May 17, 2019
The Arbitration Clause in Real Estate Agreements
In the course of closing on a home or commercial real estate, a lot can come at you all at once. You’re asked to sign and initial a lot of pages of paper, and often it can feel as though you’re putting your name or initials to so many things that the particulars can slip away from you.
This is a mistake. You should always carefully examine what you are putting your name or initials to—because these amount to a legally enforceable promise.
One clause that one should be mindful about initialing in closing documents is anything that refers to automatic arbitration. Not that arbitration is bad—it has its benefits—but one should be sure that arbitration is in fact the avenue one would prefer over trial before a judge and/or jury if something should go wrong.
Disputes in real estate arise for various reasons. Perhaps a buyer may decide to walk away from the sale after signing the contract for some reason. Or a buyer may find some issue with the newly purchased property that they believe the seller intentionally hid from them during the course of the purchase. Or, in some cases, it may occur that a lien or easement is discovered to apply to the home’s title which was not uncovered in the course of a title search (which is why you should always have experts like us at Topouzis & Associates, P.C. looking into things). In these cases, if you have signed an automatic arbitration clause, trial will not be an option.
Arbitration is a less expensive route in general, so this may in fact be the way you want to go. If so, go ahead and initial that clause. But it does have its drawbacks. Among these is that, if the arbitration is binding arbitration, there is little room for appeal of an arbitrator’s decision—unless some form of fraud was committed. Even a mistake about some element of the law on the arbitrator’s part, which would offer avenue to appeal if a judge made it, is not enough to warrant appeal in arbitration. Also, discovery is limited—meaning that there is less time and latitude to dig into the evidence and information on the other side, some of which may prove vital to proving your side.
At Topouzis & Associates, P.C., we perform title searches and remedy problems with title in Massachusetts, Rhode Island, and Florida—with the aim of decreasing conflicts over title after closing. We back these services with title insurance for both lenders and owners. Contact us if you’re considering purchasing a new property, whether for yourself or as an investment, so we can help ensure that you achieve true ownership without having to deal with unforeseen hassles arising from problems created by someone else in the past—and avoid the need for either arbitration or trial.