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Mediation & Contract to Buy and Sell Real Estate

Co-Author: Jon Goodman

Question: How does the mediation process work?

Response:     Section 21 of the Real Estate Commission-approved Contract to Buy and Sell Real Estate (Residential) (CBS 2-7-04) provides, in part, as follows: “If a dispute arises relating to this contract, prior to or after Closing, and is not resolved, the parties shall first proceed in good faith to submit the matter to mediation…. The parties will jointly appoint an acceptable mediator and will share equally in the cost of such mediation. The mediation, unless otherwise agreed, shall terminate in the event the entire dispute is not resolved within 30 calendar days of the date written notice requesting mediation is sent by one party to the other at the party’s last known address.”

One implication of this mediation provision is that before the parties can litigate, the mediation process must have been initiated, and the requisite 30 days must have passed without the mediation resolving the dispute. Some trial courts in Colorado have viewed the mediation provision precisely this way – dismissing lawsuits that were commenced before the mediation process had been initiated or before the specified 30-day period had expired. Rather than dismiss such suits, other trial courts have issued orders to “stay” (stop or halt) litigation commenced prematurely, pending compliance with the mediation requirement of the contract.

The mediation requirement can be waived, if both parties agree. However, if a party is going to rely on such a mutual waiver to begin litigation, it is best to get the waiver in writing to prevent the other party from asking the court to dismiss the lawsuit for non-compliance with the mediation requirement.

Unless there is a mutual waiver of the mediation requirement, then, any party seeking to bring the dispute to a head should initiate the mediation process promptly. The proactive party must send “written notice requesting mediation…to the other party at the party’s last known address.” There is no other required content for the written notice requesting mediation. However, it is a good idea to state that one is requesting mediation pursuant to §21 of the parties’ contract (which is usually described or referenced in the notice), and it is common for the notice to suggest two or more potential mediators, and perhaps their addresses, phone numbers and rates as well. The responding party can accept one or more of the proposed mediators, or reject them all and propose one or more mediators acceptable to that party. Sometimes the other party simply does not respond to the notice requesting mediation, or the parties do not agree on a mediator within the 30 day period, in which case the parties are free to litigate.

Once the written notice is given, parties often will attempt to reach agreement on both the proposed mediator, and a date and place for the proposed mediation, at the same time. Once a mediator has been selected and the mediation scheduled, the mediator will generally confirm the scheduled mediation with correspondence that also describes the mediator’s procedures and practices, including billing arrangements. Some mediators will ask the parties or their counsel to sign fee agreements or engagement letters. Many mediators will ask the parties or their counsel to provide confidential settlement statements or memoranda prior to the scheduled mediation. Such documents will outline the background, or each party’s version of the facts, as well as the parties’ respective positions on the issue or issues in dispute. Settlement positions or possibilities might also be included in the confidential settlement statement or memoranda.

Parties to a mediation will often attend the mediation with their real estate brokers, their attorneys, or both. Brokers, of course, are not parties to the contract that is the subject of the dispute. However, the Broker Acknowledgments section at the end of the Real Estate Commission-approved form, includes the following language, “The undersigned Brokers…agree to cooperate upon request with any mediation conducted under § 21.” If a party wants the other party’s broker to attend, some written request to that effect should be given within a reasonable time before the scheduled mediation, and preferably before or during the scheduling of the mediation. Attendance of a party’s attorney is common, but not required. We believe the presence of a party’s attorney is beneficial for the party and enhances the likelihood of settlement; but this belief is not universally shared.

A typical mediation session will begin with the mediator and all parties and their attorneys and brokers present in the same room, where the mediator might outline the mediation process generally and the mediator’s specific technique, plan and/or goal for the session. These opening remarks often include a statement or reminder about the confidential nature of the mediation process. At the conclusion of the mediator’s opening remarks, the parties usually split up, with each party going to separate rooms with their counsel and/or broker. The mediator will then shuttle from room to room, attempting to facilitate dialogue and settlement between the parties.

If a settlement is reached during a mediation, it is necessary to reduce that settlement to writing for it to be enforceable. Verbal settlement agreements reached during mediation in Colorado will not be enforced by a court. Most mediators, being aware of this rule, will have an outline of a settlement agreement available for completion during the mediation. In complicated situations, the mediated settlement agreement might contemplate the preparation and execution of further or “more complete” releases or other settlement documents. In those situations, the question sometimes arises whether that “in between” agreement signed at the mediation can be enforced if the contemplated additional releases or settlement documents are not signed for whatever reason. The answer to that question will generally depend both on the parties’ intent in that regard and on whether the in between agreement contains all of the “essential” terms for a binding, enforceable contract.

If the mediation does not resolve the dispute within the specified 30-day period, then either party is free to proceed to litigation.

A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.

For questions about this article please contact Jon Goodman.

David Farus is no longer with the law firm of Frascona, Joiner, Goodman and Greenstein, P.C.
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