What I'd like to know is why was Korean investor never heard from again? That part puzzles me.
If the scam is as expected, the Korean investor got his money and ran long ago. Initially I assumed that the Korean investor was an actual investor (one with real money) who had personally provided financing in some way. But now I believe it is much more likely that it was a regular bank who provided the financing to the son, and the Korean investor was just an intermediary/scam-artist.
For this scam to be worth pulling, the home in question has to be "above water" (worth more than its outstanding mortgage balance). Since 2009 we've become conditioned to associate "foreclosure" with "under water" homes (homes that can't be sold/refinanced because the proceeds from the sale wouldn't be enough to pay off the mortgage). But foreclosure can happen to homes that are above water too. It's a lot more rare, because, if they can no longer make their mortgage payments, most people would just sell the home themselves, turning the equity into cash that they can then use to rent/buy another home, and avoid wrecking their credit. But in the case where Relative was potentially years behind on her mortgage payments (that would have to be paid upon sale of the home), had tons of other debt, and just didn't want to leave the house, selling might not have provided much benefit to her.
Since this was all happening in the early/mid-2000s, while home prices were on an incredible rise, Relative was likely able to stay afloat for so long by repeatedly doing cash-out refinances. With the value of the home continually rising (and banks handing out loans like candy), she would have been able to regularly extract that fresh equity from the home and use it as her "income" to pay for her regular expenses. This means she likely did not have *much* equity in the home by the time the Korean investor came along, but it's certainly possible that prices were rising so rapidly that an amount of equity worth scamming had appeared since the last time she had refinanced.
Using completely made-up numbers and assumptions, here is an idea of how things could have progressed:
At mid-90s divorce: home value=$500k, mortgage balance=$250k (hey, maybe husband was financially responsible!)
2000 refinance: home value=$700k, new mortgage balance=$700k, Relative has gotten $450k ($700k-$250k) in spending cash
2002 refinance: home value=$800k, new mortgage balance=$800k, Relative gets an additional $100k in spending cash
2003: home value=$900k, mortgage balance=$800k.
At this point, Korean investor sees, "hmm, last refinance was a year ago, home price has appreciated since then, so there is $100k in equity available". He obtains title to the home. The son buys the home (title) from him for $900k (by getting a $900k loan from a bank). Korean investor gives $800k to Relative to pay off her mortgage. He keeps the $100k difference and walks off into the sunset, giving not one single shit about the ruin left behind.
So that explains why the Korean was never heard from again.
But yes, that leaves the mystery of why the son never heard from the bank who gave him $900k. In the normal operation of the scam, that bank would have foreclosed on the son long ago for non-payment, and the bank would now be the one owning the property (or they would have auctioned/sold it to a new buyer). The only far-fetched possibility I can think of is that the bank "lost track" of the loan. It sounds like sometimes multiple parties, including the mortgage broker/lender are in on the scam. Maybe things were handled in such a way at the bank that the $900k went out without anyone noticing. Mortgage lending in 2003 was a complete wild-west of insanity with essentially no standards, so I suppose anything is possible. Maybe the "bank" that gave out the $900k was a real fly-by-night operation that failed shortly thereafter, and no one remained who knew how to track the outstanding loans.
Anyway, that's still all tons of crazy speculation, and it could be way off, but hopefully that at least gives some new insight by which you can explore to make further sense of things. I'd definitely be curious to hear anything else you come up with! I think I've probably heard reports of people being prosecuted for scams like this in the past, but all the language is about "mortgage fraud" and other legal terms and it just sounds like a crime where people pushed some papers around in a way that didn't follow the rules; my eyes glaze over and I move onto the next story without having any understanding of what actually happened. This is a far more human view where we see that there are actually real people behind the numbers and legalese. If not a book, it's at least a great illustrative example to lead a lengthy New York Times expose covering such scams!