Retired Michigan Supreme Court Justice Diane Hathaway pleaded guilty to felony bank fraud today and is expected to be sentenced May 28.
Hathaway stood quietly at a podium in U.S District Court in Ann Arbor this morning, acknowledging she intentionally defrauded a federally insured financial institution with the short sale of her Grosse Pointe Park home.
According to an agreement negotiated with the U.S. Attorney’s Office, her punishment is limited to up to 18 months behind bars or could be as little as four-10 months if a pre-sentence report determines there was no actual financial loss. Hathaway also could receive a sentence of three-five years of supervised release, be fined up to $30,000 and pay restitution of up to $90,000, according to the agreement. She waived her right to appeal the case after sentencing.
“Yes, Your Honor, I agree,” Hathaway said to U.S. Eastern District Judge John Corbett O’Meara.
Hathaway’s only “no” response came when O’Meara asked her about using her position as a Michigan Supreme Court judge as part of the scheme.
“Did you use your status as a public employee in your attempt to defraud?” O’Meara asked her.
“No,” she responded.
Hathaway retired Jan. 21 amid the scandal involving the short sale.
Hathaway was charged Jan. 18 with one count of bank fraud after investigators said she moved ownership of property in Florida to relatives so she could qualify for the short sale. Hathaway allegedly told financial institution ING Direct she could no longer afford the house payments on the Michigan home.
In a civil filing in November, the U.S. Justice Department accused Hathaway and her husband, attorney Michael Kingsley, of fraudulently concealing their net worth.
The short sale in Michigan allowed the couple to erase nearly $600,000 in mortgage debt on the $1.5-million Grosse Pointe Park home on Lakeview Court, which eventually sold for $850,000. The debt-free Windermere, Fla., home then went back into their names. Hathaway’s attorney, Steve Fishman, said outside the courthouse that ING Direct is claiming they lost far less than the mortgage debt erased by the short sale.
“It’s important for people to know that now we’re down to the actual loss as calculated by ING… and they’re saying it’s between $40,000 and $90,000,” Fishman said, pointing out that Hathaway could have just walked away from the home altogether.
“I say the loss is nothing… because the bank netted probably in the vicinity of $150,000 more from the fact that there was a short sale than if it had been a foreclosure and a sheriff’s sale. And that will be part of the discussion when we come back for sentencing.”
Hathaway left the bench after announcing the decision to retire Jan. 7 after the Judicial Tenure Commission filed a complaint and sought her immediate suspension. The commission alleged she committed “blatant and brazen” misconduct violations in connection with private real estate transactions.