*Disclaimer – I am not an attorney or legal adviser. Always consult an expert when dealing with legal matters*
When writing up a Purchase Agreement for a property in Minnesota, you will have to sign off on a line that states you have been explained the choice to use Arbitration or Litigation when resolving disputes on the purchase or sale of your home.
Many first time buyers give me the deer-in-the-headlights look when I ask them if they’d prefer Arbitration for a resolution method, so I thought this would make a good Word of The Week.
As always, let’s start with our definition:
Arbitration – Alternative to trial where parties agree to appoint an individual or panel to make a binding award or decision based on the evidence and testimony presented.
So in English, that means a single “Judge” hears both sides of the story and makes a decision on the guilt or fault of one party or the other. This is an alternative to going to court through Litigation, and in a Real Estate Transaction things can get messy at times.
The reason you get to choose what method to resolve disputes with is that there are very clear differences to Arbitration and Litigation.
Most people would agree that the pros to Arbitration are:
- Faster resolution
- Less costly
- More effective for buyers
- Less chance of appeals
Arbitration can be binding or non-binding. If the decision is binding, that means it is final, and there are no appeal. If it is non-binding, then there is the chance it can be re-tried.
Some negative aspects of Arbitration can be:
- Usually decided by one or three person panel
- No chance for appeals if you lose
- Shorter statute of limitation
- May only recover a certain dollar amount
The rules of Arbitration are flexible, but if both parties cannot agree on a set of rules, the state has a default setting to play by.
Another negative thing about arbitration in real estate contracts is that Bank-Owned Property disputes will never be resolved through arbitration. Banks are very big and powerful machines, and would be crazy to sign the arbitration agreement. Why would they risk thousands of dollars in possible damages to one person’s decision?
If you’re a First Time Home Buyer and you’re buying a foreclosure, you are more than welcome to sign the arbitration agreement, but don’t expect the bank to. And since both parties have to sign the agreement for it to be executed, you can bet 100% of the time on any disputes going to court.
And when you think about it, that’s the smartest thing for them to do. So you can’t blame the banks for that.
With a regular owner-occupied sale, it may make more sense for both the buyer and seller to agree to arbitration, especially when the damages could be as little as $500. No sense in going to court over a weeks worth of pay. And if you just wanted to get the argument over with fast, arbitration is going to much less painful than waiting for your day in court.
Hopefully that sheds a little light on this subject. And as always, seek legal adivce when you have questions about which route to take.
It’s absolutely essential that consumers become familiar with both the potential benefits and pitfalls of the arbitration system. One of the scariest drawbacks is that there is no public record of arbitration proceedings – meaning that builders and other businesses that routinely short-change consumers can use mandatory arbitration clauses to keep disputes with their customers private.
Ehren Bragg