I was struck by the confluence of two news stories over the past week dealing with cases of alleged mortgage fraud.

One story reported on the arrest of local realtor Sakara Blackwell, and financial advisor Jennifer McTigue, on federal charges stemming from their alleged involvement in a sophisticated mortgage debt elimination scheme.

According to federal prosecutors, the two women, along with Marc Melton, used bogus documents to fraudulently cancel $4.5 million in mortgages owed on seven condominium units, including one owned by a trust controlled by Blackwell. The three allegedly pocketed $3.3 million when they sold the properties, which were represented to be free and clear of any outstanding debts.

State court records show both Blackwell and McTigue had run into financial problems since 2005 and each faced several lawsuits over outstanding debts.

McTigue offered financial advice to others facing similar situations. The website for McTigue’s Blue Ocean Money Strategies Inc. promoted itself with this telling advice: “Do what the banks do, not what they tell you to do.”

In the Spring of 2011, the three teamed up to cancel more than $1 million in mortgage loans on Blackwell’s 1,518 square foot unit in the Koolani Condominium in Kakaako by filing fraudulent documents which claimed the mortgages had been paid off, according to the federal indictment.

On April 1, 2011, Melton mailed a document to Bank of America which he said included a “negotiable instrument” for $840,767. Three weeks later, he sent the bank a check for $163,060.73 to pay off a remaining second mortgage on Blackwell’s condominium, but the check was drawn on “an invalid and/or non-existent account” at another bank.

Documents sent to the bank also included a “Note Tender Agreement” or a “Mortgage Debt Satisfaction Agreement” to accompany the “negotiable instrument.”

These documents, according to prosecutors, “set forth a convoluted and unilateral set of rigid terms,” then unilaterally state that if the bank failed to comply, Melton, McTigue, or others “would become authorized as representatives” of the banks to act on their behalf, including the right to write off the mortgages.

In the meantime, Melton sent an email to the others which included a “Satisfaction of Mortgage” form, which he later signed, claiming to be the authorized representative of the “Mortgage Electronic Registration Service” handling the apartment’s mortgage loan processing. This document was then filed with the Hawaii Bureau of Conveyances, which made it appear the loans had been paid off.

Just days later, Blackwell listed the apartment for sale, and two months later accepted an offer with a sales price of $845,000. Title was conveyed to the new owner via “a warranty deed falsely warranting the property to be free and clear of encumbrances.”

The net proceeds of $843,788 were split. Federal investigators traced the proceeds to accounts of Blackwell, McTigue, and “an associate of Melton” identified only by the initials, “S.N.”

A similar transition involving another apartment in the Koolani Condominium was processed by an escrow officer at Fidelity National Title, also identified in the indictment only by the initials “S.N.” Proceeds of this sale were again split, which checks being distributed to Blackwell, McTigue, and “S.N.”

The indictment does not make clear whether the person identified as an escrow officer is the same person earlier identified as an associate of defendant Melton. However, it suggests a possible “insider” at the title company assisted in carrying out the scheme, a fascinating aside that will be interesting to follow as it plays out at trial.

What also remains unclear and quite puzzling is how these professional women possibly thought they could get away with this multi-million dollar fraud which left a clear paper trail officially recorded in the Bureau of Conveyances. Perhaps they thought failure to pay off the mortgages would be lost among the thousands of foreclosures and delinquent loans the banks were pursuing, or perhaps they believed claims made by other hustlers, including those associated with the “sovereign citizen movement” on the mainland, who have promoted similar schemes for years.

This explanation has some traction. Four Maui residents were convicted in federal court last year for running their own mortgage debt elimination scheme which also involved sending lenders a bogus “bonded promissory note” to cover the debt, along with a unilateral agreement, claiming powers for themselves if the lender fails to respond promptly. Those defendants are now awaiting sentencing. Their convictions seem an bad sign for the defendants in this latest case.

One difference is that the Maui defendants — associated with the Hawaii Loa Foundation or Ko Hawaii Pae Aina — cloaked their illegal scheme in the trappings of Hawaiian sovereignty, which allowed them to ensnare local victims who wanted to believe in the sovereignty narrative and instead ended up losing money and, in some cases, their homes.

That’s also the approach used by Laulima Title Search and Claims LLC, profiled with a surprisingly soft touch by the Honolulu Star-Advertiser in a story this week.

According to the Star-Advertiser, Laulima and its owner, Kale Gumapac, sell people a $3,900 package purporting to prove the 1893 overthrow of the Hawaiian Kingdom was illegal and, as a result, all land titles since that time are invalid because they were not issued according to Kingdom law. As a result, Gumapac claims, property owners—including those facing foreclosure—can make claims against their title insurance to cover their losses.

But whatever your views about the overthrow, it’s a very long way from theories about the historically controversial events of 1893 to practical and legal defenses against foreclosures — or attempts to negate mortgage debts — in 2014. Of course, it didn’t work for Gumapac himself, who lost his home in foreclosure. And, as the Star-Advertiser noted, neither Gumapac or other proponents can point to even a single case in which their claims were upheld.

It’s hard for me not to agree with an attorney who represents lenders, quoted in the Star-Advertiser story with this summary appraisal of Laulima Title: “It’s nothing more than a fraud.”

And yet, according to the Star-Advertiser, Gumapac still counts hundreds of people among his paying clients.

Go figure.

Read Ian Lind’s blog at iLind.net.