Keon Williams is on the verge of being thrown out of his house - a startling turn of events, considering that for nearly three years since refinancing in 2008, he faithfully paid his monthly mortgage and his property taxes.

"I did everything I was supposed to do, but I'm being evicted," says Williams, 38, sitting in his neat but sparsely furnished dining room on N. 44th St. "I never would have imagined something like this could happen."

Williams, an ex-Marine and single father of three teenagers, finds himself caught up in the continuing fallout from America's mortgage meltdown. His right to continue living in the home he bought, the home he has been paying for, is in jeopardy in the aftermath of the collapse of Central States Mortgage Co., the now-shuttered firm that was once the largest mortgage broker in the state.

The problem: When Williams refinanced with Wauwatosa-based Central States in 2008, cutting his 12.5% interest rate nearly in half, Central States' affiliate, Interim Funding LLC, didn't pay off the original mortgage. Battered by the housing crisis, it took the proceeds from the refinancing and paid other lenders, said Stephen Kravit, attorney for Richard Jungen, a shareholder in Interim and founder of Central States.

Williams was left with two mortgages - including one that he didn't know still existed. His small home at the corner of 44th and W. Keefe Ave., with a recent assessed value of $117,200, had become collateral for two loans totaling more than $265,000.

In March 2009, the holder of the original mortgage, Illinois-based Amcore Bank, foreclosed on the home, which was auctioned off at a sheriff's sale in the Milwaukee County Courthouse on Jan. 31 of this year.

"It does sound bad," acknowledged Kravit. He emphasized, however, that the money was not pocketed by his clients; rather, Interim used it to pay off other lenders.

"They would pay the things they had the cash to pay," Kravit said, arguing that Interim had diverted the money because it hit a "cash flow problem."

Reprieve ends soon

The only reason Williams still has a roof over his head is that on March 28, Milwaukee County Circuit Judge William Brash stayed the order selling the N. 44th St. home to give him 45 days to straighten out the mess.

"These last four, five months - it's been very hard for me to even sleep at night," Williams said. "To know that you may be kicked out of your own house that you've been paying on is just ridiculous."

Williams' saga began in 2007, when he bought the home on N. 44th St. - one of four investment properties he purchased with no money down.

Financing for the N. 44th St. house came through Central States, which as a mortgage broker would generally sell the loans to conventional lenders or - in the case of risky loans to investors - to Interim Funding.

Interim Funding generally provided the funds in the hope that borrowers would either sell the properties in a year or so, or clean up their credit so they could qualify for a conventional loan through Central States.

"I didn't have to have money down," recalled Williams, who said he worked full time at maintaining and improving the properties. "On some of the loans I even got money back."

Fixed up house

Williams paid $98,500 for the N. 44th St. house but received a $128,800 mortgage. He said he used the additional funds to fix up the house and to add a master bedroom and a second bathroom.

Soon after he entered the real estate business, the economy spiraled into recession as the subprime mortgage and housing markets crashed. Two of his properties were lost to foreclosure; unable to sell the property on N. 44th St., Williams and his three children moved into the house.

On July 31, 2008, he refinanced the mortgage for $137,600, dropping the interest rate to 6.625% from 12.5%.

Everything was fine - or so he thought - and records show he made monthly payments to Flagstar Bank, the Michigan lender that bought his new loan.

Since he was aware only of the Flagstar loan, he made no more payments to Interim Funding, which was servicing his previous mortgage, or to Amcore, which owned that mortgage.

The closing statement for the refinancing shows that $130,444 of the proceeds were earmarked for paying off the existing loan - but none of the money was paid to Amcore, according to its foreclosure lawsuit. Williams says he didn't receive a dime from the refinancing.

Surprise foreclosure

In March 2009, Amcore sued Williams for foreclosure - he says he wasn't notified of the suit. In court documents, he said the summons was left at a house where he used to live and accepted by a person he never heard of.

It wasn't until last year that Williams, who now works as a ground services supervisor at Mitchell International Airport, realized his house was in jeopardy.

Williams said he called Flagstar Bank and said he was being foreclosed upon, but he was told not to worry about it because he was current in his mortgage and so he couldn't be foreclosed on. Reassured, he brushed off the foreclosure notice as confusion on Amcore's part.

As the foreclosure action proceeded, however, Williams says he called Flagstar and said, "I don't think you guys know how serious this is."

On Jan. 31 this year, the house was auctioned off at the sheriff's sale and purchased by Harris Bank - which owns Amcore - for $66,200. At that point, Williams stopped making payments to Flagstar.

Others in same boat

Williams' case is not unique. Litigation pending in Milwaukee County Circuit Court details four similar cases involving mortgages written by Amcore with a total value of nearly $500,000.

Also, in 2009, Associated Bank persuaded a Milwaukee County judge to freeze $2 million of Central States' assets when the bank charged that Central States borrowed money from Associated to finance 13 mortgage loans, and then sold 12 of those loans to investors - but didn't pay off the original loans after the mortgages were sold.

So where can Williams turn now?

The players in the saga - Amcore, Jungen, Interim Funding and the remains of Central States - offer little help.

• Amcore, which won a $4 million judgment last year against Jungen and three other Interim investors, declined to comment. According to Amcore's lawsuit against Interim, "Depending upon which lender was applying the most pressure, (an Interim employee) was directed to make payment to that lender out of the available proceeds, whether or not the proceeds were collateral of another lender."

• Central States is in receivership and at the center of a 2-year-old FBI investigation focusing on dealings between it and the credit unions that owned it and Interim Funding. Before its sudden closing in March 2009, Central States employed more than 220 people in four states; it wrote more than $3 billion in mortgages in the three years before its shutdown.

Michael Polsky, the court-appointed receiver charged with liquidating what's left of Central States, said there is little the estate of the defunct company could do to help Williams or others in his position. "It's a fight between Amcore and the debtor," Polsky said. "All we looked at is whether we were owed anything. Many (creditors) got hurt by Central States."

• Kravit, the lawyer for former Central States CEO Jungen, points out that title insurance may come into play. In real estate transactions, title insurance protects lenders and borrowers from unknown liens, ownership interests or other clouds on a property. "It's not necessarily criminal or unusual that there are undetected mortgages. That's why there is title insurance," Kravit said, adding, "Somebody with money has exposure here, besides my client."

Title insurance claim

Williams recently filed a claim on the title insurance policy underwritten by Stewart Title Guaranty Co. in Houston, said Geoffrey Gnadt, Williams' lawyer. Gnadt said Flagstar Bank also filed a claim.

Officials from Stewart and Flagstar declined to comment.

A hearing on motions in Williams' attempt to undo the foreclosure and the sheriff's sale will be held May 9.

"This is essentially a business dispute between Central States, Amcore and Flagstar - they're big boys," Gnadt said, contending that the banks, not Williams, should be looking to title insurance for relief. "There are ways for the banks to be made whole, rather than going after the little guy."