Arbitration Agreements in Real Estate Purchase Agreements: Minnesota Home Talk Legal Minute, January 24/31

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My January 24 and January 31 Minnesota Home Talk Legal Minutes dealt with the arbitration agreement in a residential real estate purchase agreement.

When you sign a residential purchase agreement in Minnesota, whether you are the buyer or the seller of a home, your realtor will likely ask you whether you wish to sign an arbitration agreement.

What is Arbitration?

Arbitration is the submission of a dispute, relating to the material facts of the property, to one or more impartial persons for a final and binding arbitration.  The arbitration is a private dispute resolution system offered as an alternative to the court system.  It is not government sponsored.  If you agree to arbitration using the Arbitration Disclosure and Residential Real Property Arbitration Agreement you must use the services of the National Center for Dispute Settlement.  The parties select an arbitrator from a pre-approved list, submit written evidence and participate in a hearing which could be in person or conducted over the telephone, depending upon the circumstances.  Upon hearing all of the parties’ evidence and arguments, the arbitration renders a decision and, if the decision finds that monies are to be paid to a claimant, the arbitrator makes an award.

While the use of an attorney is not required in an arbitration, it is recommended.

The concept behind arbitrating a real estate dispute is to provide a more expeditious and cost-effective alternative to litigating the dispute.  However, in my experience, that is not always the case.  The parties must pay an arbitration fee (just as they would a filing fee in a lawsuit) and, as I mentioned above, it is advisable to use an attorney in the arbitration, which again adds to the cost.  Further, an arbitrator’s decision is typically binding, meaning that you lose many of the rights to file post-judgment motions and/or appeals as is the case with litigation.  That’s why I advise clients not to sign the arbitration agreement.

Collecting After an Arbitration Award in Your Favor

If you are a party to an arbitration proceeding where the arbitrator makes an award in your favor, you need to take steps under Minnesota law to confirm the award with the district court and have a judgment entered in your favor before you can initiate collection actions against the other party.

Minnesota Statute Section 572B.22 governs confirmation of arbitration awards.  Under this statute, after a party to the arbitration proceeding receives notice of an award, the party may file a motion with the court for an order confirming the award, at which time the court shall issue such an order unless the award is modified or corrected or vacated.  Upon granting an order confirming an award, the court enters a judgment in conformity with the award and the party receiving the award may then take advantage of the usual court procedures to obtain financial information against the other party and to pursue collection actions against the party to recover the amount of the award.

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