Background. When the real estate market collapsed after bank liquidity froze up, circa 2007-2008, one of the first things that came to a halt was real estate disputes – at least those brought by buyers against sellers for property nondisclosure claims. Historically, these disputes have represented the largest share of all real estate mediations filed with the Portland Metropolitan Association of Realtors® (“PMAR”), and arbitrations filed with Arbitration Service of Portland.
Pre-crisis mediations administered by PMAR routinely numbered above 100 in any given year. In 2007 and 2008, when investment bank Bear Stearns was sold for pennies on the dollar, and another one, Lehman Bros., filed for bankruptcy, many banks soon began their death spiral, and either shuttered their doors, or were absorbed by bigger, stronger players. Lenders, big and small, turned off the free money spigot, and began to make loans only to the most credit-worthy.
When homes could not be sold because buyers could not qualify for a loan, panicked sellers began reducing prices. Overnight, it became a buyer’s market, and those who were financeable, became very, very, picky. Home prices circled the drain. Since many homeowners had taken out high loan-to value (“LTV”) mortgages, they soon saw losses in market value that fell below the loan balances they had blithely taken out in the belief that home prices would always rise. The term “negative equity” began to appear[1], and it quickly became the financial affliction de jour for millions of Americans.
Alternative Dispute Resolution in the Past. What does this have to do with buyer versus seller disputes you ask? Everything. When the U.S. real estate market collapsed, the cottage industry of alternative dispute resolution,[2] both mediation and arbitration, virtually disappeared. PMAR mediations were in the single digits annually during this time. The reasons were several:
- Those sellers with equity had to bend to buyer demands on price and concessions. Defects and potential defects were negotiated into price reductions, leaving little to argue about after closing. Moreover, the slow moving recession took away equity even from new buyers who had negotiated “bargain-basement” prices in the first place.
- With short sales, if there was a non-disclosure, there was little incentive for buyers to chase sellers who had received no funds from the sale, and had likely moved away.
- With REO sales[3], the banks dictated the terms, divesting buyers of virtually any claim for non-disclosure, since the lender disclaimed all future liability for undisclosed conditions.
- Specific performance claims[4] were equally rare, since no seller, in his or her right mind, would decline to close with a ready, willing and able buyer, because no one knew when the next qualified buyer would come along. Besides, with prices in decline for 60 straight months, few sellers ever changed their minds, since the next buyer to come along would only offer less, not more, than an earlier price. Market time during this period, i.e. from listing to accepted offer, was four to five months.
- Lastly, for money disputes over the Oregon small claims court limit of $10,000, many buyers simply made the economic decision to swallow their pride, and move on; life was too short, and many other issues took precedence, such as jobs and the economy.
Dispute Resolution in a Seller’s Market. Today, all that has changed. With prices increasing exponentially, it is now a seller’s market, and buyers who have already been stung by perhaps overpaying for a home in a bidding war, have little patience for sellers who have, ostensibly, held back on their disclosures.[5]
Today, the numbers of mediations and arbitrations are gradually increasing to pre-crisis levels. However, many lawyers have never been involved in a property disclosure dispute (e.g. those having passed the bar after 2007-2008). And of those that have, many never have done so since before 2007-2008. While this is not to impugn the skill of my brethren, it is to suggest that there is a broad range of legal expertise when it comes to buyer/seller property disputes.
Case Evaluations. This is where I may be able to help. After 44 years of negotiating, litigating, mediating and arbitrating all manner of real estate disputes, there isn’t much I’ve not seen.[6] And since I’ve been involved in drafting the statewide Realtor® forms for my client, OREF (Oregon Real Estate Forms Company, LLC), I’m intimately familiar with their terms. I know the standards of practice in the real estate industry, the players, and the plays.
If you, as a party or a lawyer, have a potential case you need evaluated to determine whether to “hold ‘em, or fold ‘em”, I can help. For example, as most Realtors® know, the OREF Sale Agreement form mandates mediation as the first step in the dispute resolution process. Although the mediator cannot “force” the parties to settle, and cannot make a “ruling” in favor of one party over another, he or she is the first person you will have to deal with in the dispute resolution process. You may not proceed to arbitration unless you have first offered or agreed to mediate the case.
So, before going into a mediation,[7] it’s important to have a good idea of what will help bring the mediator to better understand your case. Are the facts on your side? What is the applicable law? What do the transactional documents say? Are your expectations reasonable? If you do not enter into a voluntary settlement in mediation, are you likely to do better in arbitration – where the loser will have to pay prevailing attorney fees to the other side?
Costs. Assuming I am asked only to evaluate a case and render my opinions on its viability, the cost will very likely be $1,000 or less. To put this in perspective, my hourly rate is $300. This assumes that I am provided with all transactional documents and answers to my case evaluation form, together with any additional salient facts.
The above charge does not include legal research, an independent investigation,[8] or a face-to-face meeting.[9] The clock starts when I’ve received all the necessary documents and information to begin. The evaluation is written, with appropriate references to documents, and where applicable, the law.
Considerations. Is this evaluation worth it? That’s for you to decide. But in doing so, consider this:
- 65% of all mediations administered through the PMAR program are successfully resolved.[10] This means that the statistics suggest your case will, in fact, settle. If so, why not have it resolved in your favor? What better way to do so than to have it reviewed and vetted by someone who’s been involved in real estate disputes for over four decades?sid
- If you’re an attorney, and simply need a “reality check” e.g. you may already believe the merits and law support your client’s case, so what better way to confirm your beliefs, than to have them thoroughly vetted by a third party? And if you’re wrong, it’s far better to know sooner rather than later.
- If the other side is unreasonably refusing to settle, sometimes it helps to beef up your position with tried and true arguments you may not have considered.
- If you’re already headed to arbitration, you’re in “double jeopardy” as the quiz show says – “where the scores can really change”. A thorough evaluation may be the one thing you need to confirm your case is headed in the right direction. Again, it’s better to know sooner rather than later.
- If you need an expert witness on standards of care, and other issues relevant to your case, I’m happy to discuss this added service.
Conclusion. Yes, this is shameless self-promotion. But looking at it another way, having successfully practiced for over 40 years in the same industry, I believe it’s better to have something to show for it, than not. ~PCQ
[1] According to Wikipedia (here): “The term negative equity was widely used in the United Kingdom during the economic recession between 1991 and 1996, and in Hong Kong between 1998 and 2003. These recessions led to increased unemployment and a decline in property prices, which in turn led to an increase in repossessions by banks and building societies of properties worth less than the outstanding debt.”
[2] That is, a method of resolving disputes outside of the courtroom.
[3] The term “REO”, or “Real Estate Owned”, refers to the ever-increasing inventories banks carried when they took back homes in foreclosure, and then put them on the market to re-sell.
[4] “Specific performance” refers to a remedy for breach of contract, where a seller, after agreeing to sell, changes his or her mind, and refuses to do so. In such a case, the buyer may bring a claim to compel the seller to “specifically perform”, by honoring the terms of the contract.
[5] Caveat: Many, many, buyer disputes are predicated upon a theory the seller intentionally concealed an issue the buyer believed important. However, in my experience, most sellers disclose as much as they know, believing that if they have honestly answered all of the questions in the statutory disclosure form, they have met their legal responsibility. In other words, the alleged “non-disclosure” may be nothing more than the result of a seller’s interpretation of what a question in the form was asking, and not the result of an effort to conceal or mislead. I have written much on this issue, since many buyers and attorneys believe that an incorrect answer on the seller disclosure form is, per sé actionable. Under Oregon law, this is not the case. Seller’s answers are based upon their actual knowledge at the time; they are not warranties or guarantees.
[7] For an in-depth discussion of the mediation process, go to my post here.
[8] E.g. a site inspection. However, I will, where appropriate, recommend those issues, factual or legal, I believe merit further inquiry.
[9] Such meetings are nice to have, but when I’m working on a fixed fee program, I believe my time is better spent evaluating the information provided. Attorney-client communications today are frequently conducted over the phone and via email. If a client prefers a meeting, it can be arranged for a separate charge.
[10] It is impossible for PMAR to know how many unsuccessful mediations result in the filing of an arbitration, since arbitrations are filed, if at all, through Arbitration Service of Portland, and are confidential.
