LANSING — On January 21st, state Supreme Court Judge Diane Hathaway officially resigned amid allegations of fraud and money laundering in a real estate deal. When the news of the allegations had become public earlier this month, the court was preparing to suspended her regardless, according to news reports. 

Hathaway committed “blatant and brazen” violations of professional conduct in the 2011 short sale of her home in Grosse Pointe Park. Hathaway and her husband put a debt-free Florida home in a relative’s name, but regained the property when the Michigan sale was completed.

State Supreme Court Judge Hathaway resigns amid bank fraud charge

In a short sale, a bank agrees to a sale that wipes out any remaining mortgage, a significant benefit for any borrower. The 2011 deal went through and erased the couple’s $600,000 debt in Michigan. Five months later, in 2012, the debt-free Windermere, Fla., home worth more than $600,000 went back in their names for $10.

The bank fraud charge says Hathaway made false statements to ING Direct, transferred property to others and failed to disclose available cash – all in an effort to fool the bank into believing she had a severe financial hardship.

Federal prosecutors had filed the fraud charge against Hathaway  just a few days before she resigned from the state’s highest court. The charge was filed Friday as a criminal “information,” which means it was negotiated and that a guilty plea is expected in federal court. The state Supreme Court had never been asked to take this kind of disciplinary action against a sitting justice.

The maximum punishment for bank fraud is 30 years in prison, although sources say it’s unlikely that Hathaway well receive that strong of a penalty. Lawyers familiar with bank fraud cases believe that Hathaway will still most likely serve a shorter sentence in prison. The case is assigned to U.S. District Judge John Corbett O’Meara in Ann Arbor.

Hathaway has so far declined to comment on the case, but other supreme court judges have given statements regarding her situation. Chief Justice Robert Young Jr., a Republican, said the scandal diminishes the public’s trust in government. He said Hathaway’s departure and the criminal charge “bring to a close an unhappy, uncharacteristic chapter in the life of this court.”

Republican Gov. Rick Snyder is expected to choose Hathaway’s successor which will likely stretch the Republicans’ majority to 5-2.