Contractor v. Owner
Mediation Case Study
– Case Description
Residential Mortgage Foreclosure mediations number in the millions over the past decade. Many government programs for home retention options for homeowners, such as loan modifications, have now expired. Banks, however, are much more streamlined and smarter than when the crisis started 10 to 15 years ago. Most lenders today have their own programs that mirror the government options available a few years ago. Further, if your loan is backed by institutions such as Fannie Mae, Freddie Mac, or the Federal Housing Authority (FHA), there are still programs in place to assist you.
The homeowner wanted to add a bedroom and bathroom to their house. He hired a General Contractor (GC) who had done work for a neighbor came highly recommended. Although the GC did not have experience with bathrooms, he agreed to take on the job on a “Cost Plus” basis with a Guaranteed Maximum Price (GMP). The GC himself drew up plans, without recommending the homeowner hire an architect.
The GC’s contract, based on a standard American Institute of Architects (AIA) contract, which required an Architect, was signed by both parties. Work soon commenced on the construction job, which the GC estimated would take nine months with permits. The owner instructed the GC not to delay the job by obtaining permits, without really understanding the impact of what non-permitting would create in the long term.
Six months later, the owner had already paid the GC almost all the GMP according to the contract, and there was no working bathroom.
The owner’s selections for bathroom fixtures were much more expensive than what the GC had contemplated. The GC informed the owner he could no longer complete the job with the GMP contained in the contract.
Work stopped on the job, and the owner hired a lawyer. A lawsuit was filed, and after a few months of back and forth on procedural issues in Court, the GC had not been paid for his last request for payment, and the bathroom was still not finished.
The Court ordered mediation. At mediation, the issues that complicated this matter for both parties were discussed. These included the GC not requring plans drawn by an architect, the issue of the owner instructing the GC to not obtain permits, and the increase in cost associated with the fixtures chosen by the owner.
After several hours, the GC agreed to complete the job for the difference in cost with regard to the fixtures that were chosen by the owner, as well as pay for the owner’s attorney’s fees.
Neither party was particularly happy with the result, but they both chose to settle, when faced with the potential cost of litigating this matter further.
Lack of communication delayed what could have been a speedy positive result for all.
The parties settled some of their issues with minimal Court intervention, and saved legal fees.
The potential cost of litigation made the parties understand settlement was better.
The parties resolved issues that were outside of the scope of mediation, as they were communicating effectively.
Mediator helped facilitate communication between the parties.
A successful mediation is one where both parties leave a little happy and a little upset at the same time. Here, the parties understood that the cost associated with litigating this further was much more than what resulted in the settlement. Not to mention, the owner finally got his bathroom, and even ended up recommending the GC to another neighbor.
Over 2,000 Mediations Conducted
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