Freddie and Sara Smith bought their Montbello home in 1988 for $70,000. For the next 10 years, they made $700 monthly mortgage payments, and if everything had gone according to plan, their home would have been paid off in 2008.

But the plan went awry.

Instead, the Smiths' American Dream turned into a nightmare, and today, the couple is living in a small apartment.

The Smiths, who can neither hear nor speak, lost their four-bedroom home in 2002 in an alleged refinancing scam. They won $308,000 when it went to court, but because the case is on appeal, they haven't seen a dime.

"They haven't been paid (from the court judgment), they've lost their property and they live in an apartment in east Denver," said John Head, their attorney.

To make matters worse, a state fund set up to help victims of real estate fraud is empty.

The Smiths are entitled to $50,000 from the Real Estate Recovery Fund, but because legislators raided the fund earlier this year to help balance the state budget, the Smiths will have to wait until the money is restored.

"Maybe $50,000 is not much money to some people, but $50,000 is a lot of money to the Smiths," Head said.

The Smiths - he's 70, she's 54 - are among five plaintiffs who sued the state, claiming lawmakers acted unconstitutionally when they raided the fund.

'Second chance' goes wrong

The Smiths don't know the particulars of the case; what they know is that they dearly miss their old home.

"It had a big back yard and it was a very modern home," said their daughter, Janice Smith, 29, who interpreted for her parents. "It was friendly. My mom had grandkids, and they wanted to see them grow old in that house."

Freddie Smith, who is illiterate, worked as a presser for Dependable Cleaners for 19 years before he retired in 2000. Sara Smith graduated from a school for the deaf in Milwaukee, Wis., in 1968, and worked briefly for Kodak before she quit to raise a family in '71.

The Smiths moved to Colorado in 1982 and bought their Montbello house six years later. Then, in 1999, Freddie had his work hours cut and the couple started having money problems.

When Freddie retired in 2000, the couple was only able to make partial payments on their mortgage. That resulted in their loan being sold to another lender, and their monthly payments increased to $1,200.

When Janice Smith tried in 2001 to see if she could get her parents' home refinanced, she learned that they couldn't because they had poor credit. She was referred to Carrie Mumma, an agent for Paradox Properties, owned by Jeffrey Meythaler, a Colorado Realtor and an attorney.

"She just said this is a second-chance program for families such as us who are in a predicament," Janice recalled. "She said this was a refinancing, that nothing was going to be taken away from my parents. Everything would be the same except the payments would go to a different company."

But that's not what happened. About three months after they signed the documents for the program in February 2002, the couple received an eviction notice.

"Why would they be evicted from their own home?" asked Janice. "That didn't make sense."

A family member had an attorney friend look into the matter and came back with shocking news: "You need to get a lawyer - they stole your house," recalled Janice.

The information stunned the Smiths.

"I was very worried about what to do," Sara said in sign language. "I didn't know what to think. I was surprised, depressed and hurt."

They were referred to Head, who told them they had been victims of a predatory lending scheme, in which they had agreed to sell their home to investor Steve Kreinz - a friend of Meythaler's - and agree to buy back their home on an installment plan, albeit at a higher price. Head said the transaction is so complicated that the average person would not understand it.

"At the end of the day, the Smiths' title to the property is transferred and they lose all equity," Head said. "Everyone who is involved gets a big paycheck and (the investor) gets the house with no money."

Head said the Smiths' monthly payment to the investor, Kreinz, was double what their increased mortgage payment was, which meant it was almost inevitable they would default.

Kreinz declined to take calls for this story, but Meythaler defended the deal.

"(The Smiths) couldn't get refinanced because they didn't have good enough credit," he said. "They couldn't have sold it because the house was in disrepair. If they didn't enter into the transaction, they would be homeless, they would be out in the street."

Meythaler also said the Smiths knew full well what they were getting themselves into, and that it was explained to them by Janice.

"Their daughter was their translator," he said. "They knew that they were going to sell the house and they knew that they were going to buy it back, not to mention dozens of documents that told that to them."

But Janice denied that anyone told her or her parents that they were selling their home as part of the deal. "If they did, I would have walked out of there," she said.

State could help, but fund is dry

In 2002, Head sued Kreinz, Meythaler and Mumma for fraud, and won a $308,000 judgment against them, including $100,000 in punitive damages against Meythaler.

But Head said he hasn't been able to collect any of it yet. Meythaler said that's because he has appealed the judgment, saying he did nothing wrong.

Because the Smiths have not been able to collect, Head filed a claim with the Real Estate Recovery Fund. The fund was set up by state statue in 1971 to help victims of unscrupulous real estate brokers. Claims of up to $50,000 can be made against real estate agents who have judgments of fraud or theft against them but don't pay the damages.

"(State officials) told me they don't have any money," Head said. "The legislature took the money to balance the budget."

Hence, the lawsuit against the state.

The same judgment that awarded the Smiths $308,000 also declared that their home belonged to Kreinz because they had not made any payments to him since the lawsuit was filed.

As the result, the Smiths moved into a two-bedroom apartment this summer.

"I'm still upset over it," Sara said. "It was a house that we owned and it was gone."

Meythaler argued that since he's challenging the verdict, Head didn't have the right to file a claim with the Real Estate Recovery Fund. Head disagreed, saying that since he has received a final judgment, he can execute on it, including garnishing Meythaler's wages and foreclosing on his properties, even if the case is being appealed.

It was not clear whether the Smiths' claim would be paid even if the coffers of the Real Estate Recovery Fund are replenished, if the judgment against Meythaler is being challenged.

Still, the Smiths said they will probably not buy another home, even if they get the money from Meythaler and the others.

"I'm scared to buy a home, especially after what happened," Sara Smith said. "I just want the money, so I can start over with life."

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