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Supreme Court Upholds Foreclosure Exception Arbitration Agreement

Saturday, June, 13, 2015

The Tennessee Supreme Court recently reversed a lower court’s ruling that a purchaser and manufactured home builders arbitration agreement was unfair and could not be enforced, allowing the purchaser to bring a lawsuit against the homebuilder.


The home in question was purchased by Mr. Richard A. Berent from a home manufacturer. Mr. Berent contractually agreed that any disputes would be settled through legally binding arbitration in an effort to save everyone involved time and money.


Immediate Maintenance Problems


It was not long after his purchase that Mr. Berent noticed drainage issues in the home, as well as mold and several other problems. He filed a lawsuit claiming faulty installation. The manufacturer requested the court compel arbitration, citing the arbitration clause in the contract.


Mr. Berent responded that the arbitration was invalid because it unfairly favored the homebuilder. Despite the agreement to arbitrate any dispute, the homebuilder was still permitted to file foreclosure proceedings in court. The court agreed with Mr. Berent, the homebuilder appealed the ruling, and the Court of Appeals upheld the trial court’s decision.


Supreme Court Hears Case


The homebuilder took the appeal to the state Supreme Court and argued “the precedent upon which the lower courts relied was no longer good law.” The Supreme Court disagreed and ruled in favor of Mr. Berent, calling the arbitration clause one-sided.


The Supreme Court did state that the agreement applied equally to both parties, finding the foreclosure exception was narrow and reasonable and that courts are best suited for dealing with foreclosures.


Ultimately, the court upheld the arbitration agreement, but allowed for the limited exception of foreclosures and stated the agreement was enforceable. The case will now proceed to trial