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Embattled Michigan Supreme Court judge to quit amid ethics probe

By James B. Kelleher

(Reuters) - A Michigan Supreme Court justice announced plans on Monday to step down from the bench after a judicial watchdog accused her of "blatant and brazen" ethics violations in a series of real-estate deals and filed an emergency petition for her suspension.

Attorneys for Justice Diane Hathaway, who is already the target of a federal complaint alleging mortgage fraud, informed the court on Monday she would resign effective January 21, according to a Michigan Supreme Court spokeswoman - nearly four years before her term expires.

The attorneys told the court that Hathaway, who was elected to the high court in 2008, would recuse herself from all official business until then, the spokeswoman said.

In a statement, Michigan Attorney General Bill Schuette said he expected Governor Rick Snyder to quickly appoint a successor.

The announcement of Hathaway's pending resignation came after the Michigan Judicial Tenure Commission filed an 18-page complaint against her with the Michigan Supreme Court, accusing her of fraudulently concealing assets when she and her husband sold a home in the Detroit suburbs in 2011 in a so-called "short sale."

The complaint alleges the couple lied to their lender when they sold the property for about $600,0000 less than they owed on it and, citing financial hardship, persuaded the bank to forgive the outstanding loan principal.

The commission said Hathaway and her husband engaged in a series of sham transactions, temporarily transferring other properties they owned to relatives to hide assets from the bank.

One of those deals, the sale of a property in Windermere, Florida, with an assessed value of $664,682 to Hathaway's stepdaughter for $10, has drawn scrutiny from federal prosecutors.

In November, they filed a civil forfeiture complaint against Hathaway and her husband in federal court in Florida, seeking forfeiture of the Windermere home.

In the complaint, prosecutors allege Hathaway and her husband "systematically and fraudulently transferred property and hid assets" to support the claim they could not pay off the mortgage on the home in suburban Detroit.

"Given the gravity of ongoing federal allegations and today's unprecedented Judicial Tenure Commission complaint, it is in the people's best interest that Justice Hathaway step down," State Attorney General Schuette said in a statement.

Before being elected to the Michigan Supreme Court, Hathaway, a Democrat, served for 16 years as a judge on the Wayne County Circuit Court.

A call to Hathaway's attorney, Steve Fishman, for comment was not immediately returned on Monday.

But in a response to the federal complaint in the fall, Fishman said Hathaway and her husband relied on the advice of an attorney during the short sale process and that the bank either did know or should have known about the property transfer.

Shortly after the short sale of the Detroit property, Hathaway's stepdaughter transferred the Florida property back to the couple for $10.

Hathaway and her husband have not been charged with any crime.

(Reporting by James B. Kelleher; Editing by Cynthia Johnston and M.D. Golan)

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