Bankruptcy
Debtors Challenge Moot Rule

Roger and Christine Fearing of Woodland Hills California, filed bankruptcy to rebuild their lives.

Instead, they are in the Supreme Court trying to stop bankruptcy trustees from using the system to steal people's homes.

In 2002, a bankruptcy trustee sold the Fearings' home without legal authority, and the appealate courts told the Fearings, essentially, too bad, the home is gone so there is nothing that can be done.

Real Estate Theft in the Bankruptcy System

Christine and Roger owned a business, owned a home, and found themselves in financial troubles, so in 2000, they filed a Chapter 11 Bankruptcy to restructure the business.

In their bankruptcy petition, the Fearings made the declaration allowed by law, to keep their home under the law's homestead exemption.

In July 2002, the Fearings’ converted their case to a Chapter 7, which is a type of bankruptcy commonly used by people to erase all their debts while allowing them to typically keep their home and a car so they can rebuild their lives.

But the bankruptcy trustee handling the Fearing case sold the home and when the Fearings challenged it as illegal, the circuit court told them nothing could be done because the house was gone. That court applied the Moot Rule.

The Fearings are seeking from the U.S. Supreme Court a decision on whether the lower courts have been correctly applying the Moot Rule when it denies debtors due process of the law regarding their property wrongfully sold by bankruptcy trustees.

In their legal briefs, the Fearings assert that bankruptcy trustee David Seror listed their home for sale at a price below what was owed against it and that within six hours of the debtors filing a motion to stop the trustee, the trustee’s broker notified the debtors that their home had been already been sold.

The trustee argued in court that he was legally entitled because he had a court order.

The 9th U.S. Circuit Court of Appeals affirmed the dismissal of the debtors’ appeal. (In re: Fearing, Nos. 03-56549, 04-55298) court ignored their homestead exemption and allowed their home to be sold by a trustee free and clear of their exempt interest in the property.

“This court fashioned a moot rule to the appeal of a sale of assets in bankruptcy. When, in the absence of a stay of the order of sale, a sale to a good-faith purchaser has been concluded, an appellate court cannot undo the sale."

They also say, their appeals were denied because of the bankruptcy moot rule.

"When, in the absence of a stay of the order of sale, a sale to a good-faith purchaser has been concluded, an appellate court cannot undo the sale. Because the court cannot provide meaningful relief to the appellant under those circumstances, any appeal of the order of sale thereby becomes moot,” the 9th Circuit said.

The Fearings are asking the Supreme Court to rule that mistakes depriving debtors of their property can and should be reviewed.

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