Speaking For Others

As a young man I worked many jobs.  Many years ago I became a member of the Iron and Steel Workers Union and I worked on a blast furnace belonging to United States Steel.  I’ve worked as a roughneck in the Wyoming oilfields. I’ve been a rough carpenter on apartment buildings. I’ve driven a 10 wheel dump truck for an excavation company.  I’ve been a small engine mechanic. And I served as a music director for a small theater company in Jackson Hole, Wyoming.

But I never spoke for anyone else until I became a lawyer.

When my kids were young they asked me what I did at work.  I told them I “read a little bit, I write a little bit, and I talk on the phone.  That’s about it.”

Somehow that didn’t seem very satisfying to them.  But it was true.

What I didn’t tell them was that I regularly speak for other people.  In fact, I do it almost every day.

It’s an unusual thing.  All of us talk all day long – and we talk for ourselves.  We read, we write, we talk. We rarely have someone else talk for us – until it comes to legal matters.  When we work with lawyers, we often have people talk for us. A power of attorney let’s someone else speak for us, write for us, and even make decisions for us.  But few of us spend much time working with powers of attorney.

But legal representation – I speak for people everyday.  Sometimes it’s in court. Often it’s on the phone, or through a letter.  I am a warrior. I’m a strategist. A river guide. And a counselor.

If we all speak for ourselves everyday, then why hire a lawyer?  Why not just talk for ourselves?

Because we wouldn’t know what to say.  And we wouldn’t know how to say it. And we want the power that stands behind a lawyer, and the respect that lawyers get. (This is true notwithstanding all of the lawyer jokes.  My son reminds me that in all the world there are only three lawyer jokes and that all the rest are true stories).

Unless we’re a lawyer, or a student of political law and theory, most of us don’t even know our own rights.  We hire someone else (a lawyer) to tell us what they are – and then pursue them for us.

So there are good reasons for paying someone else to speak for us.

What a different world is mediation!  As mediator I deal with lawyers every day.  And when I move between parties, I speak for those lawyers.  What a remarkable thing! Each room has a client – the “real party in interest.”  And most of those clients have lawyers with them – people they pay to speak for them.  But instead of speaking to each others, these lawyers pay a neutral third party – a mediator – to speak for them.  When I speak to the other side, my comments are truly two steps removed from the client.

Why do such a thing?  Why add another layer of cost and complexity to a legal system that’s already far too complex?

Because it works.  Litigation is based on distrust.  Settlement is founded on trust. In order to be effective – and protective – a lawyer must embrace distrust, caution, suspicion.  Otherwise, without adopting these viewpoints a lawyer can easily get blindsided.

Enter the mediator, who is a person without a dog in the fight.  The mediator isn’t tied to either party. The mediator doesn’t really care who wins or who loses; who has a great case and who doesn’t.  The mediator is focused on one thing, really: consensus. Above all else a mediator strives to build consensus.

It’s not easily done.  A mediator must listen and be persuasive.  They must have an understanding heart – and above all they must be patient and respectful.  If a mediator can legitimately and honestly earn the trust of the parties (and their counsel) then a mediator is in a unique position to help the parties check their own realities, review their values and evaluate their priorities.  In short, the mediator can help parties see things in a new light – and this can lead to settlement more quickly than almost anything else.

Could attorneys do this themselves?  Of course. Cases are settled everyday without mediators.  But when emotions are high, or when there’s strong distrust, or when somebody just doesn’t have a good grip on the risks, realities and costs of litigation – then a skillful mediator can speak for the other side and sometimes achieve something that just may not happen otherwise.  

Mediating cases is unusual work.  And the dynamics are fascinating. But it’s effective.

 

Robert B. Jacobs is a mediator in the San Francisco East Bay.  He mediates real estate, business and construction law cases throughout California.

Good Cop, Bad Cop

Every mediator has been there.

The mediation has begun.  The mediator is working hard on building a relationship of trust with the plaintiff .  And then the plaintiff takes the moral high ground and flat out refuses to make any opening demand – nothing at all – because they feel so abused by the defendant.  They simply refuse to proceed with the mediation.

What can you do?  Where can you go? How can you settle a case when the plaintiff won’t even make an opening demand?  

It’s a classic scenario that every mediator has found themself in at some point. What can you do?

There’s only one option: attack the plaintiff’s position.  The mediator must help the plaintiff realize that trial results are uncertain, and the plaintiff may get a poor result at trial (regardless of how great a case the plaintiff might think they have).

But a mediator has to do this gently.  If the plaintiff feels you’re an adversary, you’re finished. You must absolutely retain the plaintiff’s trust because without such a relationship the mediator can do nothing. The trick is being able to maintain this trust while attacking the plaintiff’s position.

Can this be done effectively?  Yes. How? By very gently using a proven, time-honored negotiating tactic: Good Cop/Bad Cop.

Two negotiators are typically used in the Good Cop/Bad Cop approach.  One negotiator (the “Bad Cop”) is harsh, aggressive, demanding, unpredicatable.  The other (the “Good Cop”) is agreeable, cooperative, helpful. Sometimes the Good Cop even defends the party from the Bad Cop.  The idea is that because of this contrast the person feels they can trust the Good Cop and are therefore more receptive to negotiating with them.

An effective mediator will use this Good Cop/Bad Cop technique to point out weaknesses in a party’s position.  The mediator will introduce the prospect of losing at trial by pointing out the kinds of arguments the other side might make which might be convincing to a judge, even if the other side hasn’t yet made them.  In this kind of an approach the Good Cop is the mediator. The Bad Cop can be either the opposing side, or a judge (or jury). (Sometimes this technique is referred to as “reality checking” where the mediator points out the realistic likelihood of winning or losing at trial).  But regardless of whether the “Bad Cop” is the judge, the jury or opposing counsel, the goal of this approach is the same: it helps the party see the weakness of their position without undermining that party’s trust in the mediator.

When used skillfully, this approach can be very effective in making progress at mediation.  It’s an essential tool in the mediator’s toolkit.

 

Robert B. Jacobs is a mediator and arbitrator with over 30 years of litigation experience in business, real estate, and construction cases. He serves on the mediation panels for the Santa Clara County Superior Court and the Bar Association of San Francisco.  He’s a mediator for the Alameda County Superior Court and a Settlement Mentor for the Contra Costa County Superior Court. He also serves on executive committees for the ADR section of the Alameda County and Contra Costa County Bar Associations. Reach him at Bob7@RBJLaw.com.  

 

The foregoing article is provided for general informational purposes and should not be used in connection with any specific legal matter.  Persons with legal issues or matters should consult competent legal counsel.

 

Bias, Anyone?

Bias is a reality – we all know it.

Some time ago I attended an evening program for ADR professionals.  Our speaker was not a professional neutral, but she had made it a lifetime pursuit to study power, bias, and unequal bargaining strength.  She lectures all over the world on these topics for the purpose of servicing the needs of the disadvantaged. She holds a Ph.d, and as the evening progressed it was abundantly clear she had spent a lot of hours reading about, thinking about, and analyzing power and bias in human relationships.

She said a lot of things that resonated.  Her program was completely spellbinding. She spoke for only an hour, but of all the classroom instruction I’ve ever had this was clearly some of the most riveting.

What could she possibly say about bias that would be so riveting?  Bias is a reality – we all know it. But many of us – perhaps most of us – actively work to minimize (or eliminate if possible) our own personal bias.

My mother, bless her soul, had many stellar qualities.  But nobody would ever call her timid. She didn’t ride the tides – she made them.  Whenever she put her mind to something, watch out! It was going to happen, and nobody (and nothing) would ever get in her way.  (She told my wife, shortly after we were married, that my wife was the first person who had ever told her “No.” My mother was over 60 years old at the time).  None of my sisters are shy or retiring – I know first hand that women are (or can be) as strong or stronger than any man. I like to think I am completely devoid, in my own life, of gender bias.

The same goes for racial, ethnic, religious, or cultural bias –my life experiences have taught me enough for me to believe I am as unbiased as it’s possible to be.

But this program addressed a different kind of bias.  Our presenter observed that most mediators hold advanced degrees, and that they have more education than the average person.  Our presenter noted (correctly) that oftentimes parties come into mediation from disparate backgrounds. One party may be better funded, with the ability to hire a more experienced or more effective lawyer.  That party may also be more educated, more logical, and more analytical than less educated parties. As a result, a mediator may more readily identify with – and relate to – such a party. If this happens, the mediator may consciously (or subconsciously) defer to the position, requests or proposals of such a party, and thereby effectively afford this party greater “power” in the mediation.  In the words of the presenter “If you aren’t aware of this kind of bias, you may (as a mediator) unconsciously advance the aims and interests of the party with the greater power.” She noted that less educated people often think about things differently than their more educated, financially successful counterparts.

The net result is that a mediator may subtly – and unconsciously – slant a mediation toward the more powerful party.

This was a complete revelation.  It was instantly clear to me that she had identified a potential soft spot in the mediation process.  It may be easy to watch and listen to other people for indicators of their bias – but it’s not so easy to do with our own.  As mediators, we have to listen intently to words and subtle signals as to the values, desires, and preferences of parties and counsel.  If a mediator is biased or predisposed towards a logical, analytical, clear-thinking party, then is that mediator likely to unconsciously advance the interests of that party during the mediation?

On the other hand, should a mediator properly attempt to effect social justice by favoring the interests of a disadvantaged party?  Doing so would offend the concept of the mediator as a “neutral.” Life is unfair, and it is filled with inequality. Parties come into mediation with unequal bargaining power every day.  If a mediator is to be truly “neutral,” then he or she must take the parties as they find them. The mediator’s task definitely does not include any attempt at “social reform” or favoritism within the context of the mediation.

Does this mean that a party who enters a mediation with more power may come out of the mediation with a more powerful result?  Yes. But does that mean that a mediator should indulge a party in every attempt to control, derail or influence a mediation? Not at all.  An aggressive litigator recently told me that the concept of “true” mediation was foreign to them since they always participate in mediation with absolutely no intention of settling their case, but instead always use mediation solely as a vehicle to gather information so that they can “win big” at trial.  Mediators are charged with facilitating consensus between the parties. Every ethical tool, technique and approach can properly be used towards that end. But nothing obligates a mediator to facilitate a fishing expedition if one of the parties is not participating in good faith.

It’s an unending quest.  An effective mediator will collect information about the parties and identify their wants and needs.  And a good mediator will never consciously further any bias of the parties. But every mediator also needs to constantly work at identifying – and managing – their own biases so that they don’t interfere with the mediation process.   

 

Robert B. Jacobs is a mediator and arbitrator with over 30 years of litigation experience in business, real estate, and construction cases. He serves on the mediation panels for the Santa Clara County Superior Court and the Bar Association of San Francisco.  He’s a mediator for the Alameda County Superior Court and a Settlement Mentor for the Contra Costa County Superior Court. He also serves on executive committees for the ADR section of the Alameda County and Contra Costa County Bar Associations. Reach him at Bob7@RBJLaw.com.  

 

The foregoing article is provided for general informational purposes and should not be used in connection with any specific legal matter.  Persons with legal issues or matters should consult competent legal counsel.

 

Adversarial Trust

We’ve all been through it.  You come out of law school and you’re loaded for bear.  All you’ve done for three years is read outrageous cases of every kind of wrong, loss, injury and damage.  Everybody’s suspect. Nobody can be trusted.

After the bar exam, people start mixing it up.  It’s no less of a fight than being in a boxing ring. Depos, document requests, motion practice – it’s all in there.  Get a few trials under your belt and you start feeling like a seasoned veteran.

After a few years something unexpected starts to happen.  The grappling that used to be so intense becomes less so. Client billing issues start rising to the surface.  Things get more streamlined.

What happened?  What’s made the difference?

Adversarial trust. Sounds like an incongruity, but it’s a reality.  It’s part of the way things get streamlined.

We live – and work – in an adversarial system.  We fight, we challenge, we dispute. It’s a big contest.  And yet after a while something changes. We realize it’s not worth the fight – nor the expense – to litigate every last point.  It’s too expensive. Sometimes the clients won’t stand for it. Once we recognize that, we suddenly realize that our perspective has changed.  We find that sometimes those people who opposed us — our adversaries – begin working with us in a cooperative fashion.

It’s something that we never expected straight out of law school.  But we start trusting (to a limited degree, and only in some situations) our adversaries.

How does this work?  It’s a bit of a dance.  If a client’s trial budget won’t withstand scorched-earth litigation, then we open up a bit of a dialogue with opposing counsel. Maybe we ask a few guarded questions about marginally important documents – or certain witnesses – or certain testimony.  Then we listen. And we listen. And listen. If the answers add up – if they makes sense – then maybe we don’t take that third party deposition. Maybe we don’t send out the third, fourth or fifth deposition subpena for business records. Maybe we decide to take our opponent’s word on it (and maybe we don’t).

It’s not a new concept.  Sometimes our adversaries lie to us – and sometimes they don’t.  Moscow and Washington have been adversaries for decades – and yet after the Cuban Missile Crisis they put together a direct hotline so they could talk to each other (and possibly avoid potential disastrous misunderstandings).  (The movie Failsafe with Henry Fonda and Larry Hagman relies on this kind of hotline).  

So how do you know when your adversary is telling the truth?  That’s the art of it. You don’t know. You make your best lawyerly guess – and then you either rely on their representations – or you don’t.

Why does this make a difference?  Because the ability to sort the truth from the deceptions can let you know where an adversary is,  what they might do, where they might go, or what they might pay. Some of your best settlement intelligence can come from the most unlikely source: your own adversary.  Those who recognize this early can save their clients big money, and those who don’t may find themselves missing significant opportunities.

This kind of sorting is a difficult task – but it’s often worth the effort.

 

Robert B. Jacobs is a mediator and arbitrator with over 30 years of litigation experience in business, real estate, and construction cases. He serves on the mediation panels for the Santa Clara County Superior Court and the Bar Association of San Francisco.  He’s a mediator for the Alameda County Superior Court and a Settlement Mentor for the Contra Costa County Superior Court. He also serves on executive committees for the ADR section of the Alameda County and Contra Costa County Bar Associations. Reach him at Bob7@RBJLaw.com.  

 

The foregoing article is provided for general informational purposes and should not be used in connection with any specific legal matter.  Persons with legal issues or matters should consult competent legal counsel.

 

Getting to Trial

I remember going to trial as a young lawyer.  Everything rose in a crescendo to a fevered pitch just before trial.  The logistics, coordination and workup were monumental. After endless preparation, I’d show up at the courthouse ready to do battle.

And then the court would order a continuance.

I didn’t know (at first) that the courts set trial dates months down the road without any idea of how many courtrooms will be available on any given day.  We’d all show up with our witnesses ready to go only to find out that no courtrooms were available. We’d sit around all day and wait for something to break loose (and it often didn’t).  We’d then go back to our office and wait on “trial standby” for a week to see if a courtroom opened up. Our witnesses would cool their heels; our clients would get frustrated; we’d all stay on high alert for a week.  And then we’d get a call that no courtrooms were available and a new trial date would be set several months down the road.

Sound familiar?  Everybody’s been through it.  It’s not an efficient system. It’s like having your carrier overbook an airline flight – except nobody offers you a free ticket when your flight’s been oversold.

Older attorneys would sometimes lament that all they wanted was “a date certain” for trial.   But a master calendar system just doesn’t provide for certain trial dates.

Some counties have switched to using a single judge for all purposes.  In these counties, yours is the only case (or one of a very few case) set for trial in that department on a given date.  That way, you know you’ll go out to trial on the date that’s set (double scheduling still sometimes occur. But these courts usually scramble to find an available courtroom so that the trial date can be honored).  This system avoids some of the master calendar problems. But it may be a long, long time (i.e. over a year) before your assigned date comes up.

How can parties get to trial in a reasonable time without the re-setting problems of a master calendar system?  Binding arbitration is always a possibility. But there’s no right of appeal with arbitration, and some clients (or their counsel) don’t want that. Arbitrators have broad powers, and their decisions aren’t supposed to be reviewable for errors of law or judgment.  The prospect of an adverse decision can be just too daunting for some parties to bear.

There’s another option: judicial reference.  With a judicial reference, the parties stipulate to having their matter heard by a private judge.  It’s just like a bench trial, except it takes place outside the courthouse. The parties get to select their judge (how often does that happen?)  All the rules of evidence apply. See Evidence Code §300. The right to appeal is preserved. The parties present their case just like they would in a traditional courtroom. (See In re McNamee (1933) 131 Cal. App. 30, 31).  Even the public has a right to observe the proceedings (should anybody care to).  See California Rule of Court 3.931(a).

The upside?  The parties get to choose “a date certain,” they choose their judge, and they know exactly when their case will go to trial.

The downside?  The parties pay the referee’s fees.  But the parties are free to agree how those fees will be paid.   See Code of Civil Procedure §645.1(a).

The upshot?  If the cost of gearing up for a trial several times is higher than the cost of paying a referee for three or four days of hearing time, the parties might prefer a judicial reference.

 

Robert B. Jacobs is a mediator and arbitrator with over 30 years of litigation experience in business, real estate, and construction cases. He serves on the mediation panels for the Santa Clara County Superior Court and the Bar Association of San Francisco.  He’s a mediator for the Alameda County Superior Court and a Settlement Mentor for the Contra Costa County Superior Court. He also serves on executive committees for the ADR section of the Alameda County and Contra Costa County Bar Associations. Reach him at Bob7@RBJLaw.com.  

 

The foregoing article is provided for general informational purposes and should not be used in connection with any specific legal matter.  Persons with legal issues or matters should consult competent legal counsel.

It’s About the Money – Or Not

Some time ago I attended an evening meeting for ADR professionals. Our presenter was extremely well-versed in conflict resolution. She teaches courses all over the world on human dynamics, power, mediation and conflict resolution. During the course of her presentation she made several comments that caught my attention. Among other things, she claimed that no disputes are truly about money.

Her claim surprised me. I’ve litigated for decades, and I’ve spoken to plenty of people about money. Sometimes it seems like the only thing that matters is the money, and for many years I’ve often said “It all comes down to money.” When our presenter said that no disputes are about money, I knew I would be asking her some follow-up questions.

After the presentation, I sat down at a table with her and with her non-attorney sister. Several ADR attorneys joined us. I asked the presenter about her “non-money” comment. She reaffirmed her position: “They (the conflicts) aren’t about money.” I responded, “Of course they are.” She said, “Give me an example.” I said “Take a personal injury case – there is wage loss, medical bills, pain and suffering. Clearly it’s about the money.” The presenter then started listing case examples where plaintiffs sought money, but where the real issue driving the litigation was actually something entirely different.

One of the lawyers at the table spoke up and described a case where a brother and sister, both in their eighties, were suing each other. His client (the brother) agreed to settle the dispute for far less than the attorney thought he should. The brother finally said “Now I will be able to sleep at night.” Clearly that litigant had non-monetary concerns that were bothering him. Was the litigation just too taxing for this octogenarian? Did he feel that he needed to salvage his relationship with his sister by taking less than he might otherwise get? Whatever the reason, something moved him to settle for less than his attorney thought he should accept.

After this story, one of the other attorneys shared a story about a personal injury case where a claimant was injured in a public facility due to negligence. During the case, this attorney asked the claimant how much money she wanted in settlement. The claimant had no idea – because the issue wasn’t really about money. The real issue was about an injury caused by a defendant’s negligence. The claimant wanted recognition and an apology – and she wanted the condition to be fixed so it didn’t happen again. The attorney observed “People make mistakes. If they (the public facility) had just acknowledged their mistake and apologized, it would have been all over. As it was, we went through a lot because they wouldn’t admit that.” That night I realized that many lawsuits have less to do with money and more to do with feelings, emotion, pride and the need to be respected.

The following story won’t come as a surprise to anybody who has been a litigator. I once litigated a case between family members that ended up in mediation. Emotions were high. Everybody was suspicious of everybody else’s motives. I finally said to the mediator (in private) “This isn’t about the money.” And it wasn’t. It was about respect. It was about emotion. It was about treatment. It was about equality. But sometimes the only way we can address those things is through a lawsuit about money. In those situations, the money is important, but only because of what the money represents. Sometimes a plaintiff can’t take less money, not because they want more money but because taking less would represent a victory for the other side, or an admission of defeat or wrongdoing themselves.

Notwithstanding these examples, some cases truly are about money. But others aren’t. Why is this important? Because a mediator who quickly and accurately discerns the true cause of conflict will be in a superior position to settle a case. If a party tells the mediator “It’s not about the money,” then a perceptive mediator will ask “Then what is it about?” Once a mediator finds out what the lawsuit is really about, the mediator can fully address the core issues. And once a mediator does that, the non-monetary case is far more likely to settle.

The foregoing article is provided for general informational purposes and should not be used in connection with any specific legal matter. Persons with legal issues or matters should consult an attorney.

A Christmas Gift

            One of my favorite Christmas movies is “Miracle on 34th Street.”  In that movie, a little girl wishes for some family togetherness that she just doesn’t think will ever happen.  But after she meets Kris Kringle, she gets the togetherness she was looking for.  After she receives what she hoped for, the family drives out to the suburbs where a real estate agent meets them and provides them with keys to a wonderful home that is fully furnished. It’s a gift from Kris Kringle.

            A big part of the movie concerns the motives – and actions – of corporate America during the Holiday Season.  In the movie, some of the big Christmas retailers seemed to have big hearts, others less so.  It’s a wonderful Christmas show, but at the end it can seem like there’s nothing more – and that this is just a “feel good” movie.  But there’s more to Christmas – and similar Holidays – than just the shopping that goes on. And the good things that happen during the Holidays aren’t limited to just Holiday movies.

            Several years ago, I got to wrap presents for underprivileged children.  Some local real estate agents had identified underprivileged children who could use a hand-up.  They had contacted families, purchased gifts, and brought them to a central location where a small army of us wielded scissors, tape, ribbons and bows and wrapped up a big group of gifts for these youngsters. It brought out the best in us – a free gift of time to bless someone else whom we’ll never know and never meet.

            That year I also had the choice opportunity to work with a group of young men ages 12-15.  There were six of them, and I was assigned to help them shop on a sub-for-santa basis for a young girl who wears size 7 pants who needed “warm clothes or a jacket.”

            We drove over to Target with our six young men and two adult leaders.  We got into the store, and an experienced sales associate immediately saw our plight.  “Do you need some help?” she asked.  “Yes,” I said, “a lot of it.”  I explained to her what we were doing and who we were shopping for.  “Come with me” she said, and she took us over to the girls section, where none of us had ever been before.  She started helping us find the few meager warm clothes that were on display – some thin sweatshirt tops and pants, nothing that looked very warm.  “These are all on sale,” she said, “thirty percent off.”  My young men had a $40 budget to work with.

            I spied a single rack of good looking jackets – some pink, some lavender with purple accents – heavy, thick and warm.  “How about these?”  I asked “are these on sale too?”  The listed pricing was over our budget.  Our sales associate said “Let me see” and she left us to keep shopping.  She was gone a long time.  She eventually returned with a more senior sales associate.

            I pointed to one of the jackets and asked “Is this on sale too?”  The senior associate looked for sale or discount information, but couldn’t find any.  “Yes,” she said, “this jacket is on sale too.”

            “But no,” the junior associate said, “I rang it up. It didn’t show any sales discount.”

            The senior associate eyed us carefully. She knew what we were up to. If we didn’t get this coat, then our sub-for-santa recipient would get a few smaller things, less warm and thin.  “Yes,” she said, “these jackets are on sale.  For you, they are on sale tonight.”

            I asked my boys “What do you think?  This girl needs something warm.  Should we get some smaller, thinner sweats, or something that will keep her really warm on cold nights outdoors?

            The vote was unanimous.  We chose the coat.

            “Come with me,” said the junior associate, “I’ll make sure you get your discount.”  She took us over to the jewelry register which was vacant, and rang us up.  The total with tax was $39.97 – nearly all of our allocated budget.  Three cents to spare.

            We took the coat back to a central location, where we wrapped it.  We don’t know the girl who got it.  And we don’t know what her situation was.  But somewhere, there was a little girl who was very, very happy on Christmas morning when she unwrapped a warm lavender coat with purple accents. And she wasn’t the only one who was helped: our opportunity to serve this unknown little girl was also a joy and a blessing to my six boys and myself. It’s a big part of what Christmas is all about.

Bankruptcy is Sometimes a Response to Foreclosure

            Some years ago there were a lot of foreclosures. But not all foreclosures are over yet. Some borrowers are still struggling with loans that are “adjusting” or “re-setting” after an initial “teaser” period.  Some of these loans offer an initial term of five years with a low interest rate that’s fixed.  At the expiration of that initial term, the loan “re-sets” to an adjustable loan that is amortized over 20 or 30 years.  However, when the loan “re-sets” the borrowers are often unable to pay the higher payment amounts that result from the re-setting of the loan.  Some of these borrowers intended to refinance their loans when the re-setting occurred.  But with the decline in the real estate market, these borrowers often find they can’t refinance their loan because the property is worth less than the amount of the loan.  A refinance in such situations is impossible, because any new lender would have to lend more money than the property is worth.  As a result, such borrowers find themselves unable to refinance unless they pay down their loans to a level below the value of the property.

Borrowers unable to make their loan payments often want to know if bankruptcy is an option.  The answer is that the attractiveness of bankruptcy usually depends on the borrower’s individual situation.  Bankrutpcy is not a “cure-all” and it is now more difficult to qualify for   Chapter 7 discharge than it was years ago.  In a Chapter 7 proceeding, most or all of a debtors debts can be discharged by the Bankruptcy Court.  However, many or most of the debtor’s assets in such a bankruptcy will be liquidated and paid over to creditors.  As noted in one court opinion, the principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor.  Hersh v. U.S. ex rel. Mukasey, 555 F. 3d 743 (2008).

Some debtors don’t necessarily need to liquidate their assets and have their debts discharged in order to get a “fresh start.”  These debtors might have valuable assets, but they might be short of cash with which to pay their debts.  Sometimes creditors press such debtors, and if these debtors had some time or “breathing room” then they would be able to sell or liquidate assets and pay the creditors.  These debtors assets are often worth preserving, and the value of their assets typically exceeds their debts.  However, the debtors can have problems meeting their ongoing monthly payment obligations, and if their creditors are pressing them, then these debtors can risk losing assets that are worth far more than their debts.  Some of these debtors elect to file a Chapter 13 Bankruptcy proceeding.  In these proceedings, the debtor proposes a plan for paying off creditors.  The law provides an “automatic stay” of enforcement proceedings against such debtors, thereby giving such debtors some time or “breathing space” to re-organize their financial situations. Chapter 13 is generally used by individuals seeking some “breathing space.”  Corporations or businesses that need such “breathing space” often file a petition in a “Chapter 11″ bankruptcy.

Inspections Make Sense

          Most new homebuyers never think about it, but it’s true.  How do all those new homes get built?

Homebuilders often use subcontractors to do large portions of their work on new homes.  A substantial portion of a Homebuilder’s work consists of coordinating the work of the different subcontractor trades.  Scheduling can become a critical issue.  If the concrete subcontractor is too busy to pour the foundation, then it’s difficult for the framer to put up the walls.  Sometimes different phases of the construction can be done in parallel.  But you’re not going to put the roof on before the walls go up.

Lack of proper sequencing by the developer can lead to odd results.  For example, what if a Homebuilder schedules the sheet metal contractor to put on the chimney caps before the chimney flues are fully finished?  It can happen.  If that kind of a sequence is followed, a house could end up with a sheet metal cap on the top of the chimney, but the flue might be only partially completed – or there might be no flue at all.

Is it possible for such things to happen?  Yes.  And they do.  So what would happen in such a situation?  The embers from a fireplace could ignite the wooden chimney box in a framed in chimney – and a house fire could result.

So how can homebuyers protect themselves from such things?  It’s difficult to detect every construction defect in new construction.  But many new homebuyers seem to think there’s no need for a home inspection on new construction, because after all, the home is brand new.  What these homebuyers don’t realize is that even though construction is new, there can still be issues or imperfections.

Insurance Coverage is Important

It’s probably safe to say that most home buyers use a loan from a bank or other lender to help pay for their house.  While some home buyers have enough money to pay cash for their home, most home buyers end up paying for their home over a period of years.  The most common way to buy a home over time is to get a loan from a bank or other lender. When this is done the buyer can pay the seller cash for the home, and then the buyer repays the lender over a period of years.

Most institutional lenders will require that a homeowner obtain homeowners insurance.  There’s a good reason for this.  The home serves as the lender’s security.  If the homeowner defaults on their loan payments, then the lender can foreclose.  However, if the home has been severely damaged from fire, storm, or other cause then the lender’s security is damaged as well.  Insurance proceeds can be used to help repair a damaged home.

Most homeowners probably buy an insurance policy and never think twice about what might happen if they ever had to make a claim under their policy for significant damage to their home.  Homeowners might not realize that an insurance company’s obligation to pay will probably be limited by the amount of coverage purchased.  If the homeowner’s coverage limit is a million dollars, then if a storm damaged their home and the damage cost two million dollars to fix, then the homeowner may end up short of cash.  This can be a significant problem.  Also, insurance policies often contain “exclusions.”  These exclusions determine the types of loss the policy will cover.  For example, if an insurance policy excludes coverage due to earthquake, then if a home is damaged or destroyed by an earthquake then the homeowner may very well not be entitled to any payout from the insurance company.

Insurance coverage questions can be quite complex.  For example, if a homeowner’s policy includes coverage for fire but excludes coverage for earthquake, then a question may arise whether or not coverage exists if a water heater falls over in an earthquake starts a fire.  In such a situation, the insurance company may claim that no coverage exists because earthquake damage is excluded from coverage.  However, the homeowner may claim that the damage was caused not by earthquake but by fire, and fire damage is covered in the policy.  Many of these types of questions have already been answered by California cases, but others remain unanswered.

When insurance coverage questions exist, attorneys often get involved in an effort to obtain insurance coverage for their clients.  These attorneys often work long and hard in an effort to obtain such coverage.  Many times such efforts are successful, but sometimes they are not.  An unusual example illustrates this concept.

Several years ago, two motorists were traveling at night on an interstate freeway in Ohio when their car struck one of a cow that had wandered onto the freeway. The motorists were injured, and they filed suit against the owner of the cow.  However, the owner had no liability insurance.

The motorists’ policy apparently provided that the motorists’ own insurance policy would cover them for injury or damage if another motorist was at fault for a collision even if that other motorist didn’t have any insurance.  Because the owner of the cows had no insurance, the motorists made a claim under their own insurance policy against their own insurance company for uninsured motorist coverage.

The insurance company denied the claim and the matter was submitted to a court for a decision.  The Court found that the motorists’ policy provided coverage for injuries caused by an accident arising out of the “ownership, maintenance or use” of an uninsured land motor vehicle. The court found that the owner of the cow had no insurance.  However, the Court had a problem with whether or not a “cow” qualified as a “motor vehicle.”   The Court’s own words are as follows:

“There appears to be no dispute that there was a collision; the cow was not insured at the time of the collision, and that the cow caused the collision.  The dispute in this case is whether the cow was a ‘land motor vehicle’ as defined in the policy. While a cow is designed for operation on land, we do not believe a cow is a “motor vehicle.”  The policy at issue does not separately define ‘motor vehicle;’ therefore we must look to the common, ordinary meaning of this term.  The American Heritage Dictionary defines ‘motor vehicle’ as, ‘a self-propelled, wheeled conveyance that does not run on rails.  A cow is self-propelled, does not run on rails, and could be used as a conveyance; however, there is no indication in the record that this particular cow had wheels.  Therefore, it was not a motor vehicle.”

For the full report of the case, see Mayor v. Wedding, (2003) WL 22931354.

The end result?  The cow won (and the motorists lost).