Dealing With Arbitration When Deal Fails
“Hold it a second,” I said to my real estate agent. “Who requests arbitration and how does it work if I have a dispute with the buyer?”
“I don’t know,” he said, “it never comes up, but I’ll find out and get back to you.” He never got back to me.
That Sunday afternoon we continued to fill out the standard forms required to list your home for sale, and the subject of arbitration, (which occupies a whole paragraph in the listing agreement) was forgotten.
Soon our agent found a couple who were thrilled with the prospect of buying our house, so they put a $5,000 deposit into escrow, and we all looked forward to that glorious event 60 days in the future when escrow would close. We would get a large check representing our equity, the buyers would move into the house of their dreams and the real estate agents would take off to Hawaii or Cancun for a few days to spend their commissions.
As is common in the fickle real estate market, escrow never closed. Worse yet, the escrow fell out on the 59th day of a 60-day escrow. Tempers flared. Fingers were pointed. The snapping and snarling started. The real estate agents did not go anywhere glamorous or exotic, but they hid out somewhere anyway.
The conflict that was to lead to arbitration had begun.
Silence prevailed between us and our buyer for three weeks. Then the mailman brought us a copy of the escrow instructions asking us to “sign off the escrow” and return the $5,000 deposit to the buyers. Promptly we returned the paperwork--with one change. We instructed the escrow company to send the buyers deposit to us because the buyers had strung us out for 59 days.
More silence prevailed. No $5,000 deposit money came our way. Then a letter arrived from the American Arbitration Assn. (also known as the AAA.) saying our buyer had requested arbitration, and we were to meet at the arbitrator’s house several weeks later.
“So that’s how it works,” my wife said to me, “the party who wants arbitration requests it.” I noticed from the paperwork that the arbitration hearing costs the requesting party $300. Apparently arbitration is yet another industry that is supported by the American dream.
When we arrived at the arbitrator’s house on the appointed day the buyers were already there. We looked at each other briefly, then the four of us occupied ourselves staring intently at various pieces of furniture or looking at the ceiling while we waited for the arbitrator to start the proceedings.
Each side presents its case to the arbitrator, who informed us he would make a ruling within 14 days and all parties would be notified by mail.
Lo and behold, the ruling came down in our favor, so immediately on receiving the letter we sped over to the escrow office to collect the loot.
“I can’t give you the money,” said the escrow officer.
“Why not?” I asked, laying the copy of the AAA letter on her desk. “It says right here that the ruling of the AAA is binding and will be upheld by the California courts.”
“That’s true, but as an escrow officer I have to adhere strictly to the law, and the law says I cannot release any funds without the written consent of all parties,” she replied.
She agreed to send a letter to the buyers asking them to release the deposit to us as the arbitration dictated. We eagerly waited for the check to come.
Three weeks passed. Four weeks passed. Still no check. After five weeks I called the escrow company to find out if the buyers had released the funds to us yet.
“Not yet, in fact they called to say you will need to go the Supreme Court of the United States before they will ever release their deposit money to you,” reported our escrow officer.
“So that’s how arbitration is perceived by our opponents,” I mused. (They had now made the transition from buyers to opponents). “They will abide by arbitration if the award is made in their favor, but not if it is made in our favor.”
Now I was completely frustrated, so I called the AAA and asked the voice on the other end: “What good is your arbitration service if we still can’t get our money even though you gave us the award?”
“Well now,” said the voice, “we only arbitrate, we do not enforce the law, neither do we practice law, but our ruling is binding and will be enforced by the California courts. Call this number and tell them you need a lawyer who specializes in real estate cases.”
A quick visit to the real estate lawyer revealed that for $85 he would send a demand letter to our stubborn opponents, and if they did not pay up within five days he would obtain a court order to make them pay up.
The demand letter was sent and on the fifth day our opponents went to the escrow office and released the funds to us.
So the next time you list your house for sale and you quickly breeze by the arbitration paragraph on the listing agreement, make sure you know where to find a good real estate lawyer.
