Expert: Timmy Chou - 7/30/2005

Question
Hello,
I am a realtor in PA, just licensed in March 2005. Recently, a friend of a friend said that she needed to sell her deceased mother's house. My husband and I agree to buy it as an investment. We told her it would be cash deal, but I also selected the mortgage contigency on the AOS. I am listed as the buyer. My husband was going to get a home equity loan, give me the cash to buy the house. Well, even though we have over $100,000 equity in our home, he was turned down for the home equity loan. Turns out he's been a victim of identity fraud and someone's been getting running up bills in his name. Until this is straightened out, he can't get any kind of loan. My credit is not good, so I can't get a loan. So in the mean time, we asked a friend/business partner for help. He agreed to front the cash to buy the property in return for a share of the profits when we fix it/sell it. Here's where it gets crazy....
The AOS said that settlement would be on or before July 25, 2005. The lawyer representing the seller agreed to do all the paperwork and we gave him a $5,000.00 deposit (BIG mistake and quite a learning experience!). So he sent me a notice via mail on July 20 that we'd settle on July 25 (three business days notice). I called and said I couldn't do it then, could we wait till July 29. My business partner was out of town and insisted that he be able to be present at settlement. The attorney representing the seller is very very angry that I couldn't be there on the day he selected. Since the AOS said settlement would be on/before July 25, he set up another date (he was only available during a 3 hour window for all of next week) and said if I am not at settlement on the date and time he set up with the money, I will forfeit my $5000.00 deposit. Can he do this? He also told the seller he's going to charge her a fee for all the aggrevation. The seller is angry at me and said if I don't show on the date selected by her attorney, she will encourage him to keep the money. Can I use the mortgage contingency to get out of this with my $5000? Even though it was my husband who was going to lend me the money? I did not provide them with the rejection letter before the deadline. My business partner could be there for settlement on Aug 5, but the attorney and seller can't make it. I can't afford to lose $5000, but I don't see a way out? Can you offer any advice? Both the attorney and seller are very angry and not at all willing to bend/change/help. They now see it as keeping the $5000 as consulation prize then finding another buyer. I can't take this tru my broker since I did the AOS on my own, and the attorney handled all the paperwork - so it didn't go thru my broker at all (to save me and the seller from paying my broker). If you could offer any advice, I'd greatly appreciate it.  I did select the "Mediation" option in the agreement of sale.

Answer
Thank you for your question!

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.  Note that this issue will almost certainly develop legal implications and you should consult an attorney.

In my experience, in the absence of specific language--in your case, specifying the rules of determining closing dates, etc, for example--one party to an agreement can merely bulldoze the other party.  So the short answer is that they seller can do whatever she wishes and make you compel here to do otherwise.

Hence, you could assert the mortgage argument and try to claim the contract provides you an out--though I would guess they will likely keep your money and make you fight to get it back anyway.  You could rely on this provision typically, though I would have been happier if you actually had submitted a loan request to a broker and had a bank reject you.  You may be screwed anyway if you have passed specific deadlines.  

I cannot be sure just what the language of your agreement says, and you should get a legal opinion from counsel, but I would say it appears as though you must find a way to show up at closing.  Any other option will just leave you with a legal fight on your hands to get your money back while the property is sold to another buyer.  

If your agreement specifically says any dispute must be mediated you may have a cheaper resolution path.  Typically, though, mediation is a voluntary choice and is not imposed on either party (though sometimes arbitration is imposed).  The seller has your money and has little incentive to mediate however.

I wish I had better options for you.

These are some ideas.  Feel free to follow up with additional questions.

For your information, the pros and cons of the types of dispute resolution methods follows.

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 hare
    usually more expensive than mediation and arbitration
    part of the public record