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The Honolulu Advertiser
Posted on: Monday, November 17, 2008

Homeowners targets of scam

By Peter Boylan
Advertiser Staff Writer

The FBI is investigating several local companies that allegedly bilked homeowners out of more than $300,000 on O'ahu, the Big Island and Maui with false promises to help them avoid foreclosure, according to local lenders and law enforcement officials.

The families, many of which are Native Hawaiian, were charged between $2,500 and $10,000 to attend seminars or counseling sessions on avoiding foreclosure, and were told they would receive bonds worth $1 million that could be used to pay off the outstanding balance of the mortgage.

Officials said the bonds were bogus and no mortgages were paid off.

Andrew Bayron, owner of Sapphire Mortgage in Wailuku, Maui, said a client nearly got caught up in the scam, while another person he knows recently purchased one of the bogus bonds.

"It's disgusting. I've been beside myself since I heard about it and I've been telling everyone I know about it," said Bayron. "I try to protect my clients as best I can. These people are really slippery. They hook you so well that you believe it."

The bogus bonds are not sold through an investment firm or brokerage house, as legitimate bonds are. They also purport to represent ownership in a fictitious Hawaiian nation.

The companies pushing the bogus bonds, several claiming to be affiliated with Native Hawaiian sovereignty movements, are targeting Native Hawaiian homeowners and others who are facing foreclosure.

After attending the seminars, families are told that a $1 million "Royal Hawaiian Treasury Bond" will be sent to the homeowners' bank with a letter explaining that it will cover the outstanding balance of the mortgage.

The companies tell the homeowner that because they are members of the "Hawaiian nation," the bank will no longer be able to demand money from them because they are the land's "rightful owners."

The banks eventually figure out the bonds are bogus and inform the homeowner that they are in default.

As part of the scheme, the "mortgage counselors" tell their clients to ignore the letters that the banks send them threatening foreclosure because they are monitoring the situation and will respond on their behalf.

"These scams have cost homeowners and lending institutions hundreds of thousands of dollars and have led to foreclosure proceedings affecting many families in Hawai'i," said FBI Special Agent Brandon Simpson. "The FBI is investigating these scams and the fraud purveyors should expect to be prosecuted to the fullest extent of the law."

If caught, suspects involved face mail and wire fraud charges.

One local lending institution has been forced to foreclose on five loans after mortgage holders stopped sending payments.

The FBI has contacted the mortgage divisions of local banks about the bond scheme, including Bank of Hawaii. The bank does not have any of the bogus bonds on file but was contacted by the FBI, said Stafford Kiguchi, bank spokesman.

On Maui, the scheme has been run out of a storefront in Wailuku and other locations.

Kevin Hughes, a Maui resident, said he met with a woman in a Wailuku office who tried to get him to buy a Royal Hawaiian Treasury Bond.

Hughes listened to the 45-minute pitch in the small office that he said was decorated with Hawaiian flags.

The woman told Hughes that the application and paperwork would cost $2,500 and that he would be required to make payments to their company totaling $25,000. He was told to keep paying his mortgage until the bond was filed and he was notified.

Hughes also was coached about how to respond to notices from the bank and what to say when the bank called asking for payment, he said.

The woman told Hughes that by adding her company's name to his deed as a "minority owner" it would mean that the bank no longer had a claim to Hughes' property because it now was the property of the Native Hawaiian nation.

While he did not agree to buy the bond, Hughes said a friend of his did.

"I was never going to go through with it but I had to listen to it myself to see what their angle was. It's almost cultlike how they convince you," said Hughes. "They draw up these bonds (that) aren't worth the paper they are printed on and they send them to your lending institution and tell you that they are your payoff. It's unfortunate."

Reach Peter Boylan at pboylan@honoluluadvertiser.com.