[Jeonse Living ABC] Can You Get Your Deposit Back If You Can't Get Deposit Insurance but There Are No Issues in the Registry?

Editor's NoteAs so-called ‘Villa Kings’ cause a surge in jeonse fraud victims, tenants' anxiety is growing. However, the jeonse system remains one of the main lease contracts in Korea. Asia Economy delivers practical legal knowledge and information tenants need to know while living under jeonse through a series called ‘Jeonse Living ABC’ with attorney Koo Min-su (NH Investment & Securities Real Estate Asset Management).

#Mr. A, in his 20s living in Gangseo-gu, Seoul, moved into a newly built villa two years ago with a jeonse deposit of 150 million KRW. However, just before the contract expired, he learned that the landlord had changed to the so-called Villa King, Mr. Kim, and shortly after, that he had passed away. Although the registered copy of the real estate register was clean at the time of contract, he was unable to subscribe to the Jeonse Deposit Return Guarantee Insurance provided by the Korea Housing & Urban Guarantee Corporation (HUG). It is known that the property has about 6.3 billion KRW in tax claims ranked as senior claims in the distribution.

If the real estate register is clean, recovery is likely through opposability

Even if a tenant like Mr. A could not subscribe to guarantee insurance, if there is no issue in the real estate register at the time of moving in, there is a high possibility of recovering the jeonse deposit. A clean real estate register means that on the date when both resident registration (move-in report) and fixed date are secured, there are no provisional seizures, seizures, mortgage registrations, auction commencement registrations, jeonse rights, prior lease rights, or trust registrations on the relevant real estate register. In this case, although it may take some time, the tenant holds opposability, so after winning a lawsuit for the return of the jeonse deposit, they can proceed with a compulsory auction application based on that to recover the deposit.

Holding opposability means that a change of landlord is not a major variable. Under the Housing Lease Protection Act, opposability remains effective even if the owner changes. Furthermore, if the tenant asserts this right against the auction purchaser, they can recover the jeonse deposit.

Even if the auction process proceeds and a successful bidder appears, the tenant need not worry. Due to the effect of opposability, the successful bidder succeeds (assumes) the jeonse contract between the previous owner and the tenant. The tenant can refuse to vacate the property (transfer possession of the real estate under another's control) until fully reimbursed for their jeonse deposit and receive the deposit from the successful bidder. Typically, the successful bidder participates in the auction knowing that there is an opposability-holding tenant (called a ‘senior tenant’ in auction terms) for investment or personal residence purposes, so they are considered to have greater financial power than the fraudulent owner.

Beware of blindly bidding on auctions just because the price seems cheap

However, tenants should be cautious about bidding impulsively just because the price appears low. When adding the jeonse deposit amount to be assumed, it may result in buying the property at a price higher than the market value. For example, suppose the market price at move-in was 200 million KRW, and after several failed auctions, the minimum bid price dropped to 70 million KRW. Although 70 million KRW may seem cheap, in reality, it means buying a 200 million KRW property at 220 million KRW (successful bid price 70 million KRW + assumed jeonse deposit 150 million KRW), so bidding recklessly can lead to losses.

Instead, tenants should wait until the minimum bid price falls to around 5 to 10 million KRW (in which case, after deducting auction costs of 3 to 5 million KRW, the senior tax creditor can receive some distribution) before bidding. Auction properties with opposability-holding senior tenants tend to have fewer bidders, increasing the chance of becoming the sole bidder and owner. For tenants with opposability, it is rational to wait until the minimum bid price drops to just above the auction costs.

Attorney Minsoo Koo (Real Estate Asset Management, NH Investment & Securities), author of and .