The Danger Reaching to Your Front Door
The Danger Reaching to Your Front Door
  • Jo Yoo Suyeon
  • 승인 2024.05.01 08:50
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On March 21, the beta version of "Jeonse Wiki," a service that provides a response manual for victims of fraud for jeonse, which is a type of rental contract, was launched. It was developed in conjunction with Safe Homes, a platform that provides real estate-related services to existing victims of jeonse fraud, and aims to offer practical help to victims. As the damage caused by that kind of fraud continues to grow, private sector initiatives are also emerging to help the victims.



How did you rent your house?

People sign contracts to live in houses owned by others if one doesn't have their own house. The contract between a landlord who rents out a house and a tenant who lives in it is called a rental contract. According to the Housing Status Survey statistics released by the Ministry of Land, Infrastructure, and Transport (MOLIT) in December 2023, the occupancy type by administrative region section shows that 38.8 percent of the nation's housing in 2022 was rented. This indicates that except for those who own their house or live in one owned by a friend or family member, most people make a contract with a landlord. There are two main types of these contracts: jeonse, a long-term deposit rental system that exists only in Korea, and monthly rent. Jeonse works as a system where one pays a large lump-sum deposit to the landlord at the beginning, lives in the house for the duration of the contract, and gets the deposit back from the landlord after the contract expires. On the other hand, the monthly renting system is divided into two types: deposit rent where you pay a deposit to sign a contract like jeonse, and then make monthly payments and get the deposit back at the end of the contract period, or non-deposit rent where you do not pay a deposit. Although these types differ depending on the presence of deposit, what they have in common is monthly rental payments. As jeonse has a feature of having a higher initial cost than monthly rent, the government is providing a system to support people who are using it. The Youth Jeonse Loan scheme offers loans at low interest rates of 1.8 to 2.7 percent per year to household heads aged 19 to 34. This means that if people receive a loan of about 50 million won, they only need to pay about 80,000 won in interest every month. In addition to young adults taking advantage of these benefits, those seeking housing stability for the duration of the contract also use the jeonse system to address their housing needs.
This method of the jeonse system, where one pays a large deposit to the landlord at the beginning and not having to pay anything else, is also considered a risk. There is the possibility that the deposit may not be returned by the landlord at the end of the contract. This can happen as landlords often invest the deposits they receive from tenants rather than keeping them, and then pass the deposits of the new tenants to the outgoing tenant when their contract expires. This can also happen if the value of the house decreases due to the recession and the tenant is unable to get the deposit even if the landlord sells the house. However, this recession-induced situation is distinct from jeonse fraud. Kim Jin-yoo, a professor at the Kyonggi University's Major of Urban Planning & Transportation, said, "Jeonse fraud has not yet been clearly defined, but if we summarize it based on government data and damage cases, it can be defined as the act of deceiving tenants and stealing their rental deposits by landlords, architects, brokers, and others involved in rental contracts."1) This means that intentionality is a key element of jeonse fraud. Therefore, although the refusal to return the deposit itself is not fraud but considered a market phenomenon, if the landlord intentionally refuses to return it, it is classified as jeonse fraud.



Traps threatening one's space

Jeonse frauds are categorized into several types, depending on the condition of the property and the people involved in the rental agreement. If more than 80 percent of a landlord's houses are supported by tenants' deposits and the landlord's mortgage, they are called "tin can houses." If a landlord with a tin can house intentionally charges a new tenant an inflated deposit above the value of the property and doesn't return it, the tenant cannot get their deposit back even if the landlord sells the house. In May 2023, one such case of tin can house jeonse fraud occurred in Daegu, where a landlord owed 50 tenants about 6.8 billion won in unpaid deposits for two years from 2020. The landlord purchased 13 multifamily houses with loans and other tenants' deposits and then disappeared. One victim said, "We had been newlyweds for four months, and we lost our dream house and ended up on the street. I was a tenant in a tin can building, contrary to the real estate agent's claim that it was a safe building."2) This indicates that the victims not only lost their houses at the end of the contract period, but also suffered great economic losses as they were unable to get their deposit back. Furthermore, these damages put them in a financially difficult situation to move to a new place. In this case, even if the tenant demands the return of the deposit, it also becomes difficult due to factors such as the landlord's loans or non-payment of taxes. In other words, the landlord has no assets to return to the tenant immediately as the landlord's share of the house is small. To protect the tenants in these situations, there is insurance to compensate them for non-payment of their deposits. The way this insurance operates is that the Korea Housing & Urban Guarantee Corporation (HUG), a public corporation under MOLIT, first returns the deposit to the tenant instead of the landlord who has not returned it, and then later charges the landlord for the deposit. It was designed to relieve the victims of jeonse fraud, but the difficulty is that in order to receive the deposit from HUG, the victims themselves have to prove their damage by obtaining various documents from the post office, resident centers, etc. These time-consuming and costly procedures are making it difficult for victims to get relief.
There is also a kind of jeonse fraud where the landlord isn't the perpetrator. Dual contracting is when a representative of the landlord, such as a real estate agent, deceives and takes advantage of both the landlord and the tenant. Such dual contracting schemes include a real estate agent promising to sign a contract with a landlord on a monthly rental basis and signing a contract with a tenant on a jeonse basis, thereby stealing the deposit for the jeonse. According to the Special Inspection of Real Estate Agents Suspected of Jeonse Fraud report released by MOLIT in May 2023, 99 out of 242 real estate agents who brokered houses for landlords with a history of not returning deposits more than once were themselves found to have committed 108 violations and received administrative penalties. The main violations included entering into contracts with the purpose of extorting deposits or providing false or insufficient explanations to tenants to induce them into signing contracts. In other words, real estate agents who have more professional knowledge about housing than tenants are using this information imbalance to commit jeonse fraud. These dual contracts have evolved to the point where landlords are also colluding with real estate agents to convince people to sign contracts in order to collect deposits. There is a case in which, from March 2021 to July 2022, 45.3 billion won was extorted from 563 apartments and villas through jeonse deposits in Michuhol-gu, Incheon. The landlord had paid off a number of real estate agents to inform the tenants that the properties were free from fraud. In other words, the roles of the landlord, who should have transacted the property through a normal lease agreement, and the real estate agent, who should have mediated the transaction and provided relevant information to the tenant, were not fulfilled. As the scale of this jeonse fraud is growing and the methods are becoming more diversified, it seems necessary for the government to take measures to provide relief to affected individuals.

Yoon Hee-geun, the chief of the Korean National Police 


Lost homes, voices asking for help

The Special Act on Jeonse Fraud has been enacted as a way to provide relief to victims of ongoing fraud cases. The act, which took effect on June 1, 2023, provides repayment of about one-third of the deposit to those who are recognized as victims of jeonse fraud and who paid a deposit of 500 million won or less, according to a priority reimbursement system. This means that even if a jeonse fraud victim's house is auctioned off due to issues such as the landlord's loans, victims will be able to get a certain amount of money back, ahead of the bank from which the landlord received the loan. Victims of jeonse fraud who are eligible for these provisions include cases of dual contract and tin can jeonse fraud. The act is valid for two years and operates in such a way that every six months, the government will either enact additional amendments or extend the period, which means that the effectiveness of the act will be reviewed over a period of time. In addition to the system to support victims, measures are also being put in place at the level of investigative agencies to detect and punish those who commit this kind of crime. Yoon Hee-geun, the chief of the Korean National Police Agency, said, "We will organize a Jeonse Fraud Criminal Procedure Tracking Team. Through this, we will quickly investigate the current cases of jeonse fraud that have been reported and greatly strengthen criminal intelligence gathering activities to prevent the perpetrators from committing crimes in advance."3) In other words, the government has opened a department dedicated to jeonse fraud, showing its intention to take measures to eradicate it. It seems that the effectiveness of these countermeasures needs to be figured out and be complemented in order to actually remedy jeonse fraud.
Victims of jeonse fraud are calling for an amendment to the law, pointing out the limitations that have arisen in its implementation. They argue that the amendments should include priority relief followed by recovery, where the government first compensates victims for their whole unreturned deposits and then recovers the cost by purchasing the jeonse fraudulent houses. In other words, they emphasized the importance of taking priority measures to help victims return to their normal lives. There are also arguments that the current limit of 500 million won for deposits that qualify for priority reimbursement is too narrow. In response, an official from the National Task Force for Victims of Rental Fraud said, "The jeonse deposit for a 29-square-meter villa outside of Seoul that I moved into was 310 million won. There are many apartments in Seoul where the jeonse deposit is over 500 million won. It is questionable whether a victim of a fraud with a deposit of 510 million won is not a victim."4) That is, the current law does not reflect the market value of real estate and jeonse deposits, so not all victims of those frauds can receive compensation. In addition to this, it has been six months since the special act was enacted, but there has been no additional legislation to improve the law. This is due to the ruling and opposition parties' disagreement over the government budget required for this relief and recovery method and whether the government will be able to recover it. In the current situation where some jeonse fraud cases are not being resolved, it seems necessary to come up with a consensus and a response plan to reflect the voices of marginalized victims.


Protest by victims of jeonse fraud asserting for an amendment to the Special Act on Jeonse Fraud


Steps to eliminate the blind spots

Jeonse is a type of contract that is often chosen by people seeking housing stability since it does not require ongoing expenditures to use the house. However, many people have been victimized by jeonse fraud that takes advantage of the fact that a large amount of money should be paid upfront. The government and investigative agencies have proposed new measures to combat this, but the implementation process is showing its limitations. Therefore, it seems that there is a necessity to devise a comprehensive plan aimed at effectively assisting victims of jeonse fraud, taking into account the identified challenges and the prevailing real estate environment.


1) Kim Ji-hye, "Jeonse Fraud, Is It Just Not "Knowingly" Ok?", The Kyunghyang Shinmun, May 5, 2023

2) Kim Yu-jin, ""Money I've Saved Vanished" Jeonse Scam Victims Strongly Urge Revision of Special Law", The Maeil Shinmun, March 28, 2024

3) Lee Ye-ji, "Government Said "Strict Crackdown on Jeonse Fraud Indefinitely Even After Special Crackdown Ends"", DONG-A ILBO, November 1, 2023

4) Choi Eun-ji, "National Assembly Passed Jeonse Fraud Special Law...victims in Contray "No Remedy"", YONHAP NEWS AGENCY, May 22, 2023

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