A woman, who was kicked out of a $1 million state house after offering to buy it, is fighting a $40,000 bill after allegations she was living there with an undisclosed partner.

Bella Bowden made headlines 14 months ago when Housing NZ gave her the boot despite her coming up with a near-seven-figure sum needed to buy the property in the upmarket Auckland suburb of Mission Bay.

After her offer, the corporation launched an investigation; sceptical of her story that whanau had come up with the funds with the help of a finance company.

Subsequently, they declined the offer and three charges of using a document for a pecuniary advantage were laid against Bowden, with Housing NZ alleging she lived in there with a partner -- Greg McDonald -- between 2010 and 2012.

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Her income-related rent of $126 a week was cancelled and returned to market rent of $420, which she was unable to pay.

Soon after, Bowden was forced out of the two-bedroom Godden Cres house overlooking Rangitoto Island.

The defended hearing began in Auckland District Court today and Bowden, who represented herself, was adamant she lived alone for that period and was not in a de facto relationship with McDonald.

But the prosecution's "key witness" Annette Baines -- McDonald's niece -- said she had known them as a couple for at least 10 years, despite never having seen them living together.

"You're partners. You know I know that, and sort of carrying on like this is a little bit embarrassing to be honest," she said.

There were strange scenes when a woman in the public gallery then stood up and claimed she was McDonald's sister and Bowden was her daughter.

Judge Tony Couch ordered her to leave the court in case she was called as a witness.

While on the stand, Bowden said she and McDonald were "distant tribal relatives" and though she had named him as her husband on medical forms she denied they were ever together.

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She said the real catalyst behind the prosecution was the saga over her bid to buy the house and she claimed McDonald had been made a "scapegoat".

Housing NZ investigator Kevin O'Carroll said the case had come to his attention when another department had been informed Bowden had made the offer to buy the house.

"It rang some alarm bells, how someone on a relatively low income could afford a home of $1 million," he said.

He told the court how finance applications and other documents linked McDonald to the property.

Housing NZ claimed Bowden owed them $39,494 to cover the income-related rent subsidies she received during the time McDonald allegedly lived with her.

The corporation confirmed the house was not sold and was re-let in August last year to a priority applicant from a waiting list. Bowden's appeal against a decision by the Tenancy Tribunal to terminate her Housing NZ tenancy was also dismissed in January, a spokesman said.

The court hearing will conclude tomorrow.