Real Estate Mediation in Oregon

LawBackground. As most Realtors® know, as well as their clients who have been involved in a real estate dispute, mandatory mediation is usually the first step in the dispute resolution process.I say “mandatory” because under the statewide Residential Real Sale Agreement form (“Sale Agreement”), there is a big disincentive for refusing to mediate; if one prevails in arbitration without first having offered or agreed to mediate, they are not entitled to an award of attorney fees against the other side.  As a result, almost all disputes arising under the Sale Agreement go to mediation first, and only if that process is unsuccessful, will it proceed to arbitration.

Remember, the mediator is a “neutral” in this process. He or she does not make a decision on liability or anything else. The only way a settlement can occur is for the parties to reach one. The mediator’s job is to try to facilitate that settlement.

Confidentiality. As mediators take pains to explain at the beginning of a mediation session, what is discussed with them is absolutely privileged. They cannot be subpoenaed to testify what a party said or admitted to the mediator. And since the mediator shuttles back and forth between both sides (who are usually in different rooms throughout the process), he or she cannot share anything from one side to the other, unless it’s first approved. So sharing information such as how much to offer in settlement, how much to pay in settlement, or legal and factual difficulties in a case, are verboten, unless the declarant first gives the mediator authority to share the information with the other side.

Mediation As A Discovery Tool.  Mediation provides a good opportunity for the respondent (i.e. the person against whom the claim is being made) to find out what cards the other side is holding. Say, for example, a home seller is facing a claim that he or she failed to disclose material information, and the buyer is seeking recovery for certain damages related to the nondisclosure.  In order to have a meaningful mediation, the seller-respondent should insist, in advance of the mediation, on being provided with all bids, estimates, and reports regarding the cause of the damage and the cost of repair. This enables the respondent to better evaluate the case, and adjust his or her response to the claim accordingly. Conversely, the buyer-claimant should ask for copies of prior reports, etc., that may not have been previously disclosed in the seller’s property disclosure statement.[1]

Why would either party voluntarily share their information? Because the other side will likely be able to obtain it through the discovery process, if the case is arbitrated. Sharing in mediation only makes sense, assuming what is being sought is not a “fishing expedition”, but is directly germane to the claim or its defense. That way, both parties and their attorneys get a free peek at the other side’s case without having to force the case into arbitration.

The Process – Shuttle Diplomacy. The mediator normally meets with the claimant first. This is because it is the claimant that is seeking the relief and/or damages. It only makes sense to first find out what they perceive as the problem. This also provides the aggrieved party with a cathartic opportunity – i.e. to emote. In most cases, this is the mediator’s opportunity to just listen; to learn about the claimant, the transaction, what went wrong, and why.  A good mediator will not – or should not in my opinion – act as a devil’s advocate in this early stage of this process. He or she will want to gain the claimant’s trust, and piercing questions or aggressive argument would be premature.

After the mediator has reached the point of understanding the complainant’s position, it is time to go to the other side and learn their view of the dispute. While it is true that mediations are commenced with a written statement about the case, it rarely is sufficiently detailed to enable the mediator to evaluate it without more information.  For this reason, it is my practice to submit a pre-mediation statement to the mediator. It does not have to be shared with the other side, and rarely – if ever – do I do so. The statement includes a more detailed summary of my side of the case, the applicable law, and why I believe that if the matter went into arbitration, we would prevail. This not only allows me to get information in front of the mediator before the meeting, but to also educate them on the legal issues of the case, and why they favor us.  It can also be useful for the mediator, where the other side relies upon a legal position that I have already briefed in advance.

This process of information gathering could take a couple of hours, and entail two or three trips back and forth. At some point, the mediator will turn the discussion toward what it will take to resolve the dispute. There is less focus on the facts or the law, and more on resolution of the case.

Since the statement of claim that was filed at the outset sets forth the claimant’s demand, the mediator will usually ask the respondent to make an offer of settlement to take back to the other side.  If the respondent refuses to do so, the mediation is over.

If an offer of settlement is made, the respondent’s first bid will likely be at the low end of the spectrum.  But having done so, at least moves the goal posts, so that the amount in dispute is now smaller. Then the mediator goes back to the claimant, lays out the respondent’s offer, and asks for a counter, which essentially requires them to reduce their claim somewhat, in the interests of finding a middle ground. One might liken this process as continually slicing a salami at both ends, so that what finally remains is a settlement that both sides can live with.

This process can be repeated several times, and is usually accompanied by the mediator instilling a fear in both sides, that they may lose their case.  Lawyers should warn their clients of this in advance, perhaps even pointing out what weaknesses they suspect the mediator will hone in on. Otherwise, a party may find themselves surprised at the mediator casting doubt on the merits of a case their attorney already told them was a “slam dunk.”

Monetizing The Cost Of Arbitration.  Many mediators will, when meeting with each party and their attorney, ask the lawyer to estimate the cost of the attorney fees in arbitration, should the case not settle in mediation. This is more likely to occur late in the process, when a party is digging in their heels, standing more on principle than the possibility of potentially losing in arbitration. This can be a defining moment in a party’s decision-making process, especially if their case has some legal or factual soft spots. Hopefully, the attorney has already had this discussion with their client in advance, so the figure will not come as a shock.

This tactic serves at least three purposes: First, it forces the attorney to lay out the financial future of the case in front of their own client, if that discussion has not previously occurred; second, it helps the mediator paint the doomsday scenario, where the party loses, and has to pay not only their attorney, but the other side’s fees as well; and lastly, it now focuses not on “principle” or strength of the case. Instead, there is a subtle shift in the discussion toward settlement, as the reality of continued attorney fees takes hold on the parties. The only consolation to each party undergoing this “Come to Jesus” moment, is in knowing that the mediator is sowing the same fear of loss in the other side.

Take-Away Tips.  Here are some idle thoughts for those folks involved in a real estate dispute that is headed to mediation:

  • Have a discussion with your attorney early on concerning the strengths and weakness of the case, should it go into arbitration;
  • Have a similar discussion about fees;
  • Remember that principle only goes so far; refusing to settle “on principle” is a sure guarantee that the case will continue;
  • Sometimes, measuring the value of a settlement means evaluating other non-monetary issues, such as peace of mind, and the value of one’s time on more productive activities, etc;
  • Don’t reject the idea of settling a case for “nuisance value” – i.e. paying a claim simply because it’s cheaper to settle, than incurring larger attorney fees to continue the fight;
  • Settlement does not mean both sides go away “happy” – there is some truth in the adage that the best settlement is one in which both parties are unhappy with the result, but glad it’s over;
  • The final written settlement agreement in mediation will recite that neither party is admitting fault or liability – so there is no need feel that a settlement as a sign of weakness or fault;
  • The agreement can also recite that the terms of settlement are confidential and that neither side will disparage the other side – it’s always good to include these provisions, even if enforcing them may be difficult.

Conclusion. Mediation is really the last time the parties will have control over the outcome of their case. Thereafter, in arbitration, it will take on a life of its own, with depositions, document discovery, and an array of procedures that will be costly to both sides. Arbitration is a zero-sum game; there is one winner and one loser. The loser pays the winner’s attorney fees. Once the costs begin to mount up in the arbitration, it can make settlement impossible, since neither side can afford to do so without having the other side reimburse them their attorney fees – which rarely happens. This is the “tail wagging the dog” problem:  The comparatively small amount to have settled in mediation, now pales by comparison to the costs and fees generated in arbitration. After expending thousands of dollars in arbitration, the issue of “principle” begins to fade, and a “nuisance value” settlement” doesn’t seem so bad – but now neither party can afford to do so.  In Las Vegas, this would be called “chasing your money” i.e. by remaining at the poker table despite huge loses, in the hopes of hitting the jackpot, and at least breaking even.

Does this mean one should always settle in mediation, and always avoid arbitration? No. There is a time for everything. Some cases may be impossible to settle. But with preparation and a good mediator, respected by both sides and their attorneys, sometimes even the impossible becomes possible.  ~PCQ

[1] See ORS 105.464 for the statutory form.