Stellar, Home Buyer in Los Angeles, CA

arbitration vs court

Asked by Stellar, Los Angeles, CA Thu Jan 6, 2011

the sales didn't go through because the buyer could not get the loan. Now both seller and the buyer want the deposit. it seems like arbitration or court is the only option. any comments?

what is the difference between arbitration vs court? Do both of the disputing parties have to agree to participate the arbitration?

Where can I learn more about real estate law in a short period of time, so that I can defense myself?

Thank you

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You could learn a lot from a lawyer in a short period. You should probably talk to one. If your contract does not already provide for arbitration the parties will have to agree to it now. Does the contract limit damages in case of a dispute? Since you don't know the answer to these questions you should have an attorney review your contract and contract documents and get a legal opinion instead of a Trulia opinion.
1 vote Thank Flag Link Thu Jan 6, 2011
Stellar,

No fun! Sorry you are dealing with this...There are a lot of questions that I have to give you the best answer but based on what you have shared I will help you all I can...

IF you have a REALTOR my first advise is to arrange for a face to face meeting with that agent and the BROKER OWNER of the company and possibly even the other agent and owner if it is a co broke situation...There could be a possible win win for this if everyone could get on the same page and communicate...

Yes, there is a difference in arbitration and court, however, they both will cost you time and money. In NC funds that are disputed are immediately held by an attorney until all parties agree for settlement by arbitration and if that does not lead to a solution the case CAN and often will end up in court. Sadly, costing more than the money in question...

Agent or not...Read the CONTRACT that you signed SLOW and CAREFULLY...Most often if a loan does not approve the buyers good faith is returned...EVERY STATE is different so GOOGLE your STATE laws, call the Real Estate Commission in that state that the contract was drafted on if applicable...Have a GOOD REALTOR help you and or get an attorney. GOOD LUCK!
1 vote Thank Flag Link Thu Jan 6, 2011
Hi Stellar, regarding:

"the sales didn't go through because the buyer could not get the loan. Now both seller and the buyer want the deposit. it seems like arbitration or court is the only option. any comments?"

Nobody responding to your post has all the details of the transaction, so definitively stating an opinion is up to a lawyer that has reviewed ALL of the details concerning what transpired.

However, you should be aware of the following as you move forward:

Assuming you are using the most recent CAR Residential Purchase Agreement (4/10), here are a some, NOT ALL, of the ways a Buyer may “back out” (possibly losing their deposit, or not) of a contract, or cause the Seller to cancel** (again with the Buyer possibly losing their deposit, or not), a "fully ENDORSED contract" (read your contract for clarity as far a timelines are concerned):

Escrow Close (Para 1D)
Escrow Deposit (Para 3A)
Inc. Escrow Deposit (Para 3B)
Verification of Down Payment/Closing Costs (Para 3G)
Loan Pre-Approval (Para 3H1)
Loan contingency removal (Para 3H3)
Appraisal contingency removal (Para 3I)
Seller Condo/PUD Disclosure (Para 7A)
Seller HOA Docs Request Deadline (Para 7B)
Seller Reports (Para 14A)
Inspections contingency removal (Para 14B1)

**Note that in order for the Seller to cancel the contract a Notice to Perform must be submitted to the Buyer first. Likewise, Buyer may give Seller a Notice to Perform if Seller has not delivered contractual items within the time specified in the contract.

One of the primary changes in the 4/10 version of the CAR Residential Purchase Agreement was the specifically-stated incorporation of acting in “good faith”. Definition: http://research.lawyers.com/glossary/good-faith.html If the Seller believes you have not acted in good faith they can certainly make a claim for damages against you. Again, definitively stating an opinion on whether you have legal exposure regarding “good faith” in your specific case is up to a lawyer at this point.

While “good faith” is assumed throughout the contract, these sections specifically refer to “good faith” (capitalization added by poster):

3H. Loan Terms; (2) Loan Contingency: Buyer shall act diligently and in GOOD FAITH to obtain the designated loan(s). Obtaining the loan(s) specified above is a contingency of this Agreement unless otherwise agreed in writing. Buyer's contractual obligations to obtain and provide deposit, balance of down payment and closing costs are not contingencies of this Agreement.

14. Time Periods; Removal of Contingencies; Cancellation Rights: The following time periods may only be extended, altered, modified or changed by mutual written agreement. Any removal of contingencies or cancellation under this paragraph by either Buyer or Seller must be exercised in GOOD FAITH and in writing (C.A.R. Form CR or CC).

14F. Effect Of Cancellation On Deposits: If Buyer or Seller gives written notice of cancellation ….A Buyer or Seller may be subject to a civil penalty of up to $1,000 for refusal to sign such instructions if no GOOD FAITH dispute exists as to who is entitled to the deposited funds (Civil Code §1057.3).


"what is the difference between arbitration vs court? Do both of the disputing parties have to agree to participate the arbitration?"

I would suggest you review Kenny’s blog post as it’s somewhat rare to have a lawyer’s perspective here on Trulia. The direct link is: http://www.kennytanlawblog.com/tp-100724063949/post-10122114…


"Where can I learn more about real estate law in a short period of time, so that I can defense myself?"

Time may be of the essence in this situation. If so, I would seriously consider speaking with a lawyer at this point (especially if your deposit is greater than the statutory limit of CA Small Claims Court, $5K or $7.5K depending on whether you are suing a corporation or individual – see Para 26C(1) of your purchase contract).

At the very minimum, if your Agent is a Realtor® they are a phone call away to free legal advice from CAR’s lawyers concerning your situation. Between your Agent and their Broker you may be able to cobble together a solution (hopefully you were not in a single-agent dual-agency situation).

Best, Steve
0 votes Thank Flag Link Fri Jan 7, 2011
Stellar,

Was the standard C.A.R. purchase contract used and if so was the section on arbitration initialed by both parties? If so, other than exclusions in section 26C I believe you are bound to start with mediation then binding arbitration. Mediation often works if one party is clearly in the wrong because the mediator will hammer on them how much it's going to cost to go to court or arbitration, and it's much cheaper than either arbitration or court. Arbitration is usually cheaper than a lawsuit, although not as much as people think, and with arbitration you are stuck with the decision.

As others have mentioned you definitely need to seek legal counsel. Find an attorney who specializes in this area of law. We don't practice in your area but perhaps some of the others can make some attorney referrals.

Best Regards,

Lance King/Owner-Managing Broker
lance@fixedrateproperties.com
415.722.5549
DRE# 01384425
0 votes Thank Flag Link Fri Jan 7, 2011
Stellar -

All good comments below. Definitely consult with a lawyer after gathering all the information suggested below.

A couple of additional points to make; mediation tends to be the least expensive and least time consuming if all parties agree to mediate. Arbitration is not necessarily less expensive then court if all hire attorneys but typically takes less time due to court schedules. Arbitration is binding, so what agreements are made stick.

Best of luck to you. I wish for a speedy and appropriate resolution.
CJ
0 votes Thank Flag Link Fri Jan 7, 2011
Dear Stellar

Besides arbitration or court, mediation is always available and in my view is the best option of all three.

Two weeks ago I wrote a blog here regarding arbitration v. Court. I hope you can read it for yourself. The blog is based on my years of experience as a real estate litigator.
0 votes Thank Flag Link Thu Jan 6, 2011
Hi Stellar,

Elizabeth gave you good advice. Your contract has all this spelled out. We are not attorneys and they are the experts who can and should give you advice. Some of the questions you should be looking for in the contact are;

Did both Buyer and Seller initial Arbitration?
Did both Buyer and Seller initial Liquidated Damages?
Did the Buyer remove their loan contingency in writing?
Your escrow officer is an agent individually for this transaction and if both parties can not agree to the deposit they may file for an interpleader action.
The questions which will come; is the seller due damages? Will the seller request specific performance. How much more will court cost vs arbitration.

If you used the C.A.R. contract mediation is automatically in the contract and depending on the deposit amount may be the first choice most parties look to. Mediation is not binding.

If Arbitration was selected the contract states it is binding.

As Elizabeth suggested, a meeting with the agents and Brokers is a good start.

Sorry you were unable to get your loan. I wish all parties a favorable outcome.
Web Reference: http://terrivellios.com
0 votes Thank Flag Link Thu Jan 6, 2011
Stellar, arbitration is before a mediator and court... well, that means you have to get in front of a judge and have attorneys and everything. Unless there is a very large deposit at stake here, you want to arbitrate, or even better, come to an agreement outside of arbitration. This situation should be pretty easy to figure out based on the contract because this is a very common thing to happen. If the buyer did not remove financing (or appraisal or inspection or disclosure) contingencies, they can get their deposit back. If they waived all of their contingencies and still want to back out, then the Seller can go after the deposit. I don't suggest defending yourself in this case-- talk with your agent and his/her broker. If you are working with the seller's agent, however, you might want to hire a real estate attorney to look over the agreement for you.
0 votes Thank Flag Link Thu Jan 6, 2011
You need to speak to an attorney or at least a free legal aid service, not a website! Your contract probably specifies if you go to court or arbitration.


Best

Richard Schulman
http://www.RichardSchulman.com
0 votes Thank Flag Link Thu Jan 6, 2011
Read your contract under the financing contingency.

Although licensed in CA, WA, ID & MT, I'm not current on the California contracts, as I practice solely in WA, ID & Montana.

Our contracts specify the transaction is contingent upon the buyer successfully receiving acceptable financing, and "acceptable" is spelled out, terms, interest rate, etc. If the buyer does not qualify for the financing, he is entitled to his earnest money back. Clearly states this on the Purchase & Sale Agreement.

Read the contract carefully, and IF you feel that you are entitled to your Earnest Money, tell your agent to point out where in the contract it states you're entitled to your Earnest Money to the Seller's agent. If the Seller does not want to release your Earnest Money, then you WILL take the issue to court if it is not returned by a certain date. This is, of course, IF you are entitled to it after reviewing the contract you signed.

If you cannot understand the contract, find a good real estate attorney to explain your rights.

Although, only a few states in the US utilize the services of real estate attorneys during an escrow, it's always money well spent to have a real estate attorney review your entire transaction, and advise you. What is $200 to $500 when spending $500,000.00?? I say, money well spent! :-)

Good Luck with your issue!
0 votes Thank Flag Link Thu Jan 6, 2011
Read your contract! It is likely that you have already agreed to arbitration.

However, having said that there is a famous saying that goes something like this. A client that represents himself has a fool for a lawyer (or something similar). Anyway, get a lawyer you will be better off in the long run.
0 votes Thank Flag Link Thu Jan 6, 2011
Read your contract! It is likely that you have already agreed to arbitration.

However, having said that there is a famous saying that goes something like this. A client that represents himslf has a fool for a lawyer (or something similar). Anyway, get a lawyer you will be better off in the long run.
0 votes Thank Flag Link Thu Jan 6, 2011
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