Brokerage Southern California. A real estate professional for nearly 30 years Kathy focuses her efforts and skills on education, training and professionalism. As Past Chair of C.A.R. Standard Forms Advisory Committee and member of the Study Group that developed the current Residential Purchase Agreement, Kathy is highly skilled in matters involving the contract and ancillary forms. Currently a CAR Director serving as a Chair of Federal Committee, former Legal Action Fund Trustee and Member of the Legal Affairs Forum. You may reach Kathy via email at: firstname.lastname@example.org