Though only a few cases have surfaced, experts fear the problem will spread, becoming a major headache for Hawaii's real estate industry.

The recent sale of a Big Island parcel is on hold because of a report filed with the state by Perfect Title Co., which claims the registered owners don't really own the land.

The Big Island case is the first indication that Perfect Title's work - widely dismissed as absurd by established title insurers, lenders, attorneys and others in the industry - is beginning to hamper property sales here.

John Jubinsky, attorney for Title Guaranty of Hawaii, the largest title insurance agency in the state, said the problem will worsen as Perfect Title investigates more claims and files its findings at the Bureau of Conveyances.

Perfect Title already has completed about 100 reports, is working on another 100 and is continuing to get additional requests for the $1,500 searches, company officials say.

In all the cases it has investigated thus far, Perfect Title has found existing titles to be invalid. Often, it cites treasonous acts committed against the kingdom or the 1893 overthrow of the monarchy to argue that the property ownership chains were broken, rendering meaningless all subsequent transfers of title.

In the Big Island case, the chain broke in 1887 when King David Kalakaua illegally appointed a ministry official to manage and dispose of Hawaiian government land, including the parcel in Kona, the company contends. Any subsequent transfers involving that land were thus invalid, Perfect Title concluded in an August report filed at the bureau.

That report came to light when the 5.8-acre parcel was put up for sale at an auction last year.

Title Guaranty refused to issue a policy to the would-be buyer because of the cloud created by the report. Such insurance protects the interests of a lender or property owner if a defect is discovered in the title. The agency won't provide insurance until Perfect Title's report is expunged or dealt with through the courts, Jubinsky said.

A second case in which a policy won't be issued for the same reason is pending - and more are expected, he said.

"What's everybody afraid of?" countered David Keanu Sai, a partner of Perfect Title owner Donald Lewis. "These are just reports."

All the industry has to do to solve the problem is prove the title searches are wrong - something

that can't be done because they're based on fact, Sai said. "If we're such a scam like everyone says, why doesn't (Title Guaranty) just issue the insurance" and ignore the reports.

A group of co-owners of the Big Island parcel are taking a different tack. They have sued Perfect Title and asked a Big Island judge to have the company's report expunged. The lawsuit is pending.

Until the issue is resolved, the sale of the property - a buyer was selected last week - can't go through, said Arnold Lum, a Native Hawaiian Legal Corp. attorney representing the co-owners.

Lum's clients are heirs of Henry Haiha, who was awarded a land patent grant for the Kona parcel and five adjacent acres in 1920.

Other Haiha heirs who opposed the sale hired Perfect Title to do the title search. Those heirs and Perfect Title were named as defendants in the lawsuit. Those heirs also were issued a deed to the property by Sai - an act contested in the lawsuit as well.

Lum and Jubinsky, who helped with the lawsuit, are hoping the court rules that Perfect Title's reports are frivolous and fines the company up to $5,000, the maximum allowed by state law. Enough of those judgments should stem such filings, Jubinsky said. "I don't know how else to stop them."

Jubinsky said the problem involving the Haiha land was created when some of the owners brought Perfect Title into the picture. But similar problems can arise even if an owner isn't involved, he said.

Jubinsky referred to a case in which someone leasing Bishop Estate land arranged to have a title search done by Perfect Title. The company concluded that Bishop Estate didn't own the land and filed its findings at the bureau.

"There's nothing that says they can't do a search on your property," Jubinsky said.

Sai said Perfect Title's intent is not to create havoc in the industry but to help correct all the erroneous titles in Hawaii.

"We're not ogres," he said. "We're here to fix the problem. . . . But the more you stick your head in the sand, the more the problem gets bigger and bigger and bigger."