When Sheila Smith got a look at what she thought was her dream home, she never thought that the would end up fighting foreclosure.

“I have eight kids — four boys and four girls, so we couldn’t exactly say no.” Smith, a social services and business consultant in Independence, Missouri, and her family took the chance and signed the papers on the house in May 2000, only to find that something was amiss immediately.

“Among all the papers we had to sign at closing was a second mortgage,” Smith said. “We certainly didn’t expect or ask for that.” Smith also noted that much of the necessary closing documentation to certify the house’s sale was missing. On top of that, the home was riddled with defects and problems, but their mortgage broker persuaded them to take the deal anyway.

It wasn’t long before the dream became a nightmare for Smith and her family.

Although Smith and her husband were “viable citizens with good credit,” they were quickly steered into an expensive subprime loan with ballooning payments and hidden fees that they couldn’t keep up with. Their home’s builder was indicted and the mortgage broker was quickly revealed to be collaborating with the builder to, as Smith put it, “unload crappy homes for pretty quick money.”

Trying to sell the home was fruitless, as they received conflicting appraisals due to all of the defects in its construction.

The story has all the hallmarks of a narrative from America’s housing crisis, right up to the bank declaring foreclosure on the Smith residence. But in a twist, Sheila Smith was able to use the confusing and ambiguous rules of the modern mortgage market to fight back, and convince lenders and judges alike to let her and her family keep their home — at least for now.
Smoke signals

When Smith received the first foreclosure notice in 2005, she tried to communicate with the mortgage broker, B&C Mortgage, only to find they had gone belly-up. The mortgage had been resold and they couldn’t track down the current mortgage holder.

“We used every form of communication, including smoke signals,” Smith said, but to no avail. Smith, a self-described “born fighter” from a family of seven brothers, decided to use the tangled mess of her situation to her advantage, contesting the foreclosure on the grounds that between the implosion of the lender, the lack of a paper trail, and the bad terms of the loan, they were essentially defrauded and couldn’t be held liable.

The judge in the case agreed, issuing a default judgment in favor of Smith since the defunct mortgage broker “didn’t even show up,” Smith said.

The mortgage was eventually sold again to First National Bank in Missouri, but even though the Smiths struggled to renegotiate their loan for better terms, the bank attempted to foreclose again. Yet again, said Smith, the fact that there was “no deed of the sale and nothing recorded” enabled the Smiths to carry on fighting foreclosure, a process that’s still in litigation.