Wednesday, January 30, 2013

Short Sale Shenanigans = A Michigan Supreme Court Justice Pleads Guilty to Fraud

Individuals who sell their property short (that is, for less than the outstanding value of the mortgage) are required to disclose their other assets as part of the lending bank's approval process.

Now comes a jaw-dropping story from Michigan about a former Supreme Court justice who pleaded guilty to bank fraud in connection with lying to her bank in order to obtain approval of her short sale.

Diane Hathaway faces a potential prison term of up to 18 months after her guilty plea.

According to the Associated Press (here), Hathaway and her husband owned property in Florida in addition to the house in Michigan that they were selling short.


The AP reports that, in order to establish financial hardship, Hathaway and her husband transferred the Florida real estate to a relative -- and then the relative transferred the property back, after the short sale was approved and the Michigan transaction had closed.

When the Florida transfers were discovered, prosecutors pounced.

Wow. You can't make this stuff up. The practice points here practically slap you in the face:  
  1. Records related to the ownership of real estate are public (and increasingly accessible, not just buried in the deed books).
  2. Banks and federal prosecutors have the time and resources to investigate those records.
  3. Tell the truth.
And, bonus pointer #4: Charlottesville has at least one resident expert on short sales, attorney Bill Tucker at Tucker Griffin Barnes.  If you are buying or selling in a short sale situation, you should be represented by Tucker or another experienced-hand.