Residential Real Estate Dispute Resolution in Oregon

Posted on by Phil Querin

Most folks don’t review their health and life insurance policies until they need to. The same holds true of the dispute resolution provisions of the statewide sale agreement. As long as there is no intractable dispute, it’s likely this section of the Sale Agreement is never reviewed.

During the creation of the statewide sale agreement form twenty years ago,[1] alternative dispute resolution was just coming into its own. There were naysayers back then, mostly attorneys, who believed justice could not be rendered without a full blown trial – and even better if there was a jury empaneled. Many lawyers have since seen the light, and alternative dispute resolution has now become a fairly accepted process.

To begin, when a dispute arises under the Sale Agreement, there are three available “forums” for resolution, assuming the parties cannot reach an amicable settlement agreement.

1. Small Claims Court. If it is a monetary claim, say over who gets the earnest money deposit, and the amount at issue is $10,000 or less, the matter must be filed in Small Claims Court. The jurisdictional limit is $10,000. 

Most, if not all, small claim courts have mediators that can help the litigants try to resolve the case without submitting it to the judge. If no mediated agreement can be reached, the matter is heard by a judge, whose decision is non-appealable.

What this means, for better or worse, is that the judge can make an error, or an arbitrary decision, and that’s just too bad. This is not to say that this routinely occurs, but there is risk. For example, say the buyer clearly failed to perform, and the sale failed. Since the parties could not agree upon the disposition of the earnest money deposit, it is left to the judge to decide.  But as most real estate brokers know, the sale agreement provides that if the buyer defaults in their performance, their deposit is “forfeited” to the seller. In game theory terms, it is a “zero-sum” event; there is one winner and one loser.

But notwithstanding the terms of the contract, a small claims court judge could decide to split the deposit in some fashion, between seller and buyer.  Some might argue that this

Solomon-esque decision may have been the fairest result, and so it’s OK. Others, who, like me, may prefer predictability, i.e. following the rules pre-agreed upon under the terms of the contract.

The judge’s decision results in a money “judgment”, which is enforceable as any other judgment, i.e., it can act as lien upon any real property the judgment debtor owns in the county in which it is registered. The judgment can also provide the basis for a garnishment of the judgment debtor’s wages or bank accounts.  Once paid, the judgment creditor is required to file a “satisfaction of judgment” on the public record. Unpaid judgments can last for ten years, and be renewed for another ten.

2. Mediation. Under the sale agreement, disputes exceeding $10,000, or seeking non-monetary relief, such as specific performance, an injunction, or other “equitable” remedies, must start first in the mediation. The Portland Metropolitan Association of Realtors® has its own mediation service, so if one or both of the brokers are members of that Association, the procedure must be filed there. For all other Realtor® boards or associations in Oregon, the mediation must be commence through Arbitration Service of Portland (“ASP”). 

Selection of the mediator is similar for both mediation and arbitration.  First the matter is filed using ASP’s the online claim form and paying a fee. Then a list of available mediators is provided to the parties, who independently and confidentially select their preferred choices. ASP selects the mediator, the parties are notified, and a hearing is scheduled.

The primary thing to remember is that mediation is a necessary pre-condition in the dispute resolution process.  Before or contemporaneously with the filing for arbitration, a party must first “offer or agree” to mediate.

Thus, the only way for one to skip the mediation process is to formally offer to mediate with the other side, who refuses to engage in it, and wants to go straight to arbitration.  However, the disincentive for a refusal to mediate is severe; if the arbitrator finds in favor of the party who refused to first mediate, that party will be denied the recovery of prevailing attorney fees.

There occasionally are situations in which time is of the essence, and an arbitration must be filed immediately, without waiting for a mediation hearing. Two good examples are (a) when the statute of limitations is about to expire[2]; or the claimant is seeking specific performance, and needs to record a lis pendens[3] on the subject property,[4] in order to prevent the respondent from transferring or encumbering title.  In such situations, the claimant should file for both mediation and arbitration, then abate the arbitration process until the mediation has been completed. The only extra cost of this double-filing is the extra (non-refundable) fee to start the arbitration – which may become necessary if the parties reach a mediated settlement.

In most cases, mediation is a useful tool, as statistically, there is a reasonably good chance of settlement, thus avoiding costly and time consuming arbitration. For a description of the mediation process, see my post here.

3. Arbitration. This is the last step in the dispute resolution process. It differs markedly from mediation, in that a neutral third party, i.e. the arbitrator (or arbitration panel of three) make(s) the final decision. No longer is the outcome the result of the parties’ efforts to settle, as in mediation. 

This process is similar to court in several respects: (a) The Oregon Rules of Civil Procedure apply, unless altered by the rules of ASP; (b) Standard evidentiary objections are permitted, although many are substantially relaxed or eliminated; (c) The standard protocols of how testimony is taken remain, e.g. Claimant (i.e. Plaintiff) goes first, and Respondent (i.e. Defendant) goes second; (d) Attorney fees and costs are generally awarded to the prevailing party.

The big differences are that: (a) There are no formal “pleadings, i.e. complaints, answers, etc., which saves a huge amount of time; (b) The matter is heard and decided by one or more one arbitrators – there is no right to a jury trial, and (c) There is no right to appeal from an arbitration award.[5]  But if it becomes necessary for one party or the other to turn the award into a judgment, there is a process to do so through the court system. (See, ORS 36.700.)

The arbitration proceeding does not occur in a courtroom; it usually is in a conference room, and is much more informal than court, with the rules of evidence greatly relaxed.

So why arbitrate rather than go to court? Because, assuming the parties cannot reach a mediated settlement, it is faster and cheaper.[6]  Plus, the parties can select from a list of alternative arbitrators, all with real estate backgrounds. With a judge, the parties are at the whim of a presiding judge who assigns cases out. The assigned judge may have no real estate background whatsoever.

So, for my money, the mandatory mediation and arbitration process runs circles around the litigation process. One only has to prepare for a full blown trial, with pleadings, motions, jury instructions, etc., and then have it postponed because the judge is not available on the scheduled date, to become a true believer in the certainty and efficiency of alternative dispute resolution. ~Phil  

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[1] I represented the forms provider, OREF, since its inception in 1997 through 2017.

[2] Per the terms of the Sale Agreement, filing in arbitration “tolls”, i.e. stops, the running of the statute of limitations.

[3] See, ORS 93.740.

[4] The Sale Agreement provides that the filing of arbitration will permit the claimant to record a lis pendens.  Both of these innovations (tolling the statute of limitations and permitting the recording of a lis pendens), which were enacted twenty years ago when I recommended it to the OREF Forms Committee for inclusion into the statewide sale agreement form. They have since been adopted (read: “copied”) by the creators of other legal forms.  (Imitation certainly is the sincerest form of flattery!) This was far faster than trying to get statutes rewritten to recognize the advent of arbitration in dispute resolution.

[5] There are very limited bases to modify or correct an arbitration award, but they are strictly limited. (See, ORS 36.690.)

[6] For example, if the parties cannot agree upon a procedure, rather than setting it for briefing and oral argument before a judge several weeks away, it can be scheduled with the arbitrator almost immediately via conference call.

Posted in Alternative Dispute Resoluton, Arbitration, Mediation, Miscellany, Real Estate General, Realtor Risk Management, Realtors, Residential Housiing | Tagged , , ,
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