Formal dispute resolution in residential real estate in Oregon usually means being involved in a Mediation/Arbitration process. If, however, the dispute involves a claim for $5000 or less, the dispute is heard in a small claims court. Disputes between buyer and seller are treated differently for dispute resolution purposes than disputes involving licensees and firms. This is the case because the vast majority of residential real estate transactions in Oregon are accomplished using the same REALTOR®-developed sale agreement forms.
The commonly used residential sale form contains five clauses that apply to dispute resolution involving seller and buyer only. A single additional clause is provided for dispute resolution involving licensees or firms. The first of the five clauses dealing with buyer/seller disputes defines the disputes subject to the dispute resolution provisions of the contract. This clause, in effect, contains the parties’ agreement to forego their existing legal rights in favor of those contained in the contract. With the exception of a few narrowly defined disputes involving mortgages and landlord/tenant actions, the parties agree that all disputes will be resolved using the procedures and processes set out in the contract.
The first of the procedures and processes dictated by the contract is that all disputes within the jurisdiction of the Small Claims Court “shall be brought and decided there, in lieu of mediation, arbitration or litigation in any other forum.” Essentially, the parties agree that any dispute involving a claim of damages of $7500 or less will not be mediated or arbitration or litigated. Instead, it must be heard in a Small Claims Court. Small Claims Courts are state courts controlled by state statute.
Small Claims Courts are divisions of state Circuit Courts. They are authorized and controlled under chapter 46 of the Oregon Revised Statutes. Small Claims Courts are intended to be inexpensive and efficient. Not surprisingly, lawyers are banned from Small Claims Courts except by leave of the court. The cost of pursuing a small claims action is modest compared to filing suit in Circuit Court actions. Small Claims procures are specifically designed for use by ordinary citizens.
Buyer/Seller disputes beyond the jurisdiction of Small Claims Courts are subject to mediation as set out in the third clause of the dispute resolution provisions of the sale agreement. The mediation provision is a source of considerable confusion, especially among lawyers unfamiliar with its provisions. The mediation clause says that mediation must be in accordance with the procedure of a Home Seller/Home Buyer Mediation Program established by the National Association of REALTORS® or “other organization-adopted program” if the buyer or seller was represented by a REALTOR® and such a mediation program is available through the REALTOR’S® local board or association.
If the local board or association does not have a Home Seller/Home Buyer Mediation Program (and most don’t), the person filing for mediation can choose a state-wide real estate mediation program developed by Arbitration Services of Portland or “any other impartial private mediator(s) or program(s)” available in the county in which the property is located. Information on the Arbitration Services of Portland program can be found on their webpage at:www.arbserve.com. Just click on Real Estate Sales (in REALTOR® printed forms). The form for filing for mediation can be had by clicking on Request for Mediation.
Arbitration between buyer and seller is detailed in the fourth of the buyer/seller dispute resolution clauses found in the sale agreement. The clause requires that “[a]ll Claims between Seller and Buyer that have not been resolved by mediation, or otherwise, shall be submitted to final and binding private arbitration in accordance with Oregon Laws.” Oregon laws dealing with private arbitration are found in chapter 36 of the Oregon Revised Statements.
There are no board or association managed arbitration programs for buyers and sellers. That being the case, the parties are given the choice of either using the Arbitration Services of Portland or “any other professional arbitration service that has existing rules of arbitration, provided that the selected alternative service also uses arbitrators who are in good standing with the Oregon State Bar, with expertise in real estate law and who can conduct a hearing in the county where the property is located.” Information of the Arbitration Services of Portland program can be found on their webpage at: www.arbserve.com. Just click on Real Estate Sales (in the section REALTORS® printed forms).
Private arbitration is intended to be faster, less formal and less expensive than civil litigation. Arbitration advocates also point to the use of arbitrators with specific industry or legal expertise as a significant plus. In recent years, private arbitration detractors, have cast doubt on each of these claims. In addition to concerns about the speed, cost and efficacy of private arbitration some challenge the fairness of arbitration programs. They point to the difficulty of appealing arbitration decisions as evidence of the unfairness of the system.
Concerns with the efficacy and fairness of consumer contract mandated arbitration have lead to disclosure concerns. Many, including at one time the Real Estate Agency, believe that existence of a private arbitration clause in a consumer contract must be disclosed to the consumer before they enter into the contract. As the consumer’s agent, disclosure falls to real estate licensees. To meet disclosure concerns, the arbitration clause in the sale form contains the following all caps disclosure:
“BY CONSENTING TO THIS PROVISION SELLER AND BUYER ARE AGREEING THAT DISPUTES ARISING UNDER THIS AGREEMENT SHALL BE HEARD AND DECIDED BY ONE OR MORE NEUTRAL ARBITRATORS AND SELLER AND BUYER ARE GIVING UP THE RIGHT TO HAVE THE MATTER TRIED BY A JUDGE OR JURY, THE RIGHT TO APPEAL AN ARBITRATION DECISION IS LIMITED UNDER OREGON LAW.”
It is a good practice for agents to point out the dispute resolution clauses to their clients and have the client read the disclosure. Some companies go as far as having the client initial the arbitration disclosure clause in the margin of the contract.
The final clause in the buyer/seller dispute resolution provisions deals with attorney fees. Under Oregon law, attorney fees are available in a contract dispute only if the parties have agreed they will be available. It is in this fourth clause that the buyer and seller agree the prevailing party in any “suit, action or arbitration (excluding those Claims filed in Small Claims Court)” will be entitled to attorney fees and costs. There is, however, a catch. The catch is the prevailing party must prove to the satisfaction of the judge or arbitrator that they “offered or agreed in writing to participate in mediation prior to, or promptly upon, the filing in arbitration or court.” Thus, attorney fees are used to encourage the parties to engage in mediation.
Until recently, the buyer/seller dispute resolution procedures (Small Claims Court, mediation, arbitration and attorney fees only if the party agreed to mediation) applied to all disputes, including those involving the agents or their firms. Under the current version of the sale agreement form, disputes involving licensees or firms are subject to different procedures. Such disputes are still required to go to Small Claims if the dispute is within the jurisdiction of that Court; mediation is not, however, required.
Arbitration of disputes involving licensees or firms is required using the same arbitration procedures as buyer/seller disputes. Arbitration must be used in lieu of litigation in any other forum. This arbitration requirement does not apply to REALTOR®/REALTOR® disputes covered by the Code of Ethics. It also does not apply if the licensee or firm has agreed to some other process in a listing or buyer service agreement or the licensee is the buyer or seller.
The new licensee or firm dispute resolution clause expressly replaces and supercedes the alternative dispute resolution and attorney fee provisions that apply to buyer/seller disputes. What that means is that the prevailing party in a suit against a licensee or firm is not entitled to attorney fees or costs. The provision replacing and superceding the provisions of the buyer/seller dispute resolution procedures is in bold print. There is, however, no express disclosure or warning regarding the consequences of the clause.
Embedding dispute resolution clauses that concern licensees and firms in a contract between a buyer and seller raises difficult legal issues. First, there is the problem that ordinarily agents are not parties to their client’s contracts. Fortunately, arbitration laws are written broadly enough that a formal contractual relationship may not be needed to support an agreement to arbitrate. Nevertheless, agents should keep in mind that any provision defining their rights in a contract of which they are not party to, has the potential to create legal issues.
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