[The Editors' Verdict] How to Prevent Another 'Villa King Jeonse Fraud'

Strengthening the Role and Responsibilities of Licensed Real Estate Agents
Checking Landlord Arrears from the Contract Stage
Cracking Down on Illegal Villas to Prevent Damage in Advance

Jeonse fraud is one of the most malicious types of scams involving the embezzlement of money. It results in a family losing their entire life savings and having their living foundation destroyed. The psychological pain endured is immense, and victims can fall into an irreparable state. It drags ordinary people into ruin, shatters the hopes of young generations such as inexperienced youth and newlyweds, and even fosters distrust in society.

The ‘Villa King Jeonse Fraud’ can be seen as a scheme that used ‘gap speculation’ tactics from the start, engaging in a Ponzi-like scheme with the intent of never returning the deposit. When the real estate market is good, the bomb is passed around, and when the market worsens, the bomb explodes early.

Shouting insults at the scammers and punishing them with additional charges of contempt does not solve the problem. Apart from catching the fraudsters, recovering assets, and compensating victims, it is necessary to establish clear and strong measures to prevent recurrence of jeonse fraud and to improve the system. Otherwise, especially when the supplier-favored market returns, the same type of jeonse fraud will repeat.

The role and responsibility of licensed real estate agents must be strengthened. Tenants pay a considerable commission for rental transactions. Like when subscribing to financial products, agents should be required to notify tenants of potential risks and record them on a checklist. The rental transaction procedures, which can involve tens of millions to hundreds of millions of won, are too lax. Regulations are ambiguous, often leading disputes to be resolved by mutual agreement. Among recent types of jeonse fraud, there have been cases of price manipulation through collusion among local agents. Heavier penalties should follow for qualified individuals involved in fraud.

At the time of contract, attaching supporting documents to verify the landlord’s tax delinquency status along with the certified copy of the register should be mandatory. Due to a legal amendment, from April this year tenants can check the landlord’s national tax delinquency status without the landlord’s consent. However, since this is only possible after the contract, there is room for disputes. Allowing tenants to verify tax delinquency status at the time of the lease contract and decide whether to proceed would prevent disputes and enable preparation for risks in advance. If the system is to be improved, it must be precise.

The reason why jeonse fraud was possible with just one or two names or businesses is that unlimited tenant deposit insurance subscriptions were allowed regardless of how many rental houses they owned. Restrictions on insurance subscriptions should be imposed on those who are not rental business operators meeting certain requirements.

When constructing villas, some floors are approved as neighborhood commercial spaces but built identically to the villas and sold at a discount or rented out as jeonse. Such acts must be cracked down on. There are many illegal villas like this near subway stations in Seoul, and when things go wrong, tenant damages are significant.

Providing big data on housing such as villas, where price verification is difficult, is also necessary. Newly built villas have a large discrepancy between the registered area on the certified copy of the register and the actual area due to balcony expansions, making price estimation even harder.

In Seoul, there were 640 villas under auction in January alone. Of these, 159 cases, or 25%, were in Hwagok-dong, Gangseo-gu. This is a statistic that can be similarly confirmed in neighborhoods where jeonse fraudsters operate. If not properly addressed, unhappy victims will inevitably continue to be produced in the near future.

Kim Minjin, Content Manager, Political and Social Research Team