[Tracking Jeonse Fraud Reality]⑪ Who Are the Jeonse Fraudsters?

[Asia Economy Reporter Seongpil Jo] The large-scale damage caused by the ‘no-capital gap speculation’ jeonse fraud has been revealed during a special police crackdown to be an illegal act committed not by landlords alone but by a division of functional roles among sales agencies, consulting firms, and licensed real estate agents. These groups conspired together with the common goal of obtaining rebates.

According to the police, the no-capital gap speculation jeonse fraud is mostly carried out through sequential or tacit collusion among landlords, building owners, sales agencies, real estate consulting firms, and licensed real estate agents. They systematically divided roles such as searching for listings, recruiting tenants, and drafting contracts to conclude jeonse and sales agreements, then shared the rebates received from sellers as sales or consulting fees.

Looking at the roles of the parties involved in the transactions, landlords take on the role of purchasing a large number of houses by assuming the deposit return obligations under their own or rental business corporation names. Their purpose is to obtain rebates received from sellers such as building owners as sales (distribution) fees. A police official said, "The reason they repeatedly buy houses despite knowing it will be difficult to return deposits to tenants when lease contracts expire or market prices fall." The police explained that Kim, known as the ‘Villa King’ who owned 1,139 villas and officetels and died without returning jeonse deposits, and Kwon, called the ‘God of Villas’ who owned 3,493 villas, fall into this category.

Building owners receive tenants’ jeonse deposits as payment for villa sales to recover their new construction investment funds. Most of them build villas through loans from banks or financial institutions, but if the units are not sold, they collaborate with sales agencies to secure profits or at least break even. A police official said, "Building owners often tacitly cooperate with sales agencies to recover investment funds, even though they know that tenants are deceived by the so-called ‘simultaneous progress’ method where sales and jeonse contracts are concluded at the same time by landlords and others."

Sales agencies act as a link between building owners, real estate consulting firms, and landlords. They approach building owners with difficult-to-sell new villas, promising to sell them and secure the target properties. They recruit landlords who want to engage in ‘no-capital gap speculation’ recommended by real estate consulting firms, and pay rebates to nearby licensed real estate agents to find victim tenants. A police official said, "Sometimes sales agencies directly recruit rental business operators," adding, "In such cases, they often design the transaction so that rental business operators can purchase houses without capital."

Real estate consulting firms are commonly referred to as ‘brokers.’ Their purpose is to receive rebates under the name of referral fees. They approach licensed real estate offices or sales agencies claiming to have landlords ready to purchase, and connect landlords with properties suitable for ‘no-capital gap investment.’ A police official said, "Consulting firms actively recruit not only landlords involved in transactions but also homeless people, young adults starting out, and low-credit individuals, using them as so-called ‘nominal owners’ only for house titles," adding, "They often pay small rebates of about 100,000 to 500,000 KRW and shift all responsibility." This essentially means they are the masterminds. A representative case is Shin, the head of a consulting firm identified as the mastermind behind Jeong, a villa rental operator who died in Jeju in 2021.

Licensed real estate agents involved in the fraud often mediate contracts between landlords and tenants without disclosing the no-capital gap speculation transaction structure. Kim Daun (37, pseudonym), who suffered damage from no-capital gap speculation jeonse fraud, said, "At the time of the jeonse contract, the real estate agent did not even mention that the landlord was a gap investor," adding, "After I was unable to receive the deposit on the due date and went to the office, it had long been closed."