The Supreme Court, in a 5 to 4 decision, has okayed the use of mandatory arbitration to settle mortgage financing disputes.

Arbitration is a process where both sides in a dispute agree to submit their claims to a neutral third party, such as the American Arbitration Association. Arbitration clauses can be written into virtually any agreement, and if "binding" the arbitrator's decision cannot later be appealed to a court. The attraction of arbitration, say supporters, is that it's faster than the clogged court system and reduces legal costs for all parties.

Larketta Randolph financed a mobile home through Green Tree Financial Corp. Within the mortgage agreement was a requirement to maintain mortgage insurance, a term which Randolph said had not been disclosed. When she sued Green Tree, a lower court ruled that she had no right to sue because the mortgage agreement required that disputes must be settled through mandatory arbitration.

Randolph appealed the initial decision, arguing that it was unfair to require arbitration when the costs of this process were not set out in advance. The 11th U.S. Circuit Court of Appeals in Atlanta supported her view, and the case was subsequently appealed to the Supreme Court.

In Green Tree v. Randolph the Supreme Court ruled that "Randolph’ s agreement to arbitrate is not rendered unenforceable simply because it says nothing about arbitration costs."

"To invalidate the agreement would undermine the liberal federal policy favoring arbitration agreements," said the Court, referring to recent trends favoring arbitration rather than lengthy court battles.

Generally supporting Randolph were consumer groups and trial attorneys.