Real Estate Investing

It’s in the best interest of real estate agents to gather once or twice each month to talk about the housing market, community news, and legal issues.  My former broker once said that he couldn’t afford the liability of carrying agents who don’t attend meetings because they don’t hear the updates on what’s new and how to handle different situations morally, ethically, and legally.

That said, a colleague brought one issue to the room that was teeming with knowledgeable agents … a little clause in a new construction contract by a builder that is actually quite well-known across the country.

The contract stated something to the effect of buyers having the right to seek arbitration should they have problems with the home or contract, but that they GIVE UP THEIR RIGHTS TO A TRIAL.  In fairness, most builders do state that conflicts shall be resolved through arbitration, but rarely are they so specific that they spell out the fact that buyers give up their rights to a jury trial.

In California, the Castleman Law Firm specifically addresses the concern,

If a provision for binding arbitration is included in a printed contract, it must be set out in at least 8-point bold type or in contrasting red in at least 8-point type, and if the provision is included in a typed contract, it shall be set out in capital letters.

Immediately before the line or space provided for the parties to indicate their assent or nonassent to the arbitration provision, and immediately following that arbitration provision, the law requires the following language to appear:

“NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.” “WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION TO NEUTRAL ARBITRATION.”

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This may be the cause for the one builder to have it so clearly spelled out here in the Tennessee contracts.  However, whether it’s this specific or not, buyers should be wary of the language that limits their legal rights to arbitration only (e.g., “binding” arbitration).  You have the right to cross it out, though it’s likely that builders may say that if you don’t sign it they won’t sell to you.  If that’s the case, perhaps it is advisable to walk away.

In any case, if there’s anything in the contract that give you reason to pause, be encouraged to take the contract to a real estate attorney for review.  Don’t get caught in a trap where you have no legal recourse.

As a side reference, here’s a link to an article about California’s Arbitration Lemon Law.  Cartoon from this site!