Who Pays Attorney Fees and Costs?

Posted on: April 17, 2014


If you do have a dispute when you’re buying a home, who pays attorneys fees and costs? Sometimes, this is dictated by state law, but in other cases, the terms of your purchase and sale agreement can determine who pays costs. If you’re writing dispute resolution language into your contract, you may as well outline who is going to pay attorney fees and costs in the event of a dispute. However, be careful about the wording of the clause; some language can put you in an unpleasant position even if you “win” the legal action.

Loser Pays

Standard language governing attorney fees is included by default in many purchase and sale agreements. This language typically says something like:

“The prevailing party in any legal proceeding brought under with respect to the transaction described in this contract is entitled to recover from the non-prevailing party all costs of such proceeding and reasonable attorney fees.”

Underneath the legalese, this basically says that the loser pays the attorney fees and any costs associated with filing and pursuing the legal action. Unfortunately, this standard language has a little twist that the uninitiated may not expect.

Who is the “Prevailing Party?”

In theory, the prevailing party is the party that wins the dispute. However, through the course of litigation, both parties may file claims and counterclaims, or may give up these claims at various points. By the time a judgment is reached, one or both parties may have scored both wins and losses.

Financial outcome can determine “prevailing party,” even if the legal outcome implies otherwise. For example, you may claim $8,000 in environmental damages for an undisclosed leaking oil tank. Maybe the seller offers to settle for $5,000 in pretrial negotiations. You refuse, and you win a court award of $6,000.

While winning the court award may seem to make you the “prevailing party,” in some states, your financial outcome may be required to exceed the seller’s settlement offer by more than 25 percent. An award of $6,000 is less than 25 percent above $5,000, so you may not be regarded as the “prevailing party,” even though the award was in your favor. In this case, you could be required to pay attorney fees and costs. Be careful with this type of language in your contract.


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