Former Mich. SC justice pleads guilty to bank fraud

ANN ARBOR, Mich. (Legal Newsline) -- Former Michigan Supreme Court Justice Diane Hathaway pleaded guilty Tuesday to committing bank fraud in connection with property owned in Grosse Pointe Park.

During a hearing Tuesday morning before U.S. District Judge John Corbett O'Meara, Hathaway, 58, admitted that between 2010 and 2011 she knowingly engaged in a scheme to defraud ING Direct Bank by concealing assets from the bank to qualify for a "short sale."

A short sale is a forgiveness of debt by the bank to a borrower who claims financial hardship.

It is often used as an alternative to foreclosure because it reduces additional fees and costs to both the creditor and borrower.

U.S. Attorney Barbara L. McQuade said based on Hathaway's guilty plea and felony conviction for committing bank fraud, she is facing a maximum of 30 years in prison, a fine of up to $1 million and up to five years of supervised release.

"We have made mortgage fraud a priority in this district because of the harm this crime causes to our housing markets in the aggregate," McQuade said at a press conference Tuesday. "Homeowners who play by the rules should know that those who don't will be held accountable, no matter who they are."

Special Agent in Charge Robert Foley, of the FBI, agreed.

"Regardless of a person's stature or position in life, we must all follow the same set of rules. In this case, an individual in a prominent position of public trust made extremely poor choices that have resulted in criminal activity," he said.

"The FBI is committed to stopping these illegal acts."

Michigan Attorney General Bill Schuette, who says he wants an investigation into Hathaway's ethics and professionalism, also spoke at the press conference.

"Public corruption scandals have damaged the public's trust in government and tarnished our state's reputation," he said. "But today, we begin to move forward, beyond the cloud of controversy that hung over our state's Supreme Court."

The case was investigated by the FBI with assistance from Schuette's office.

According to the Detroit Free Press, Hathaway's only "no" response during the hearing came when O'Meara asked her about using her status as a Supreme Court judge as part of the scheme.

In May, WXYZ-TV in Detroit aired a story about Hathaway, questioning how ethical she was in convincing her bank to let her out of her mortgage on her Michigan home.

According to the television station's report, which aired on its 11 p.m. newscast May 9, the justice convinced her bank in November 2011 that she couldn't afford to keep making payments on the home, even though her other lakefront home in Florida was paid for.

Hathaway's bank apparently allowed her to do a short sale.

WXYZ reported that the transaction was just part of a "strange real-estate shuffle."

Earlier this month, Hathaway announced she would resign from the bench. Her resignation was effective Jan. 21.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.