The U.S. District Attorney is seeking forfeiture of Justice Hathaway's second home in suburban Orlando, Fla. (Phelan M. Ebenhack / Special to The Detroit News)
Lansing — Michigan Supreme Court Justice Diane Hathaway faces allegations of defrauding her bank by hiding assets to unload a $1.5 million Lake St. Clair home on a short sale and escape $600,000 in debt, The Detroit News has learned.
U.S. District Attorney Barbara McQuade filed a civil complaint Monday in Michigan's Eastern District seeking forfeiture of Hathaway's posh second home in suburban Orlando, Fla.
McQuade charged that Hathaway and her husband, attorney Michael Kingsley, "systematically and fraudulently transferred property and hid assets in order to support their claim to (ING Direct) that they did not have the financial resources to pay the mortgage on the Michigan property."
The complaint claims Hathaway and Kingsley engaged in money laundering, but neither has been charged criminally in the case.
To get a short sale, banks typically require homeowners to prove they are suffering a financial hardship and check for other assets, such as second homes. Hathaway, who makes $164,610 annually as a justice, and her husband did not inform the bank of recent asset transfers when they applied for a short sale in 2011, according to the federal forfeiture complaint.
Hathaway has been under political scrutiny since May when questions were raised about why she and her husband transferred two homes to Kingsley's children before the short sale of a Grosse Pointe Park home.
The complaint against Hathaway comes as she was tamping down rumors Tuesday she's going to resign from the high court. Hathaway informed fellow justices she is not stepping down from the bench despite rumors her departure was imminent.
Chief Justice Robert Young Jr. said Hathaway sent him an email late Tuesday morning informing him she is not resigning.
"That's the most official news and non-hearsay and non-rumor that I have," Young told The Detroit News.
A court spokeswoman said Hathaway's email also went to the other six justices and court staff.
Talk show host Frank Beckmann reported Tuesday morning on WJR 760-AM that Hathaway was "telling close associates she will step down," that she had vacated her Lansing court office and raised questions about why one of her law clerks recently resigned in the middle of the court's term.
"We don't have an exact date," Beckmann said on his show. "But it's been suggested to us that it will be by the end of the year."
Hathaway's office provided The News with a brief statement Tuesday: "Justice Hathaway is not resigning. Period."
"That's different from what I've been told," Beckmann told The News after Hathaway sent word she's not going anywhere.
Hathaway is reportedly under investigation by the FBI for a series of real estate transactions in which at least two of her homes were transferred to stepchildren before she and her husband qualified to unload a $1.5 million Lake St. Clair home on a short sale for $600,000 less than they owed.
A woman who answered the phone of Hathaway's Detroit office Tuesday afternoon also denied Beckmann and Michigan Public Radio's reports Hathaway has cleared out her Lansing office in the Michigan Hall of Justice.
"Hathaway cleaned out her personal effects from her Lansing office," Beckmann said on his show. "Also took home her private wardrobe estimated at nearly two dozen dresses, which she kept in the office."
Hathaway attorney Steve Fishman said that was impossible because Hathaway isn't even in the state.
"I don't know anything about it," Fishman said of the rumored resignation. "I think I would know."
Michelle Busuito, a junior law clerk for Hathaway, confirmed to The Detroit News she recently left Hathaway's office "to pursue a great professional opportunity at the Detroit Regional Chamber."
"I don't feel comfortable discussing my previous employment," Busuito added in an email.
Jim Martinez, a spokesman for the Detroit Regional Chamber, said Busuito was hired this week as a temporary contract employee in one of the chamber's economic development programs.
Appearing on Beckmann's show Tuesday was former Supreme Court Justice Clifford Taylor, a GOP nominee who lost his seat on the high court to Hathaway in a bitter 2008 Supreme Court race.
Taylor suggested Busuito's departure was evidence of Hathaway's imminent departure.
"It would be unprecedented for a clerk to leave unless of course the judge fired the clerk … but that evidently didn't happen," Taylor said. "I think one could read things into that."
Hathaway, a former Wayne County judge, was elected to the Supreme Court in 2008 after being nominated by the Michigan Democratic Party. She is one of three Democratic-nominated justices on the seven-member court, including Justice-elect Bridget Mary McCormack who will replace Marilyn Kelly in January.
Asked if Hathaway had discussed her future with the newly elected justice, McCormack spokeswoman Liz Boyd said: "The justice-elect does not and will never discuss private conversations she has or does not have with her colleagues."
She has come under political scrutiny since May when media reports raised questions about her and her husband, Michael Kingsley's, real estate transactions in recent years.
Records show the couple transferred two homes to individuals identified by WXYZ-TV (Channel 7) as Hathaway's stepchildren. A home in Windermere, Fla., was quitclaim deeded to Hathaway stepdaughter Kathryn Sterr in November 2010, and a home on Windmill Pointe Drive in Grosse Pointe Park was transferred to Michael James Kingsley Jr. in September 2010.
The Florida home was transferred back to Hathaway earlier this year, public records show.
Property records also show Sarah Kingsley — identified as another Hathaway stepdaughter — bought a home on Balfour Street in Grosse Pointe Park in April 2011 with $195,000 cash and quitclaimed the home to Hathaway less than a month after the short sale. No money traded hands, records show.
Hathaway, who maintains a real estate broker's license, and Kingsley have not publicly addressed the house swaps. They both did not return phone calls and emails Tuesday seeking comment.
Detroit News Staff Writer Karen Bouffard contributed.