[Exclusive] Preventing Recurrence of the 'Hwagok-dong Three Mothers' Case... Mandatory Notification to Tenants When Selling a House

Rep. Kim Hak-yong of the People Power Party Prepares to Propose Amendment to the Housing Lease Protection Act
"A Structure That Inevitably Causes Helpless Damage... Tenants Must Be Notified"

The photo is not related to the article. [Image source=Yonhap News]

[Asia Economy Reporters Hyunju Lee, Minyoung Kim] A bill is being proposed to require landlords to immediately notify tenants when the landlord sells the rented house. Currently, landlords are not obligated to notify tenants even if they sell their owned jeonse or monthly rental housing, but the bill aims to guarantee tenants the right to terminate the lease if they judge that it will be difficult to get their deposit back due to the change of landlord. Recently, as incidents of jeonse fraud related to so-called ‘empty-can houses’ have resurfaced due to falling housing sales and jeonse prices, the focus has been placed on preventing such damages.

On the 26th, Kim Hak-yong, a member of the National Assembly Land, Infrastructure and Transport Committee from the People Power Party, announced that he will soon propose an amendment to the Housing Lease Protection Act that includes the provision that ‘when a landlord intends to sell a rental house, the landlord must notify the tenant without delay after the contract is concluded.’

◆Landlord must immediately notify tenant upon selling the house= The reason for including the obligation to notify tenants in the bill is that even if the landlord changes, tenants often cannot know until the end of the jeonse period, resulting in cases where they suffer damages in returning the deposit. Under the current system, if the tenant judges that the new landlord does not have the capacity to return the deposit, the tenant can terminate the lease contract and claim the deposit from the original landlord who signed the contract. According to Supreme Court precedents, tenants can escape from the lease relationship that is succeeded by the new landlord after becoming aware of the transfer of the rental house through objections. However, since tenants are not parties to the sales contract, most of them do not know this fact and only find out belatedly at the time of the expiration of the jeonse contract. In such cases, tenants are practically unable to exercise this right.

Previously, in the Hwagok-dong area of Gangseo-gu, Seoul, a mother and her two daughters who owned more than 500 villas failed to return the jeonse deposits to tenants, leading to over 100 multi-family and row houses in the area being put up for mass auction, attracting attention. The three women had accumulated at least 500 villas in Hwagok-dong and surrounding areas by purchasing unsold villas with jeonse deposits, but when empty-can houses began to appear, it resulted in a large-scale incident of non-return of jeonse deposits.

Kim Yerim, a lawyer at Deoksu Law Firm, said, "Cases like the ‘Hwagok-dong mother and daughters incident,’ where on the lease balance payment day the landlord changes to a front person such as a homeless person and the new landlord disappears, causing tenants to be unable to get their deposits back, are expected to be effectively remedied."

Lawmaker Kim explained the legislative intent, saying, "Currently, there is no need to notify tenants of the change of landlord, so if the house owner suddenly changes during the lease period, tenants cannot obtain information about the new owner and inevitably suffer jeonse fraud damages helplessly. We prepared the amendment to allow tenants to be notified when the landlord changes to protect tenants."

◆Jeonse fraud rampant... One-third of lease disputes involve deposit returns= Separately, recent jeonse fraud cases have increased by exploiting the timing of the effectiveness of the tenant’s opposability right. Under the Housing Lease Protection Act, opposability is the tenant’s right to assert the lease contract’s effect against third parties other than the landlord. To have opposability, three conditions must be met: moving-in registration, tenant’s possession (actual residence), and continuation of resident registration. However, since opposability arises the day after moving-in registration, fraudsters exploit this time gap by setting a mortgage on the leased building or transferring ownership to a third party on the same day the tenant registers moving in. Because opposability arises the day after moving-in registration, if a mortgage is set or ownership is transferred on the same day as the moving-in registration, the opposability right does not take effect. As a result, tenants cannot assert the lease contract’s effect against mortgage holders or new owners. In such cases, tenants may fail to recover their jeonse deposits despite completing moving-in registration and fixed-date registration.

[Image source=Yonhap News]

According to the Korea Legal Aid Corporation, the proportion of housing/deposit return disputes among all dispute mediation applications submitted to the Housing Lease Dispute Mediation Committee was 58.4% in 2020, 40.3% in 2021, and 30.7% as of August 2022. Although the proportion of deposit return disputes among all disputes is decreasing, it still accounts for one-third of lease-related disputes.

Lawyer Kim Yerim said, "Cases of organized embezzlement of jeonse deposits are increasing," adding, "The recent increase in applications for return guarantees in lease dispute mediation types is also due to the rise in jeonse fraud crimes."

Even if tenants subscribe to jeonse deposit insurance, if they do not have opposability, the insurance company may refuse to pay insurance benefits or accept the product subscription. According to the annual jeonse deposit return guarantee refusal status (cases/amount) submitted by the Housing and Urban Guarantee Corporation (HUG) to Assemblyman Kim Hak-yong, among the total 50 refusals this year, loss of opposability and priority repayment rights accounted for 21 cases, the highest number. The refused guarantee amount was 3.054 billion KRW, which means that due to jeonse fraud, many tenants are in a situation where they cannot recover a total of 3.054 billion KRW in deposits.

This content was produced with the assistance of AI translation services.