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Tall tale for a short sale

Reader Martin Karo is a Philadelphia attorney who sends along this story about the Democratic Michigan Supreme Court justice who screwed her bank and the taxpayers who bailed it out:

If the name Diane Hathaway rings a bell, it’s probably not because she is a Justice on the Michigan Supreme Court bench, but because of the sleazy way she climbed to the bench in the first place. Shortly before the 2008 election Hathaway ran a TV ad claiming her opponent, Michigan Supreme Court Chief Justice Cliff Taylor, had fallen asleep on the bench during a hearing.

It was an outright lie — a video of the hearing showed no such thing, and even the losing parties’ lawyer, the belligerent anti-Republican ultra-partisan Geoffrey Fieger, refused to back the claim — but the truth never got its boots on, and Democrat Hathaway swept into office along with Obama.

It seems the leopard hasn’t changed her spots. Hathaway is by any definition a one-percenter; she and her husband, plaintiff lawyer Michael Kingsley, lived in a $1.5 million mansion in exclusive Grosse Pointe Park, owned a luxurious $740k, 4300 square foot golf-course vacation property in Florida, and in spring 2010 bought — for cash — another substantial Grosse Pointe Park house. The only property with a mortgage was the mansion; the other ones, Hathaway owned free and clear.

In autumn 2010 Hathaway wanted to downsize from her Grosse Pointe Park estate. But what with the housing slump, she was “upside down” on her mansion. So Hathaway decided to do a “short sale,” that is, to convince the bank to release the lien on the house for a sale at less than the balance owed on the mortgage.

Short sale are generally limited to homeowners in genuine financial distress who lack the means to meet their monthly mortgage payments and the assets to cover the gap between sale price and mortgage balance. Even if you buy that Hathaway elevating herself to the Michigan Supreme Court bench qualifies as a financial hardship — a rather strange position to take — she had plenty of assets to cover any deficiency. But as WXYZ TV in Detroit reported (teaser here), she chose not to.

Instead, channeling what Horace Greeley might have said were he a banker — “Divest, young man, divest!” — Hathaway signed her $740,000 Florida vacation property over to one daughter, Kathryn Sterr, and signed the other house she owned in Grosse Pointe over to her son. She also apparently transferred a pile of cash to another of her daughters, Sarah Kingsley. Sarah, in turn, used that money to buy yet another house in Grosse Pointe, a $275,000 colonial on Balfour Drive — which Hathaway then moved in to. (Sarah already had her own house.)

Meanwhile, NOW having no other real estate assets to her name, and apparently having conveniently depleted her cash reserves, Hathaway petitioned her mortgage bank to permit a short sale on the Grosse Pointe mansion. The bank agreed, and the mansion sold for $840,000. Within weeks, Hathaway had her daughter Kathryn sign the Florida property back over to her, and had daughter Sarah sign over the title to the Grosse Pointe Balfour Drive house Hathaway was already living in.

It’s not exactly “inside baseball” that judicial codes of ethics forbid a judge from engaging in conduct which even has the appearance of impropriety: they’re Rules One *and* Two. Ironically, Justice Hathaway publicly proclaimed, in the 2008 Voter’s Guide published by the League of Women Voters, “I have, and I will continue to disqualify myself whenever there is the appearance of impropriety.” And “appearance” doesn’t even begin to describe this scheme.

Assuming this story was accurately reported — and it probably is; Hathaway hasn’t denied it, the reporter involved is no enemy of the Democratic Party, and property transfers are public records — Justice Hathaway’s conduct appears not only improper, but could well be Federal and state felony bank fraud. And it’s doubly ironic since the Democrats have been bullying banks into writing down loan balances and accepting short sales. Cui bono?

If some average schmo had pulled a similar fraud — signed away all assets to relatives, pled poverty to put one over on the bank, then had the relatives give it all back — Judge Hathaway would not have hesitated to give Joe Schmo jail time, and a lot of it. Perhaps Justice Hathaway thinks fraud laws are only for the little people… just like fellow Democrats Geithner, Rangel, Corzine, Dodd, Blagojevich, Edwards…

Mr. Karo adds a note observing that (Republican) Chief Justice Robert Young, Jr. has issued a politically cautious statement saying Justice Hathaway should explain her actions in public:

Ordinarily, the financial transactions of any person, including a Justice, are personal matters. However, the WXYZ story raises very serious allegations about Justice Diane Hathaway’s financial transactions. I am naturally very concerned about these allegations.

Because media allegations are just that and may fail to include a complete picture of a complex set of financial transactions, this morning I advised Justice Hathaway to respond publicly to these allegations to clear the air. For now, I have no further comment on the WXYZ allegations.

Late last night the AP released a story lacking the color and explanatory power of Mr. Karo’s account. The AP, however, does add a quotable quote from Steve Fishman, an attorney for Justice Hathaway and husband Michael Kingsley. Fishman denied any illegality in the transactions: “These were personal matters that involved persons close to her, and she is not going to discuss personal matters in the press. I’m satisfied there was nothing underhanded.” So there.

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