Do you remember the story of The Princess and the Pea? A young woman approaches a castle at night requesting lodging. Of course the resident is a handsome young prince, and the wandering woman claims to be a princess. Doubting her, the prince’s mother places a dried pea under a pile of mattresses in the guest room. In the morning, when asked how she slept, the princess reported discomfort due to a hard object somewhere in the bed. The woman’s claim to be a princess is determined to be true, because only a real princess could detect such an irritant.
Remember this fairy tale when you are buying or selling a home. On signing day, think of the mountain of documents you must review, sign and initial to complete the purchase agreement. Somewhere among all that fine print (the mattresses) there is a small pea-like irritant. It is known as the mediation and arbitration clause.
What is the Mediation and Arbitration Clause?
The California Association of Realtors Residential Purchase Agreement (RPA) includes a clause specifying actions that will take place in the event of a post-sale dispute. Unforeseen situations do arise after sales that can trigger serious legal problems like title defects, unreleased liens, material defects missed in home inspections, problem neighbors and property line disputes.
The clause can currently be found in Section 22, Parts A and B of the RPA under Dispute Resolution. Let’s call it “Catch 22” to help remember where to look within your signing documents.
What to Know About Part A, Mediation
This paragraph explains that the buyer and seller agree to mediate a dispute before any arbitration or court action. So, if you discover termite damage throughout your home’s support beams that was not caught in the home inspection, you can’t simply file a lawsuit. By signing the Residential Purchase Agreement, you agreed in advance when you signed the form to mediate and share the fees.
If you attempt legal action without first trying to mediate, or if you refuse to mediate when asked, you will not be entitled to recover attorney fees if you are the prevailing party in your lawsuit.
What to Know About Part B, Arbitration of Disputes
This section outlines the next step if your dispute mediation fails. Continuing with our unfortunate termite situation, a seller could claim it was not their fault an inspector missed the defect, and the buyer is simply out of luck. If you checked and signed the Residential Purchase Agreement regarding arbitration, this dispute will now move to neutral, binding arbitration, end of story. You, as the unlucky buyer, will have no legal recourse beyond what the arbitrator determines. You will not be able to take any further action through a lawsuit in the superior court. This is why we are dubbing this section, “Catch 22.”
Are You Required to Initial Your Agreement to Arbitration?
No. The Residential Purchase Agreement mandates that you mediate before filing a lawsuit. Your agreement to the arbitration provision is voluntary.
Arbitration and Mediation Summary
Your goal is to watch for Section 22 when closing your deal. Discuss the best options for your situation with an attorney if you have questions. Remember this benign-seeming clause is actually like a dried pea under a lot of mattresses. Most people won’t notice it, but you will and prove you are a real prince or princess of astute initialing. If you are already in a post-transaction dispute, contact a real estate attorney as soon as possible for assistance.
Know Your Rights. Protect Yourself.
(415) 533-0735
(415) 843-0496