Seller and Buyer Should Mediate Before They Litigate

Question: We signed a purchase contract to buy an expensive home in Carefree. We deposited $25,000 earnest money. Because of the COVID-19 crisis, however, our financial situation significantly changed, and we no longer want to buy the home. We agreed with the seller to cancel the purchase contract, and we are willing to forfeit the $25,000 earnest money. The seller has refused, however, to accept the $25,000 earnest money. Instead, the seller claims that, since the purchase contract was signed and escrow was opened, the value of the home has diminished at least $100,000 due to the COVID-19 crisis. The seller has now released the $25,000 earnest money back to us, and wants us to pay more than $100,000 in damages. The purchase contract requires mediation before any lawsuit, and both our lawyer and the seller’s lawyer have now agreed to go to mediation. We see no reason to spend attorneys’ fees going to mediation, because we don’t feel that we should have to lose more than our $25,000 earnest money for not purchasing the home. Can we waive mediation and just go to a jury trial, and let a jury decide if we owe the seller more than the $25,000 earnest money?

Answer: You should not waive mediation. You and the seller will have to go to mediation at some time before a jury trial. Judges require mediation before a jury trial because judges do not want to have a jury trial if there is any chance of settlement. Therefore, if the parties have not already done mediation, the judge will eventually order mediation, or even a second mediation. Retired judges or experienced lawyers who have acquired mediation training generally make the best mediators. Similar to baseball players who make the most money if they have the highest batting average, the mediators who settle the highest percentage of disputes are in demand and can make more than $500,000 a year. Although you may want to go to a jury trial now, the emotional and financial cost of a jury trial is enormous. There will probably be at least two years of pre-trial discovery, depositions, and motions, and usually at least $250,000 in attorneys’ fees and costs for each party to even do a 3-day jury trial. After the jury verdict there will usually be post-trial motions, an appeal to the Court of Appeals, and a petition for review to the Arizona Supreme Court. This time period will be at least three years for a jury verdict to be enforceable. If the jury verdict is reversed on appeal, there will be additional time and attorneys’ fees when there is a remand to a trial judge for a final ruling. Bottom line: You and the seller should settle as quickly as possible with the assistance of an experienced mediator. A fair settlement, i.e., usually when neither side is happy, before any litigation is filed, or even early in the litigation, is better than a great victory several years later after a jury trial and appeals!