After blowing through approximately $62 million in private investors' money, plus another $40 million from Foxtons' CEO Jon Hunt, New Jersey-based "full-service discount" broker Foxtons North America declared bankruptcy on October 5, 2007. Foxtons' sellers who were still under contract were threatened with lawsuits by the company if they canceled their listings. Then, they were stuck with no service until a hearing on October 27, when a federal bankruptcy judge sold them like slaves to other brokers.

With assets of only $488,000 and liabilities of $40.9 million (with Hunt as the largest debtor) Foxtons considered its listing contracts as assets, along with its customer databases, furniture, computers, and non-leased corporate vehicles.

According to Asbury Park Press business writer, Michael Diamond , who attended the bankruptcy proceedings, about 4,400 sellers were left in limbo between the time Foxtons filed for bankruptcy and Judge Kaplan's ruling that the listings could be sold.

The case is interesting because it introduces a question most sellers never consider -- what happens to me and my home if my broker declares bankruptcy?

If the ruling in New Jersey is any precedent, the seller loses the right to terminate the agreement -- regardless of the poor quality of services from the broker.

According to Diamond, more than 30 homeowners wrote the bankruptcy court protesting the sale of their listings to other brokers, and asking the judge to void their contracts. Judge Kaplan ruled that the homeowners are free to cancel their contracts, but that they would not be allowed to list with another company for the length of their Foxtons' contract, and they would be bound by any cancellation clauses. Such clauses can be stifling, as the broker may require being paid even if the seller lists with another company. In this case, the sellers are better off going with the new brokers assigned by the court.

Experts disagree on whether or not a contract in a bankruptcy case is enforceable, but bankruptcy courts have broad powers, says Laurie Janik, general counsel for the National Association of Realtors.

"It seems unfair to me that a seller gets stuck using the services of a broker that seller did not select," says Janick. "The judge is most likely attempting to sell the "assets' of the company in order to recover some money to pay the creditors. His alternative is to permit these sellers to re-list their properties with the broker of their choice and the value of those existing listing contracts would be lost."

Judge Kaplan, reported Diamond, said in his ruling that the listing agreements "did not fall under the law's definition of "personal contracts," meaning they were not unique to each individual homeowner."

That way the contracts could be transferred to other brokers at the same terms, including four percent commissions.

Eight brokers stepped up to buy the listings at an auction that concluded the day before the court hearing, including Maplewood Homes which paid $100,000 for the New Jersey listings in a joint venture with Century 21 Atlantic Realty, and Fillmore Real Estate, which purchased the New York listings for $110,000. Both companies are obliged to pay a 10 percent referral fee for any listings that sell.

George Castro, president of Century 21 Atlantic Realty, told the court that he was interested in the listings because of the volume and assured the court that Century 21 would honor the terms, but in an interview following the proceedings, he told a reporter that he would ask the homeowners to consider paying a higher commission to attract more buyers.

What's unnerving about this whole situation is that Foxtons' clients weren't notified about the court proceedings and learned about it only from reading the newspapers, say bloggers. They weren't considered creditors, whether or not they had paid Foxtons any money up front.

"Maybe all of us customers should send letters to the judge asking him to give us an unconditional release from our contracts since Foxtons won't take our calls or answer our emails," wrote one disgruntled blogger.

Another suggested writing Judge Kaplan directly and asking to be released unconditionally from his Foxtons' contract. (Hon. Judge Michael B. Kaplan, United States Bankruptcy Court for District of New Jersey, Clarkson S. Fisher US Courthouse; 402 East State Street, Trenton, New Jersey 08608, RE: 07, 24497.)

"Do not sit by and let the Bankruptcy Court dictate who will sell your home," wrote another blogger. "It is your choice, Foxtons is in BREACH OF CONTRACT and these contracts must be voided."

Ownership of the listing is slowly being wrested away from the seller. The Department of Justice says all listings should be shared with all MLS-participating brokers online even if that's not what the seller wants. Now, a bankruptcy court is saying that listings are an asset of the broker that can be sold.

Home sellers watching this proceeding are going to have only one takeaway -- that listing with a broker is risky.