Mediation Techniques in the Real Estate Closing
“Go into real estate,” law professors and family members tell the young law students. “It’s much less of a headache and much less adversarial.” Experienced real estate lawyers and title company employees say “Ha! In your dreams.” Yes, transactional work can be less adversarial than litigation, adversarial by definition, but every real estate attorney, title insurance underwriter, escrow closer, and lender has at least one war story about that terrible closing where everyone argued over an encroachment or an unexpected lien or damage found during the walkthrough or whether the condominium association allows the 5 cats to live in the unit or the HOA allows homeowners to raise chickens.
Parties to a closing can find themselves in a situation as heated and as adversarial as any lawsuit, no, I take that back. They can find themselves in a closing that is worse than a lawsuit, a dispute in an atmosphere devoid of rules, procedures or an authoritative referee. In a lawsuit, the parties must put their claims in writing and comply with rules of civil procedure and evidence. These rules govern who gets to talk, what they can say, and how and when they can say it. The judge, having legal authority over all the parties, has the final word. In other words, the law provides procedures that control the parties and attorneys in a lawsuit.
I’m old enough to remember when there was a title company referred to as “the Circuit Court of Washington Street” but those days are over. No one controls or oversees the real estate closing. Escrow closers are busy satisfying lender requirements, copying and emailing or faxing. Attorney title agents, who are also the parties’ attorneys bound to advocate for their clients, have taken over the title clearance and escrow facilitation role formerly filled by a trained and experienced title officer. Brokers may attend the closing but do not take an active role. When a problem or dispute arises, the parties and their advocates argue it out, settle or walk away. The title company underwriter and escrow are caught in the middle. I believed they are more likely to succeed in the role of middleman when trained to use basic mediation skills. Title employees do not have to become mediators, but they can employ techniques of mediation to help the parties isolate and resolve problems and cool emotions. These mediation skills include the following.
Mediators often physically separate the opposing sides of a dispute into separate rooms. Then, they shuttle between the rooms to facilitate separate guided discussions called caucuses. In these caucuses, the mediator helps the parties analyze the facts, isolate issues, analyze the strengths and weaknesses of each argument, establish boundaries of potential solutions and settlements, calm emotions and diffuse tensions.
I’ve seen caucusing work at the title company. Several years ago, a large residential builder of luxury homes went bankrupt and did not pay subcontractors. Buyers could not complete their purchases because of incomplete construction and mechanics liens. The builder went unpaid, so the subcontractors went unpaid and refused to complete the work. The dispute became one giant viscous cycle circling the drain. The parties’ rhetoric was heated, containing violent imagery. A senior title company underwriting attorney took charge of the situation. He scheduled a settlement conference for the builder and subcontractors and used caucusing to get the parties to view their positions realistically and communicate rationally with the other side. To facilitate the caucuses, he seated the builder in a remote location within the building and put the unpaid subcontractors in a larger room on the opposite side. He provided refreshments to help everyone sit through the long wait. Then, he used his expertise in construction and mechanics’ lien law and mediation skills, to earn the trust, consult on the law, help the parties isolate the issues and reframe their demands. The parties communicated through the title underwriter and settled their dispute. No one left happy, but everyone got through it.
Building trust and rapport
The most successful mediators are those who are best at building trust and rapport with the opposing parties. Mediators build trust by learning the details of their cases, giving each side equal time and attention and keeping confidentiality. Mediators build rapport by listening and showing empathy. Real estate attorneys must passionately advocate for their clients but can build trust and rapport with the other side by being accurate and honest with opposing counsel. Title company employees can build trust and rapport with everyone. Some suggestions for title companies seeing to improve trust and rapport with attorneys, lenders, buyers and sellers include:
1. providing a better atmosphere for closings — rearranging offices to create smaller and more private spaces, providing healthy snacks, and providing more work stations for guests,
2. completing as many tasks before the closing as possible and permitted,
3. using technology to produce a more personalized, more accurate, on-demand searches, title commitments and closing statements and other documents,
4. training title agents and employees to reduce mistakes and promote confidence in their skills and knowledge,
5. providing more title clearance services to take the burden off the attorney and parties and reduce the need to explain requirements, and
6. using eClosing technology and promoting state legislation needed to reduce or eliminate required closing attendance.
Simplify and Maximize Flexibility
Mediators have a high success rate because of their ability to get the parties to isolate the real issues behind the dispute and understand the strengths and weaknesses of their arguments. Once parties focus on key issues, they are more equipped to analyze problems and desired outcomes allowing them to expand the range of settlement possibilities making settlement more likely. It is difficult for parties to a real estate closing to find flexibility and creative solutions to problems because a slew of contractual obligations, lender requirements, and all of the many required detail-oriented documents distract them. It’s more difficult for the parties to fulfill all of these obligations in a one-hour table funded closing.
To reduce all the requirements and stress that goes with them, it might behoove attorneys and lenders take a long hard look at contract provisions and lender requirements and pair them down to necessary items and provisions. They should be able to explain why they need every item listed. One example of this is in the newer versions of the Multi-Board Contract. Creators of the Multi-Board Contract reduced the number of inspection items that a buyer can require the seller to fix to those that are material. This eliminates the long list of small repairs that impeded closings. Undoubtedly with effort, real estate professionals and lawmakers can reduce or eliminate closing unnecessary obligations and requirements. The federal government and state and local governments might consider reducing their own requirements for closing and attorneys and title companies can support legislation to implement that idea. It’s arguable that we’ve created a monster by putting so many charges and inquiries on every closing, and to prove that, look at other advanced countries like Japan where governmental closing requirements and contractual obligations are much less than in the USA. That being said, I am not advocating for less regulation of financial institutions, and in many ways, this is an argument for greater regulation because simple and understandable financial products are necessary to reduce the complexity of closings.
Figure out who can get it done.
Mediators are most successful when they organize conversations and actions beforehand and assign tasks. They have “meta conversations” to determine the party or parties to be a part of conversations or take on tasks. Parties to real estate transactions can decide, before the closing, who shall take on checklist items or have specific conversations. They can tell send scheduling information to their experts, a surveyor, a contractor, assigned lender employees, a title officer with knowledge of the issue to keep all necessary parties available during the closing.
By emulating mediators, real estate professionals can reduce the stress and emotion in real estate closings. They can create peaceful closing rooms, use technology to simplify mundane tasks. They can reduce requirements to shorten and simplify checklists. By caucusing, building trust and rapport, simplifying and early preparation, closing parties can relax and focus on the real issues allowing them to find mutually beneficial solutions. Implementation of mediation solutions would improve all closings, providing conditions conducive to problem resolution and conducive to minimizing or eliminating problems.