ANN ARBOR, Mich. (AP) — A former Michigan Supreme Court justice pleaded guilty to bank fraud Tuesday for concealing assets, including a Florida home she and her husband owned, while urging a bank to let her unload a Michigan house in a short sale, claiming financial hardship.
Diane Hathaway could face up to 18 months in prison under the terms of her deal with federal prosecutors. But her attorney, Steve Fishman, said after the hearing that he will ask a judge to sentence her to probation.
Hathaway, 58, who resigned from the state's highest court last week, left the courthouse without commenting. U.S. District Judge John Corbett O'Meara had allowed her to answer "yes" to a series of questions about her misdeeds that were read by Fishman.
Fishman told reporters that her crime was "dumb. It made no sense." He believes the bank, ING Direct, would have allowed the short sale even if Hathaway had disclosed everything.
"She feels terrible. She let down a lot of people," Fishman said.
In short sales, banks let distressed owners sell properties for less than what's owed on them, providing a significant benefit to borrowers who can't afford to keep paying the mortgage but want to avoid foreclosure.
Prosecutors say Hathaway and her husband, Michael Kingsley, a lawyer who has not been charged, transferred their Florida property to a relative so that they could show financial hardship and have a better chance of qualifying to short-sell their Grosse Pointe Park home, which carried a mortgage of $1.4 million.
In a November court filing, the government said the couple got out from $600,000 of debt by short-selling the home. But the actual loss claimed by the bank, which was the victim in the case, appears to have been $90,000 at the most, based on how ING measures housing values and other factors, U.S. Attorney Barbara McQuade said at a news conference.
"We had a difference of opinion," McQuade said of ING.
The amount of loss is very important in federal court, especially when calculating sentence guidelines. ING declined to comment.
Fishman said a sentence of probation seems appropriate when Hathaway returns to court on May 28.
"If this isn't enough, what is?" he said outside court, referring to the embarrassing scandal and a guilty plea from someone who was a statewide public official.
McQuade, however, said her office will ask for prison, noting that Hathaway, a licensed real estate broker, did more than hide the Florida home. She said the former judge liquidated retirement accounts to fool the bank and told ING that she was planning to retire from the Supreme Court, which would affect her income. Of course, Hathaway didn't.
"Homeowners who play by the rules should know that those who don't will be held accountable, no matter who they are," McQuade said.
The Michigan Judicial Tenure Commission, a state judiciary watchdog group, said Hathaway committed "blatant and brazen" violations of professional conduct. It filed an ethics complaint against her before her resignation.
Hathaway's real estate transactions were first reported last spring by Detroit TV station WXYZ. The U.S. attorney's office signaled that a criminal probe was in progress when it filed a civil lawsuit in November to seize the Windermere, Fla., home as the fruit of bank fraud.
The government is dropping that lawsuit as part of the deal with Hathaway because she's pledged to pay the bank any restitution that is determined by the judge.
Hathaway shook up the Supreme Court when she defeated Republican Chief Justice Cliff Taylor in the 2008 election. Democrats then controlled the court for two years before GOP victories in the 2010 election put Republicans back in the majority.
Hathaway quit the court on Jan. 21, halfway through an eight-year term. Gov. Rick Snyder has yet to name her replacement, but the new justice will expand the Republican majority to 5-2, at least through 2014.
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