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Arizona Real Estate Law
by Christopher A. Combs
The following is for informational purposes
only and is not intended as definitive legal or tax advice. You
should not act upon this information without seeking independent
legal counsel. If you desire legal, tax or other professional advice,
please contact your attorney, tax advisor or other professional
consultant.
The Pros and Cons of Binding Arbitration
Question: My husband was recently transferred by his company from Milwaukee to the Phoenix area. We signed a purchase contract for a home in North Scottsdale, and deposited $25,000 earnest money. After we signed the purchase contract, however, we discovered that there is no nearby high school. Inasmuch as we have two teenage children, the location of a high school was important to us. We decided to cancel the contract, and requested the return of our $25,000 earnest money. The seller insisted that this reason for cancellation was "bogus," and refused to allow the title company to return the $25,000 earnest money to us. We went to the mediation as required by our purchase contract, and a mediator said that we should split the $25,000 earnest money with the seller. We were outraged. Under our purchase contract we are now required to go to binding arbitration with the seller, unless we opt to litigate in the court system. Our real estate agent said that she could no longer help us and that we needed an attorney, whether we went to arbitration or to litigation. Should we go to arbitration or litigation? Can we get our attorneys fees if we win in either arbitration or litigation?
Answer: Arbitration is generally quicker and less expensive than litigation. On the other hand, the disadvantages of arbitration versus litigation include the following:
1. Waiver of the right to trial before a judge or a jury.
2. Lack of full discovery proceedings, such as depositions and production of documents from the opposing party.
3. The requirement to pay the individual arbitrator’s fees, and the fee of any arbitration company such as the American Arbitration Association.
4. No right to appeal in the event of an arbitrator’s wrongful (and sometimes absurd) decision.
The "bottom line" in my opinion is that arbitration is advantageous with "small" disputes, while litigation is advantageous with larger disputes. Unfortunately, in this day and age, a dispute over the entitlement to the $25,000 earnest money is a "small" dispute, and I would recommend arbitration. In regard to attorneys fees, in contract disputes such as this $25,000 earnest money dispute the prevailing party is entitled to an award of attorneys fees, whether in arbitration or litigation.
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