No one likes to talk about legal action when it comes to real estate, whether it’s arbitration, mediation, or a lawsuit. Let’s face it, no agent wants to be involved in lawsuits or complaints against them and no consumer wants to have their home tied up in litigation or any serious legal problems. The fact is, it does happen. While we all work to make sure it doesn’t, legal matters do come up in the world of real estate.
There are many different ways to resolve legal conflict in real estate and it’s good to know the difference between two of them: arbitration and mediation. Often the two are confused as the same thing. Of course, as this is a real estate law discussion, we must note that we are not a lawyers. Although we deal with contracts and clients on a daily basis, we are not here to give legal advice and advise all clients (and all readers of this site) to read through their contracts carefully and seek a qualified real estate attorney if they are uncomfortable with anything they find in their contracts before signing them. Now that we’ve cleared that up, let’s continue.
A few years ago, arbitration become a buzzword in San Antonio real estate, when residents of Hills of Rivermist found themselves battling it out with Centex Homes over a hillside that began to collapse, causing damage to homes. According to news reports at the time from Tech News Bulletin News, there was a mandatory arbitration clause in the homeowners’ purchase agreements, which held the owners back from suing and forced them to use arbitration instead.
So what is arbitration? A form of alternate dispute resolution, both parties agree to submit their case to a third party and act upon their decisions (binding arbitration). Non-binding arbitration does exist, but it is more similar to mediation (see below for more on that). The decision, when passed on is legally binding for both parties.
Home builders like mandatory binding arbitration to resolve disputes because it can be quicker, more efficient, and much cheaper than a lawsuit. When it comes to home building, having your money and time tied up in the courts could be more costly than just face value of the legal action. Some opponents say it can also favor the home builder as the builder is a constant supply of work for the arbitration company, thereby weighting the judgements in their favor (this can be said about many industries that use this type of dispute resolution).
Mediation is similar to arbitration in that it involves a third party as a means of alternate dispute resolution. We use mediation quite often to resolve buyer and seller conflicts in San Antonio (and Texas overall). In Paragraph 16 of the “One To Four Family Residential Contract (Resale)” promulgated by the Texas Real Estate Commission, mediation is covered:
Paragraph 16. Mediation: It is the policy of the State of Texas to encourage resolution of disputes through alternative dispute resolution procedures such as mediation. Any dispute between Seller and Buyer related to this contract which is not resolved through informal discussion will be submitted to a mutually acceptable mediation service or provider. The parties to the mediation shall bear the mediation costs equally. This paragraph does not preclude a party from seeking equitable relief from a court of competent jurisdiction.
Using mediation to resolve these disputes allows for buyers and sellers to work with a mediator to find a middle ground to their dispute, but it is non-binding. Neither party must obey the decisions of the mediator (who works with the parties as opposed to arbitration, where the arbiter makes their decision independently of the parties) and there is still potential for legal action if the parties can not come to terms.
Mediation is encouraged as a first step to resolve any legal conflict arising from home buying and selling as it can be less costly, more timely, and resolve the issues without legal action and the mounting legal costs associated with such action. If the issues are not resolved, a real estate attorney should be contacted and options discussed from there.
image courtesy of Woody H1