The suit comes at a time of heightened foreign homebuyer activity in the Seattle area, particularly by Chinese nationals.
A local developer and prominent real estate agency conspired to prey on Chinese nationals and inflate luxury home prices on the Eastside for their own profit, according to a lawsuit filed in Seattle on Thursday.
Two plaintiffs who bought adjacent newly built homes in Kirkland allege that their broker at Realogics Sotheby’s International Realty was actually working on behalf of the builder selling the homes.
Jie “Gabby” Jiao and the married couple Maoqi Zhang and Wei Fan hired Realogics Sotheby’s broker Connie Blumenthal to buy their first homes in the United States in spring 2015.
Realogics has aggressively targeted luxury homebuyers in China and is one of the top brokerages for foreign buyers in King County, and Blumenthal has a glitzy website where she boasts her connections in Hong Kong and million-dollar home sales locally. The company and Blumenthal call the claims “baseless.”
Both buyers relied heavily on the expertise of Realogics Sotheby’s and Blumenthal to understand the local market. They were told there were multiple offers on the table and that they needed to bid more than $2 million each to buy the homes, west of Big Finn Hill Park, the lawsuit says.
But when they arrived in the area after the deals closed, they discovered the homes weren’t as promised, and later found out there was no evidence that other buyers were interested in the homes — suggesting they had badly overpaid based on their agent’s advice, the suit says.
One of the buyers, Jiao, was so dissatisfied with the home’s condition — among other things, it did not have the promised backyard or bedroom lake views — that she put the house back on the market. Even with her new broker aggressively marketing the home and offering a free Mercedes to a potential buyer, she wound up selling it for $1.67 million last June — a $338,000 loss over a two-year period, despite the region’s red-hot real estate market.
The other buyer’s home is assessed at $1.46 million, or about $745,000 less than the couple paid.
The Chinese nationals’ attorney, Dave von Beck of Seattle, said he found “what looks like collusion” between Blumenthal and the seller of the home, Alex Dudko of homebuilder Unique Design & Construction Co.
After issuing subpoenas in discovery, according to the suit, the attorney found emails and check stubs showing Blumenthal — the buyers’ agent — was actually working directly with Dudko, the seller, at the time of the sale.
One check showed Dudko paid Blumenthal $20,000 after the sales for “services,” according to the suit. The suit calls the payment a “kickback” for Blumenthal bringing the buyers to the developer.
In an email to Dudko around the time one of the sales closed, Blumenthal referred to a “bonus just between you and I.”
“Let’s meet for dinner and margarita’s again when I get back!” Blumenthal wrote to Dudko. “I need a new handbag :)”
A few days later, she told Dudko she wanted to “celebrate our closing.”
Other correspondence showed Blumenthal and Dudko had planned to work on future ventures together, hoping to find other Chinese investors.
Realogics Sotheby’s and Blumenthal, both named as defendants in the case, released a joint statement Thursday through their attorneys:
“Connie Blumenthal and Realogics Sotheby’s International Realty dispute the baseless allegations set forth in the Plaintiff’s complaint,” the statement said. “They intend to vigorously defend against these unsubstantiated claims and look forward to clearing their names through court proceedings.”
Dudko, who is not a defendant in the case, did not return a call seeking comment.
Blumenthal and Realogics Sotheby’s received $50,200 in commission for the first home sale, according to sales documents submitted as part of the suit, and likely received a slightly smaller amount for the other one.
Dudko’s company had paid $575,000 total for the two lots and built houses with permits valued at $877,000 combined, according to King County records. It sold the homes for a total of $4.2 million.
People from overseas have been buying more homes in the Seattle area in recent years, particularly wealthy buyers from China. In many cases, they know little about the local market and may buy houses sight unseen, as was the case with Jiao, one of the plaintiffs in the case.
“It’s a stranger in a strange land. In that circumstance, you rely on your realtor,” von Beck said. “And there are statutes that are pretty clear that the realtor has the duty to their clients.”
There has been no shortage of fraud cases surrounding Chinese investment in local real estate, but most of the past cases involved EB-5 funds, in which foreigners can receive permanent residency in the United States by investing in commercial developments.
The Kirkland home-buying case was originally filed, just with Jiao as a plaintiff, in King County Superior Court in August, and moved to federal court at the defendants’ request. The updated suit, with the full allegations, emails and check stubs uncovered in discovery, and second plaintiff, was filed Thursday in U.S. District Court in Seattle.
The lawsuit seeks $1.4 million in combined damages related to the purchases of the homes on NE 129th Street, plus punitive damages.
It alleges violations of state laws outlining brokers’ financial and professional responsibilities to their clients, breach of contract, the state Consumer Protection Act, and the Racketeer Influenced and Corrupt Organizations (RICO) act, among others.