Expert: Timmy Chou - 3/7/2010

Question
Hi.  I signed a $260K contract with a buyer who came with a cash offer.  The property is investment property and has a tenant who has occupied the property for 35 years.  The buyer asked to see the property and meet the tenant.  They did so and then reduced the price by $20K; I was not happy but this was still somewhat in the value range and yes I am a motivated seller.  However, I wanted to protect my tenant and myself so I asked that we close in 30 days and that the tenant be able to stay for 60 days after close.  Their counter was to sign a mutually agreeable lease and to close in 30 days or if the tenant did not want to sign then I would agree to close 90 days after acceptance.  I signed the counter.  The tenant wanted her daughter to speak with the buyers on her behalf and to make sure that what she signed was acceptable.  The buyers went to the tenant's home and told her she could not have alcohol in the house, the buyer's also inquired about the appliances which belonged to the tenant and then asked her agent which was forwarded to my agent "how about if the tenant takes the carpet and paint and stove and refrigerator when she leaves-then it won't be rentable"; just nutty statements and then it felt like they were stalling.  They all finally agreed to meet at the tenant's house and sign the agreement.  The night before they were to meet the buyers agent forwarded an email to my agent and asking that I reduce the price by $7000 and then they would close.  I told my agent to not even respond and send a Demand to Close letter.  I also have an e-mail that the buyers sent the tenant's daughter telling her to hold off on signing the agreement because they were still negotiating with the seller because they thought they were overpaying.  The next night they sent a cancellation agreement for me to sign.  I did not sign the agreement and told their agent that we have a contract and need to perform.  She responded that since the tenant's daughter did not cooperate with signing the lease and therefore they had not contract.  I wondered how they thought they could blatantly breach the contract like that and called escrow and found they never put in the earnest money.  Now, clearly they forgot about the fact that there was a contingency for if there was no lease agreement and they don't know that I have the e-mail where they stated they thought they had a bad deal and didn't like the one they made.  So, even though they didn't put the money in I am entitled to and I want to pursue the deposit they should lose.  If they don't agree to give it to me then I want to sue them for "specific performance".  I will go to mediation without an attorney but I need a good sample letter for the request.  What do you suggest?

Answer
Thank you for your question!

If you have looked at some of my other answers you will note that I always mention to questioners that mediators act as neutral third parties to disputes and never "get involved" in judging the merits of conflict, but merely use special techniques to help the parties decide how to negotiate their own settlement. The case you describe here is unfortunately very typical.  I am not a lawyer, nor can I mediate your dispute with just you alone but I can respond to your question from my business consulting experience.  You may wish to consult an attorney.

It sounds like the REPC did not have provisions for the consent or cooperation of the renter due to the "buy it in 90 days" clause and so you are right to pursue your action, as the buyer has clearly breached the agreement.  You should check the limits in your state for small claims as the deposit amount my be small enough that it would be much cheaper and faster to file a small claims action without the need of a lawyer.  

In many states volunteer mediators are provided in small claims courts for free and are willing to discuss matters at the time of a trial to see if a settlement can be reached.  

If you do not want to go to small claims or if the contract escrow amount is way too large, you may have little choice but to sue.  Note that you may easily end up winning and then paying an attorney the lion's share in fees.  Mediation is a possible good option, however these are the requirements: the parties must be willing to voluntarily mediate; the parties must have a compelling reason to mediate; the parties have a stake in a successful mediation.  I am not sure, given your description, that the ground is fertile for a mediation as the buyer has little to lose by stalling and nothing to really gain by meeting with you (except a discount on the settlement).  

As far as a "letter" I would first talk to a mediator and learn the usual and customary practices in your area.  There is not generally a good reason to expect that a party with the history you describe will be any more receptive to a mediation than a lawsuit.  The description you give does not leave me with the impression that the party is a good-faith participant interested in clear, unambiguous transactions and straight-forward problem solving.  Typically the mediator will call the party and explore their willingness to meet.  

If your REPC requires mediation you might still have to get a court to order it before they would actually show up.  My guess is that they will stall as long as possible hoping you will tire and go away, and then after you have spent tons of time and money just pay.  You may have a case against the real estate firm representing the buyer as they had a duty to see that the deposit was collected and in escrow BEFORE sending you an offer representing that the deposit was made.  Suing them as well as the buyer may get you faster results.     

Be sure you document and chronolog all contracts and every instance of meetings and discussions. Be as detailed as possible.

These are some ideas, hope they are useful.  Feel free to follow up with additional questions.

In all my answers, and for your information, the pros and cons of the types of dispute resolution are provided below.

GOOD LUCK!

Arbitration, Mediation, and Litigation

Arbitration: the referral of a dispute to one or more impartial persons for final and binding determination outside of the judicial system

Benefits of Arbitration:

  Confidential, no public record
  Limited exchange of documentation, information
  Quick, don't have to wait for a court date
  Arbitrators have expertise in the subject matter and are trained in conflict resolution
  Cheaper than litigation
  Preserves business relationships

Negatives of Arbitration

  It's a compromise, no %100 winner
  Complex arbitration can be costly
  If not satisfied, may litigate the arbitration procedure
  Poor results with an unskilled arbitrator
  Both parties must agree to cooperate in the process

Mediation: the process by which parties submit their dispute to a neutral third party (the mediator) who works with the parties to reach a settlement of their dispute.

Benefits of Mediation:

  Neutral mediator can objectively suggest alternatives not considered before
  Parties are directly engaged in negotiating the settlement
  Can be quicker than litigation
  Less costly than litigation
  Preserves business relationships
  85% of American Arbitration Association cases mediated find successful solutions

Negatives of Mediation

  may not reach a binding decision
  unskilled mediator

Litigation: using the judicial system to resolve disputes

Benefits of litigation:

  a clear winner and loser
  uses a prescribed set of procedures
  more predictable outcomes
  is final

Negatives of Litigation:

  waiting for court dates can do more harm
  usually more expensive than mediation and arbitration
  part of the public record