Q: I represent a Buyer who tried to cancel her Purchase Agreement. The Seller refuses to release the $30,000 deposit claiming that the Buyer was acting in bad faith when she exercised her financing contingency.
The Buyer knows she has to mediate this deposit dispute so she asked me which mediator to use. I pointed out that the Mediation paragraph of her contract requires use of the C.A.R. Real Estate Mediation Center for Consumers. Today I received an email “Notice of Request for Mediation” from the C.A.R. Mediation Service. Did I do something wrong? Am I required to attend the Mediation? What do I do now?
A. While I know that you meant well in discussing mediation with the Buyer, you have made two errors which we see many agents make.
First, the C.A.R. Purchase Agreement does not require use of the C.A.R. Mediation Service. That service is an option that C.A.R. has made available to consumers. The C.A.R. Purchase Agreement is clear that the Parties may choose to use an alternative mediation service.
Second, once a dispute developed between the Parties, you should have recommended that your client consult with a qualified California real estate attorney before making any decisions regarding who to use as a mediator or mediation service. Depending upon the circumstances, the client’s lawyer may not want to use the C.A.R. Mediation Service.
What you need to do now will be impacted by a variety of factors.
I. C.A.R. NOTICE TO REQUEST MEDIATION
When consumers sign up to use the C.A.R. Mediation Service for any type of claim or dispute, they are known as the “Initiating Party” and they are asked to identify who they are making their claim against; those individuals or entities are called the “Responding Party.” The C.A.R. Mediation Service automatically asks the consumer to identify the Agents and their Brokers who were involved in the transaction. The C.A.R. Mediation Service then sends a Notice to Request Mediation to whoever the consumer has identified in the initial paperwork, including the Agents and the Brokers.
The C.A.R. Notice indicates at the top who are the Responding Parties and everyone else is classified as an “Interested Party.” Generally, especially in deposit disputes, Agents are listed as only “Interested Parties” which simply means that the consumer who has requested mediation is not necessarily targeting the Agents.
One significant drawback to the C.A.R. Notice is that there is little or no information provided as to whether there is an actual claim against the real estate Agents and, if so, the nature of the claim. Regardless of what the Notice says or does not say, or how the Notice is addressed, Agents should immediately notify their Broker/Manager of the Request for Mediation.
II. OTHER NOTICES REQUESTING MEDIATION
Since the Buyer and Seller can agree to use any mediation service that they (or their attorneys) want to use, the first indication that an Agent often receives about Mediation is an email or letter from: (a) one of the
Parties; (b) an attorney for one of the Parties; or (c) a mediation service. Regardless of who is requesting Mediation, Agents should immediately notify their Broker/Manager of the Request for Mediation.
III. WHO DECIDES WHETHER THE AGENTS/BROKER ATTENDS THE MEDIATION
Just because an Agent or Broker has been invited to attend the Mediation does not mean that any of the real estate professionals should attend. Deciding whether or not Agents and/or their Broker should attend a Mediation requested by anyone is a legal determination that needs to be made by the attorney representing the Brokerage. There are several factors that can influence this decision, including, but not limited to:
A. The nature and extent of the claim or dispute: If the Parties have a breach of contract claim or deposit dispute, then it is probably a matter that should be solved by and between the Buyer and Seller. The Agents are not Parties to the contract and do not control the release of funds in escrow. In these types of claims there may be no reason for the Agents to attend Mediation.
B. Is there any claim that the Agent made an error or omission? If the Broker and/or Agent are being accused of something, or if there is any hint that there might be a potential claim, then the Request for Mediation is actually a notice of a claim. At that point, the Broker needs to immediately report the claim to their E&O Insurance Carrier who will decide if: (1) legal counsel needs to be retained now and/or (2) whether the Agent should or should not attend the Mediation.
C. Why was the Agent notified? Clients often request that the Agents attend Mediation to give evidence or to provide support. Keep in mind that there are no “witnesses” at a Mediation; anyone who attends the Mediation is fair game for the Mediator to pressure into helping fund the resolution of the dispute. Agents should not agree to go to any Mediation without first consulting with their Broker/Manager and then only attend after the Broker/Manager secures legal advice from the attorneys who represent the Brokerage.
PRACTICE TIPS:
- Regardless of how Agents are notified there is a Request for Mediation concerning a listing, failed transaction or a deal that is closed, Agents should immediately notify their Broker/Manager. The Broker/Manager should then secure legal advice from the attorneys who represent the Brokerage.
- If there is any possible claim that may arise against the Agent or the Broker, even if it appears to be solely a dispute between the Buyer and Seller, the E&O Insurance Broker should be notified immediately to be certain that the claim is covered under the correct policy.
- If there is a Request for Mediation, Agents should immediately assemble all documents (including emails and relevant text messages) the Agents still possess, whether or not that material is in the Broker file. That material should be safely preserved and only provided to their Broker and not to anyone else.
- The Agents should not prepare or sign any statements, declarations, affidavits, timelines, narratives or summaries for anyone except the Attorney who will be representing the Agent and, typically, the brokerage as well.
- If there is a Mediation (unless authorized in writing to do so by the Brokerage’s Attorney), Agents should never: (a) deliver any documents to anyone; (b) meet with any attorney or investigator working for either party; and (c) agree to be available by telephone and/or appear at the Mediation even if requested by the party you represented.
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their Agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
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