Declaring herself “broken” and “disgraced,” state Supreme Court Justice Diane Hathaway, tearfully took responsibility for fraud before a Federal judge sentenced her to a year and a day in prison for concealing assets and fooling ING BANK in the SHORT SALE of her home. She and her husband put a second paid off home in a relative’s name while dealing with the bank, bought two more properties and then got the property back in their names in 2012.
As California SHORT SALE agents and brokers, we are surrounded by similar temptations. The high profile case underscores a substantial shift of resources toward prosecution of Short Sale scams. Aside from the criminal side, agents and brokers face potential liability pursuant to CA Civil Code 580(e). The 2011 statute that limits liability for Short Sellers includes a fraud exception that may result in liability to agents who engage, facilitate or play a role in SHORT SALE scams that result in the SELLER’s loss of statutory protection, the loss of a loan modification opportunity or avoidable income tax liability. Engaging an attorney on behalf of the SELLER is the best protection from liability for the agent.
The 2011 sale of Ms. Hathaway’s Grosse Pointe Park home erased the balance of her mortgage, $664,000. Prosecutors said she had pleaded hardship while possessing more than $1 million in assets, including a debt-free home in Windermere, Fla. During the short sale process, in 2010 and 2011, Hathaway also acquired two other, using $363,000 she cashed out from retirement accounts and then transferring the homes to her stepchildren, prosecutors said.
The Michigan State Supreme Court Justice recently resigned and arrived at a federal prison last month in West Virginia to serve one year and a day for bank fraud, a crime critics said brought shame to the state’s highest court. She pleaded guilty in January to one count of felony bank fraud, eight days after she resigned from the bench.
Prosecutors said Hathaway hid assets worth more than $1 million and misled a bank while negotiating a short sale. A short sale is when the lender allows the sale of a home that is worth less than the amount owed.
Defense lawyer Steve Fishman argued Hathaway and her husband saved the bank $150,000 by negotiating a short sale of their home rather than letting it be sold at a foreclosure auction. He said ING Direct would have granted Hathaway and Michael Kingsley a short sale if it had known about other homes and cash to buy them. But prosecutors filed a fraud charge because Hathaway deeded her Windermere, Fla., home, valued at $664,000, to a stepdaughter while applying for the short sale — and then got the house back.
Hathaway’s stepdaughter, Sarah Kingsley, transferred the Balfour Street home back to Hathaway after the short sale of the home on Lakeview Court, public records show.
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