How to Resolve Disputes Pertaining to the Sale of a Real Estate Property During the Course of a Mediation

Real estate properties are oftentimes the most valuable asset owned by people. Therefore, when there is a dispute between the heirs pertaining to such property and when after some tough negotiating, the family members ultimately agree on the necessity to sell the home of their loved one it might feel like an achievement. This is unfortunately not true unless other necessary decisions are made at the same time to allow the sale to happen.

In other words, the decision to sell a property, during a mediation session, is by itself useless if the parties do not also agree on the following:

All Parties Must Agree on Who the Trustee Is

When who the trustee is, is either unclear or contested by some of the participants to the mediation, it is an absolute necessity to decide, during the mediation session, who is the trustee or at least who will act in this capacity in order to sign the real estate listing agreement, fill out all the documents and forms pertaining to the sale (real estate disclosures, title company documents, loan pay off request etc.) and lower the listing price if needed.

All Parties Must Agree on How the Realtor in Charge of the Sale Will be Selected

It is also very important to make sure that before people leave the room, they also approve who will be the realtor in charge of the marketing and sale of the property and/or how he/she will be selected. Please note that most of the professional trustees will interview 3 realtors and grade them based on a questionnaire which includes their commission rate, the strength and adequacy of their online and off line marketing, his/her understanding of trustee sales, his/her knowledge of the current real estate market trends, the number of transactions recently closed, their overall professional reputation based on websites like Zillow, Yelp, Google, the expenses they will pay for such as: the home and pest inspections, the staging, the professional photographer etc.

Therefore, it might be a good idea during the mediation to have the family members pre-determine the "must have” qualities of the agent who will be selected to list and sell the property.

All Parties Must Agree on How the Listing Price of the Property will Be Determined

Be aware that there is an unfortunate practice in real estate, not always known by the public, called” buying a listing” which can have ravaging effects on the sale of a property. Here is how it works: some real estate agents to secure a listing instead of determining the sale price based on the result of the Comparable Market Analysis (CMA) they must prepare, will simply abide by the listing price requested by the seller/trustee.

This discrepancy between the reality of what the price should be at a given time for a given dwelling versus the price asked by the seller/trustee will incur the following chain of negative events: #1) the property will sit on the market without being sold; #2) at one point the price will need to be dropped to finally reflect the true current value of the property; #3) oftentimes, the offers that will be received will be below the new asking price for 2 major reasons: #1) buyers will think there is something wrong with the property because it did not sell yet ; #2) buyers will expect the seller now needs to sell quickly, especially if this is a trustee sale, and will be tempted to present under asking price offers.

As a reminder, a Comparable Market Analysis is defined as an examination of the prices at which similar or comparable properties in the same area recently sold. Real estate agents perform a comparative market analysis for their clients to help them determine a price to list when selling a home or a price to offer when buying a home.

All Parties Must Agree on Escrow Instructions to Allow the Title Company to Close Escrow

Although mediation is confidential, bear in mind that, if there is a contest pertaining to the ownership of the property, any title company will need a signed settlement agreement by all the parties involved, with clear directives regarding how the sale must be handle from an escrow standpoint. Without these “escrow instructions” even if the property has been listed and a buyer selected the title company will not close escrow putting the seller/ trustee at risk to pay damages to the buyer for breach of contract.

To proceed with the sale, the title officer will need among other things: a copy of the trust and/or any other document available in connection with the trust (cancellation of previous trusts, modifications amendments to current trust etc.) as well as a written settlement agreement specifying: who has the representative capacity to sign the escrow documents on behalf of the trust; in case several members of the family are entitled to the proceeds of the sale how will the money will be disbursed between those parties at the close of escrow, and who will pay what share of the escrow fees.

Make sure that All the Parties with an Interest in the Sale are Either Part of the Mediation Agreement or Received Notice of Such Settlement

In a recent decision, the California Court of Appeals (Roth v. Jelley, A155742 filed February 24, 2020), reversed the decision of a Probate Court and stated that the plaintiff had a property interest in the trust that was adversely affected by a settlement agreement made between the other heirs without out his knowledge and without him being notify the agreement. As a result, the Court of Appeals declared that he was entitled to notice of the proceeding and to be given the opportunity to object to this agreement. For more info on this matter please refer to our recent blog at: https://bit.ly/2JnhseT

As a conclusion, it is hopefully now obvious why deciding to sell a home during the course of a mediation is not enough. By having the parties agree on the above described items you will limit the reasons some participants to the mediation may have to delay the sale of the property and/or go to court in order to have the mediation agreement interpreted.