It’s Highly Unlikely Diane Hathaway Defrauded ING Direct

Steve Dibert, MFI-Miami

Diane HathawayTo paraphrase the late George Burns, politics like show business can be a hideous bitch goddess and places like the Michigan Supreme Court that were once considered a refuge from the visceral blood sport of politics are no longer immune.   Even with Michigan’s constitutionally protected system of what I call, Judicial Tangente“, the Michigan Supreme Court seemed to have stayed above it all and tried to remained impartial to partisan politics.

But that all changed last May when the ugly head of visceral partisan politics hit a fever pitch and turned the chambers of the Michigan Hall of Justice into something that resembles a John Grisham novel.  Dan Pero, a GOP operative and former staffer to former GOP Governor John Engler, began making allegations in the media that Michigan Supreme Court Justice Diane Hathaway committed money laundering and fraud in order to persuade her lender to short sell her home in the posh Detroit suburb of Grosse Pointe Park.

Naturally, media outlets across Michigan jumped on Pero’s claims without doing any fact checking or talking to mortgage fraud experts like myself or other real estate/finance experts who actually negotiate short sales and modifications for a living.  Instead, they interviewed law professors who haven’t stepped a foot in a court room since Moses wore short pants or let alone have left the safety bubble of academia to actually negotiate with a bank or a mortgage lender on behalf of a homeowner.

Except for a handful of veteran political reporters like Tim Skubick, host of Michigan Public Television’s “Off The Record” and Dawson Bell, a veteran reporter from the Detroit Free Press questioned the legitimacy of the allegations and the stink of partisan politics.  After all, Pero was a GOP operative and a long time friend and associate to former GOP endorsed Michigan Supreme Court Justice Cliff Taylor who lost re-election to Hathaway in 2008.   Pero’s wife Colleen also served Taylor’s campaign manager.

Skubick who also has a column on the online news site, MLive commented,

“Apparently the Republican party misplaced the notion of innocent until proven guilty.”

Bell, along with Skubick, has covered the Michigan Capitol beat as long as I can remember and Bell was the only one when this story broke six months ago to  actually quote Hathaway’s attorney, Steve Fishman:

“News flash: Republican political operative files judicial tenure complaint against Democratic supreme court justice. Do you think this stinks of politics?”

Taylor, like his protege, the current Chief Justice Bob Young, had a reputation for palling around with lobbyists and deep pocket contributors who had business before the court.  Taylor just like Young, was openly friendly to the banking and housing lobby.  In 2008, Colleen Pero helped Taylor score funding from the who’s who of Michigan Banking.  Taylor received $21,000 contribution from the Michigan Bankers Association, $10,000 from Comerica Bank, $5,800 from foreclosure mill operator, David Trott and his wife Kathleen and $3,400 from multi-state foreclosure mill operator, Linda Orlans.

MFI-Miami reviewed Pero’s research he gave to the media and later to the U.S. Attorney’s office, the only thing my staff and I could think of after reviewing it was Zed’s comment from the movie, “Men In Black”, “Gentlemen, you’re everything we’ve come to expect from years of government training.”

The documents provided to the media that allegedly came from Pero showed who ever did the research doesn’t have a background or experience in mortgage lending or in foreclosure defense.   It is also apparent, that Pero or whoever he hired to research this also doesn’t know how to do adequate research.  In my opinion, the allegations regardless of the political spin are based more on speculation than fact.

Pero is also trying to portray himself as some type of legal scholar because his wife is an attorney (P56304) and because he pals around with Cliff Taylor and Bob Young.  He also runs American Justice Partnership which on the surface paints itself as a forum for “judicial reform on the state level”.  Using Pero’s logic, I should qualify for Pole Position at the Indianapolis 500 because I watched Speed Racer cartoons when I was a kid.

However, in reality, AJP is nothing more than a GOP front group that the GOP uses to run media ads for its judicial candidates.  AJP runs the type of ads that the GOP is too spineless to put their own name on and AJP’s office is actually nothing more than a desk and a phone line at the Michigan Chamber of Commerce.

I was surprised that the U.S. Attorney’s office in Detroit actually took Pero’s claims seriously and filed a Complaint for Forfeiture in an attempt to seize a Florida property owned by Hathaway and her husband, Michael Kingsley.  In the complaint that you can read below, the U.S. Department of Justice is claiming that in 2010, Hathaway and Kingsley quit claim deeded their Florida property to Kingsley’s daughter in order to hide the asset so that ING Direct would be more inclined to grant their request to short sell their posh primary residence at 15834 Lakeview Court in Grosse Pointe Park that had dropped nearly 50% in value.

Hathaway Forfeiture Complaint

The government is basing it’s forfeiture case on two Quit Claim Deeds signed by Kingsley, Hathaway and Kingsley’s daughter.  The first Deed showing Kingsley and Hathaway deeding the property to Kingsley’s daughter Kathryn Sterr was signed on 3/15/2010 but wasn’t recorded on 11/11/2010.  Sterr then deeded the property back to Kingsley and Hathaway with a Quit Claim Deed dated 3/5/2012 and recorded on 3/8/2012.

Hathaway Quit Claim Deeds.pdf

The government is ignoring three major issues here, the first being the transaction deeding the property to Sterr happened nearly eight months prior to what federal prosecutors allege in their complaint.  Reading between the lines of this complaint, it’s apparent they are insinuating Kingsley and Hathaway backdated this deed. It’s highly unlikely that the government would be able to prove the deeds were back dated.  It also appears that the government is using Michigan law as a basis for their allegation.  Michigan law says an assignment of a mortgage or property is not valid unless it is recorded with the Register of Deeds.  The courts in Florida have ruled the date of execution of the assignment or the transfer is the date it occurred not the recording date.  Since this property is in Florida, Florida law would prevail not Michigan law. In this case, the government has the burden of proof and it’s highly unlikely they will meet those requirements.

According to the Orange County Clerk of the Court, there was an open Home Equity Line of Credit (HELOC) for $100,000 from Wachovia Bank (later acquired by Wells Fargo) on the property at the time the government claims the Quit Claim Deed transaction took place between Kingsley, Hathaway and Sterr.  The HELOC was opened on 1/31/2005 and was recorded 2/15/2005 and was not discharged until 12/19/2010.

This would mean that the Quit Claim Deed would be invalid.  Paragraph 15 of Kingsley and Hathaway’s mortgage would allow Wells Fargo to enforce what is known in the mortgage industry as a “Due On Sale” clause.  This means if you as a homeowner convey any interest to your property without consent from your mortgage lender who has a lien on the property that they have the right to immediately foreclose on the existing mortgage. In Kingsley and and Hathaway’s case and because of that area of Orlando, Wells Fargo would have been more than eager to foreclose on them.

Hathaway Mortgage & Discharge

The DOJ also claims it has a copy of a letter signed by Hathaway requesting a short sale on 15834 Lakeview Court due to a financial hardship.  The DOJ is claiming that the letter along with the Quit Claim Deed recorded on 11/11/2010 is evidence enough that Kingsley and Hathaway committed money laundering and defrauded ING Direct out of $600,000.

The DOJ seems to blind to the fact that we are in one of worst economic recessions in American history.  Property values in metro Detroit have plummeted by nearly 70% since February, 2007 when Kingsley and Hathaway received the mortgage of $1,475,000.  The DOJ also seems to be blind to the fact that unless you are a multi-billionaire or have lots of morally bankrupt political friends like Dan Pero, being nearly 225% underwater on your primary residence does create a financial hardship.

After reviewing the MLS listings and the properties that sold in Grosse Pointe Park in 2010 and 2011, it is clear that not even the posh communities of the Grosse Pointes were immune from the realities of the financial crisis.  MFI-Miami estimates that the house on Lakeview Court dropped to a value of $1,750,000 to roughly between $650,000 to $750,000 in 2011.

Kingsley and Hathaway sold the property for $850,000 on 11/7/2011 with ING Direct filing a mortgage discharge with the Wayne County Register of Deeds two weeks later and nearly 11 months after the DOJ claims Hathaway penned a hardship letter to ING Direct.

Had ING Direct foreclosed and sold this property in a post-foreclosure sale or as part of a bulk sale, the most they would have received for it would have been $650,000.  In other words, ING Direct would have still lost money but not because of Kingsley and Hathaway may or may not have committed some shenanigans but because of the real estate market in metro-Detroit.

It appears that ING Direct did an extensive amount of due diligence on this short sale before allowing Kingsley and Hathaway to sell the property for $850,000.  There were two due diligence companies involved in this transaction.  The first was Richmond Monroe Group out of Missouri who is hired by lenders like ING Direct to research and verify any claims made by homeowners seeking short sales or modifications.   Richmond Monroe Group also filed the mortgage discharge with the Wayne County Register of Deeds on behalf of ING Direct.   The other being United Lender Services, a document processing company out of Pittsburgh who verifies that all public documents on behalf of mortgage lenders in order to make sure the buyer of a short sale is getting a free and clear title.

This would back up the argument by Kingsley and Hathaway’s attorney, Steve Fishman that was quoted in the Detroit News on 12/1/2012:

“In fact, ING knew about and inquired about the defendant property during the ‘short sale’ process and either did learn or could easily have learned about the property transfer,” Fishman wrote. “Whether ING did or did not learn about the property transfer, it is obvious that the transfer had no impact on ING’s decision to approve the short sale.”

Dan Pero is also blogging that Kingsley and Hathaway received a sweet heart deal while the average Michigan homeowner is losing their homes.

“There are literally tens of thousands of people in this state whose homes were lost through short sales … and yet Justice Hathaway was able to get out from under $600,000 worth of debt.”

You would think that a man who started AJP to “promote free enterprise” would understand the fundamentals of the free market before spouting sound bites he picked up from watching Fox News or off sugar packets be picked up at Denny’s.  Pero like most people in Michigan politics are ignorant to the modern ways of mortgage finance and still believe mortgage finance works as it did in the days of George Bailey.  The truth is what Justice Hathaway and her husband did is an exercise under the “free market”.

What Pero fails to understand is that mortgage lenders are focused on one property and one property only and it’s the one they have a lien on.  They stay focused on that property because at the end of the day, they know someone skilled in sophisticated real estate law like Hathaway or Kingsley would just simply walk away and let the property go to foreclosure.

Pero also seems to be living in some alternate universe when he says deals like this don’t happen the average homeowner.  That’s not entirely true.  The ones who stand up and fight do get deals like this.  Does Dan Pero expect a bank to just hand people free money in the form of a principal reduction? If he does, wouldn’t that cloud up the Ayn Rand glasses that he see the world through?

It’s apparent Pero hasn’t spoken to any MFI-Miami clients.  With the help of our Michigan attorneys, Anthony DeMatteisJason Jenkinson and Kelli Meeks, MFI-Miami clients in Michigan are getting principal write downs and modifications but most importantly, they’re getting to stay in their homes. Why? Because our clients have the testicular fortitude to force their lenders to negotiating table.   In regards to getting $600,000 reductions like Kingsley and Hathaway, I can proudly say MFI-Miami has been involved in dozens of cases like these in Florida.

Disclaimer: MFI-Miami HAS NOT nor have I been retained by Justice Hathaway, her husband or the law firm representing her and her husband to investigate this case and I have had no contact with Justice Hathaway, her husband or the law firm representing them in any way shape or form.  

I am blogging about this due to my interest in the story and because of the nature of business MFI-Miami is engaged in.   The information compiled for this article came from media coverage, court records and other public records freely available at the Wayne County Register of Deeds, the Orange County (Florida) Clerk of the Court and United States District Court.  Any opinions expressed in this article are my own and do not reflect the views of any of the individuals involved in the case. -Steve


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