[Jeonse Fraud Investigation]⑧[Exclusive] Suspected 6 Billion Won Damage in One-Room Apartment Near Korea University... Entire Building Auctioned

Suspicion of Jeonse Fraud in 32 Households... No Guarantee Insurance Subscription
Sale Price 150 Million Won but Jeonse Up to 170 Million Won 'Empty Can'

[Asia Economy Reporter Cha Wanyong] A densely packed one-room apartment area near Korea University in Anam-dong, Seongbuk-gu, Seoul. An entire building of one-room apartments, completed about five years ago, has gone up for auction. There are already as many as 45 people (13 purchasers, 32 jeonse tenants) who have suffered or are expected to suffer damages related to this building, which has not yet had an auction date set. The estimated damages amount to about 2 billion KRW for the purchasers and about 4 billion KRW for the jeonse tenants.

In particular, contracts made for this building show signs suspected of being sales and jeonse fraud in various places. The complex relationships among the building owner, purchasers, and tenants through contracts suggest prolonged legal disputes are expected. Moreover, since most tenants are university students and the auction has not yet proceeded, direct damage cases such as deposit refunds have not yet surfaced, so no jeonse fraud reports have been filed.

A city-type residential accommodation (studio type) located near Korea University in Anam-dong, Seongbuk-gu, Seoul. This building was foreclosed through an auction in 2021 due to failure to repay loans borrowed from the secondary financial sector. As a result, tens of billions of won in damages are expected for the purchasers and tenants.
[Photo by Cha Wanyong]

Accordingly, Asia Economy has reported suspected cases of 'empty jeonse' and 'illegal real estate brokerage activities' confirmed through investigation to the Seoul Metropolitan Government’s Civil Rights Crime Reporting Center.

Purchasers left unpaid for sales and burdened with jeonse deposits

The urban-style residential lodging facility (one-room type) located on Gaeunsa-gil, Seongbuk-gu, Seoul, with three basement floors and six above-ground floors, exclusively investigated by Asia Economy, has a somewhat more complicated structure than recently known jeonse fraud cases. This building, where 32 units (each with an exclusive area of 22㎡) are occupied by jeonse tenants, was sold to 13 purchasers (16 units) by the building owner, who received power of attorney to act as a proxy for lease contracts. The remaining 16 units are unsold and still owned by the building owner.

The building owner received a power of attorney from the allottee and proceeded with the lease on their behalf.
[Photo by Cha Wanyong]

At the time of sale, the building owner who received the power of attorney intended to lease the units on a monthly rent basis, but all lease contracts were concluded as jeonse (key money deposit) contracts. As a result, the purchasers became responsible for the jeonse deposits when the building went into auction. The building owner collected the jeonse deposits. Suddenly, the purchasers became so-called 'front men,' burdened with both the sales price (150 million KRW) and the jeonse deposits (120 million to 170 million KRW). One purchaser, Mr. Lee, said, “I became a jeonse fraudster overnight,” lamenting, “I lost 150 million KRW in sales payments and now have to pay 160 million KRW to the jeonse tenants.”

The building owner agreed to a monthly rent contract with the purchaser and signed a contract (on the right) deducting three years' worth of monthly rent from the deposit. Afterwards, the lease contract was executed as a jeonse through a power of attorney.
[Photo by Cha Wanyong]

Currently, some households with jeonse lease contracts have filed lawsuits against the purchasers demanding the return of jeonse deposits after the building went into auction. Some purchasers, pressured to repay the jeonse deposits, have reported the case as a sales fraud to the local police station, and investigations are underway.

The problem with this building arose in 2021. The building owner failed to repay approximately 4.55 billion KRW borrowed from a secondary financial institution (Saemaeul Geumgo) using the land as collateral, leading to the auction. This is presumed to be project financing (PF loan) funds executed to build the building. Typically, PF loans are repaid through sales, but it appears this was not done.

The whereabouts of about 2.4 billion KRW from selling 16 units at 150 million KRW each and over 4 billion KRW in jeonse deposits for 32 units are unknown. The building owner claims most of the money was spent on construction costs and other expenses, leaving no remaining funds. To purchasers and tenants, the owner said, “The money is tied up elsewhere,” and “It will be settled soon, so please wait a little longer.”

Multiple suspected cases of jeonse fraud including ‘illegal real estate brokerage activities’ discovered

There are numerous indications that tenants of the building have been victims of jeonse fraud. First, most of the leased contracts are suspected to be 'empty jeonse.' Empty jeonse refers to cases where the jeonse deposit is similar to or higher than the market price. Most tenants signed contracts around 150 million KRW. The sales and jeonse contracts were mostly concentrated in the second half of 2017 and 2018, when the sales price was 150 million KRW. The highest jeonse deposit was 170 million KRW, and the lowest was 120 million KRW, signed in 2021.

Additionally, investigations revealed that most of these tenants were not enrolled in jeonse deposit insurance. It appears that the contracts were made with jeonse deposits exceeding the first-priority mortgage and sales price, making insurance enrollment impossible.

Especially suspicious are the real estate brokerage transactions that add to the jeonse fraud suspicions. A thorough review of all jeonse contracts showed that they were prepared by real estate agencies located in different districts than the building’s location. Of the 32 contracts, 22 were concentrated at S Real Estate Agency located in Jung-gu.

An investigator from the Seoul Metropolitan Government’s Civil Rights Crime Reporting Center suspected that these were not normal brokerage contracts but rather commission-based agencies that merely stamped contracts without proper mediation. Additionally, two contracts were made through another brokerage in Jung-gu, and two through a brokerage in Gangnam-gu. In Seongbuk-gu, the building’s jurisdiction, only two agencies prepared one contract each. The remaining four contracts were confirmed to be direct agreements (including unverified cases).

There is also suspicion that some jeonse tenants who signed lease contracts before the sales were unaware of the change in ownership. This applies to some units sold after the lease contracts were signed, and the new owners and tenants have had no contact for nearly four years. Mr. Kim, who purchased one such unit, said, “The building owner who received the power of attorney had been in contact with the tenants,” but “I have never seen or contacted the tenants even once.”

Meanwhile, whether this case constitutes jeonse fraud requires further investigation. It is necessary to prove intentional contracts made for fraudulent purposes or deceptive acts such as providing false information or concealing the truth from tenants. Accordingly, the Seoul Metropolitan Government’s Civil Rights Crime Reporting Center plans to start investigations once victim reports are completed. If fraudulent acts are detected, the case will be transferred to the police for full-scale investigation.