What About Arbitration?
Mediation was covered in the last article. But, what about that other procedural step called: Arbitration? Arbitration may be either binding or non-binding. Binding arbitration, as the name implies, is indeed "binding" in the sense that it generally results in a final decision for a case. Binding arbitration may be made part of a contract or may be required by law or statute. An example of contractual arbitration is found in standard CAR purchase and sale agreements for residential real estate. Another example is found often in building contracts. An example of statutory binding arbitration is found in the uninsured motorist context. If you are hit by an uninsured motorist, your claim will be with your own auto insurance company. If claims cannot be resolved by negotiation, such cases are typically submitted to binding arbitration per the Insurance Code. Binding arbitration has been a much debated process, as it involves the waiver of certain Constitutional or statutory rights, namely right to a jury trial, right to discovery and right of appeal. The pros of arbitration are generally that it is faster and less expensive (less formal to be sure) than a trial in court before a judge and jury. The cons can be that unusual decisions may result. Many people are not aware that an arbitrator does not have to follow the law in making decisions. This may not seem important, but can lead to some unexpected results. For example, if the law requires an award of 100% of damages, plus attorney's fees, an arbitrator may or may not award 100% of damages and may or may not award some or all of the attorney's fees. This can lead to some bizarre or financially painful results. Lawyers often refer to this as the "split-the-baby" phenomenon. In other words, the trade-off for saving time and money with binding arbitration is that you may not always get all you're entitled to. Binding arbitration is not held in court. There is no "judge" or "jury". Typically, there is no court reporter (none is needed since there is no appeal and no need for record on appeal). It is typically assigned to a retired judge or experienced attorney to listen to testimony, review evidence and decide the case by way of an arbitration "award". Arbitration awards are enforceable in court by a real judge by way of motion. A party may execute on a judgment entered on a binding arbitration award, just as they would a conventional judgment.
Non-binding arbitration is very similar to binding arbitration, except that an award arising from non-binding arbitration may be rejected by a disappointed party. Some courts use non-binding arbitration to facilitate settlement and avert trial.
Many, if not most, real estate contracts contain a binding arbitration clause. Usually, the buyer and seller will have to initial this clause to make it enforceable. If it is not initialed then the parties are usually at liberty to file suit in court to resolve their disputes (sometimes subject to mediation - discussed last time). Buyers and sellers should be aware they are giving up certain rights by initialing binding arbitration clauses. The parties should be counseled before they waive these important rights.
More on real estate dispute resolution next time.