A federal judge told the Kealohas’ civil lawyer Thursday to try to work out a deal with the lender and the government on the sale of the Hawaii Kai home of former Honolulu Police Chief Louis Kealoha and his deputy prosecutor wife, Katherine Kealoha.

Honolulu civil attorney Kevin Sumida wanted the court to lift a government hold on the property so the Kealohas can sell the home and pay the money they owe him. The hold effectively prevents the Kealohas from selling or transferring ownership of the property.

The government placed a hold on the property after a federal grand jury indicted the Kealohas in October on multiple counts of bank fraud. The indictment lists the home as a proceed of the crimes; the home is therefore subject to forfeiture to the government.

The lender, Hawaii Central Federal Credit Union, sued for foreclosure last month, claiming that the Kealohas are in default and owe more than $1 million. Sumida says there would not be enough money to satisfy his, the credit union’s and the government’s claims if the home is allowed to be foreclosed and sold at a distressed price.

U.S. Magistrate Judge Richard L. Puglisi refused to lift the hold on the property because he said the hold is appropriate in light of the indictment against the Kealohas. He also told Sumida it is improper for him to make the request because he does not represent the Kealohas in the criminal case.

Puglisi said getting the best price for the home is in everybody’s best interest and if they agree the home can be sold. But the distribution of the proceeds would have to await the outcome of the criminal case against the Kealohas.

Sumida told Puglisi he is willing to work with the government on such a deal.

Government lawyer Janaki Gandhi told Puglisi she too is willing. She also said it is in the government’s interest to have the credit union collect all of the money it is owed since its lien on the Kealoha property has priority over the government’s.

The indictment against the Kealohas also accuses them and four former members of the Honolulu Police Department’s elite Criminal Intelligence Unit of framing Katherine Kealoha’s uncle with stealing the Kealohas’ mailbox and of lying to cover up their actions.

Another federal grand jury returned a new indictment with the same charges last week against the Kealohas, Derek Wayne Hahn, Ming-Hung “Bobby” Nguyen, Gordon Shiraishi and Daniel Sellers. All of them were in U.S. District Court on Thursday and pleaded not guilty.

“We plead not guilty because we’re not guilty. We definitely look forward to our day in court,” Louis Kealoha said outside the courthouse.

Trial is scheduled for June.

Sellers is the only defendant not charged with conspiracy. He is asking for a separate trial.