Mandatory Redemption Arbitration


group of people negotiate at the deskWhen a former owner (after tax sale or lender-foreclosure) asks for a statement of the charges necessary to redeem, that starts a mandatory arbitration process.  Most of you know about the ten day rules, but you don’t really understand how important they are. If you remember the statutes set out a mandatory arbitration process (which is what the courts call it) then you’ll take these things more seriously.

The word “mandatory” usually carries with it some sense of a “punishment” if you don’t do what you are supposed to do. That’s how it works with redemption and mandatory arbitration.  Miss your deadlines, and you will be punished.

After a request for lawful charges, the investor has 10 days to provide an itemized list.  The value of “permanent improvements” in the case of a lender-foreclosure or some tax sales, or “preservation improvements” in the case of the tax sale of a property containing a residential structure, can be lumped together as one line item.

If the investor misses its 10-day deadline, it loses the right to be paid the value of the improvements.  In other words, no arbitration because the “statute of limitations” expired.

Once the former owner receives the list of lawful charges, it has 10 days to dispute them. The only way to dispute them is to appoint a referee and notify the investor of the referee’s name and contact information.  In other words, the former owner disputes the charges by proceeding to arbitration.  The way to proceed to arbitration is to appoint a referee. Referees can be anybody–appraiser, real estate agent, lawyer, your mother, the fry cook at McDonalds. Doesn’t matter.

If the former owner misses its ten day deadline, it loses the right to dispute the value of the improvements.

Once the investor receives the name of the referee, it has ten days to appoint its own referee. If the investor misses this deadline, it is not entitled to receive the value of the improvements.

The two referees meet and come up with a value.  If they agree, then the investor and former owner are stuck with that number. Because it is mandatory arbitration, that’s why!  It’s not just some silly process you have to go through.

If the two referees cannot agree in ten days, they must appoint an umpire. The umpire does not come up with its own value. The umpire is a tie breaker. If the two referees miss their deadline, nothing bad happens to the investor or former owner. They can’t control the referees, so they ought not be punished for the referees failing to do their job.

I could not find any cases discussing this, but if the umpire sides with one of the referees, then I THINK all parties are stuck with that number. Because it is mandatory arbitration. It was a real “Ah Hah!” experience for me when I read late 19th-century cases that all talked about the mandatory arbitration statutes. It changed how I thought about some things, such as the umpire’s decision. I hope it clarifies some things for you, also.