[Practical Finance] How to Avoid 'Getting Scammed' in Jeonse Contracts?

“As a young professional looking for my first rental home, I’m worried because there have been many news reports about jeonse fraud recently. Is it safe if I sign a contract through a licensed real estate agent?”

For young professionals starting out or newlyweds, the first priority is often to find a jeonse rental. Jeonse is popular because it offers a more affordable price compared to buying and a more stable environment compared to monthly rent. However, with the recent surge in jeonse fraud cases involving so-called ‘Villa Kings,’ prospective tenants’ anxiety is growing. Since protecting the jeonse deposit is the best financial strategy, it is essential to thoroughly research and verify everything before signing a jeonse contract to prevent fraud.

Obtain and Verify the Certified Copy of the Register Before and After the Contract

The certified copy of the register is a must-check document when signing a jeonse contract. It serves as a kind of “housing resume,” showing who the owner of the property is and how the rights are established. Through this, you can confirm that there are no secured claims or provisional seizures and verify that you are the priority rights holder.

Recently, some licensed real estate agents have deliberately deceived tenants with jeonse fraud, making it even more important to personally check the certified copy of the register. There have been cases where agents showed a register copy without cancellation entries to falsely claim the property is safe, or even created fake register copies to deceive prospective tenants, so caution is essential. To prevent this, you must check the “certified copy of the register including cancellation entries,” which shows any tax delinquencies, seizures, or mortgage registrations.

It is also important to obtain the certified copy of the register after the contract. When a lease contract is signed and the tenant registers their residence, the legal protection (opposability) starts not on the day of registration but from midnight the following day. Exploiting this, some landlords have recently taken out loans using the house as collateral on the day of the tenant’s registration, a new type of fraud. To prevent this, include a special clause in the contract stating, “The landlord shall not establish any mortgage for at least several days from the tenant’s registration date. If a mortgage is established, special compensation will be provided.” Also, check the register copy the day after the tenant’s registration.

Check for Tax Delinquencies with ‘National and Local Tax Payment Certificates’

Even if the landlord’s certified copy of the register shows no mortgage or seizure, it is premature to be reassured. If the house is auctioned or sold due to tax delinquency, you may not get your deposit back. According to Article 35, Paragraph 1 of the Framework Act on National Taxes, “National taxes, surcharges, or delinquent collection fees shall be collected prior to other public charges or claims.” In practice, if the landlord’s house is auctioned or sold, the tax office has the first priority, the local government second, and the tenant third. Therefore, it is crucial to check for any delinquencies.

Ask the landlord for a ‘National and Local Tax Payment Certificate’ to verify that there are no outstanding taxes. Many tenants hesitate to request these documents because landlords may react negatively. In such cases, explaining that the documents are required by the bank for a jeonse loan can make it easier to obtain them.

Including special clauses is also useful. When drafting the contract, add a clause stating, “If the landlord’s national tax delinquency is confirmed, the contract may be canceled.” Also, since the ownership may be transferred to another landlord with a delinquency history, it is advisable to include a clause such as, “If the landlord’s name changes, the contract will be terminated and the deposit refunded.”

Thoroughly Check for ‘Kkangtong Houses’ and Subscribe to Deposit Insurance

You should research the market price in advance. Generally, jeonse prices are traded at about 70-80% of the sale price. However, with rising housing prices, if the jeonse rate (the ratio of jeonse price to sale price) exceeds 80%, there is a risk of a ‘Kkangtong Jeonse’ (underwater jeonse), so caution is needed. To do this, visit two to three nearby licensed real estate offices to check the market price before signing a contract.

Newly built villas require even more caution. Since there are few previous contracts or comparable cases, it is difficult to assess the market price. This is often exploited by builders, sales brokers, and ‘gap investment’ landlords who collude to dispose of properties systematically. Also, because there is little difference between the sale price and the jeonse price, these properties may become targets of fraud groups aiming for Kkangtong Jeonse.

It is also important to subscribe to jeonse deposit return guarantee insurance. By registering with the Housing and Urban Guarantee Corporation (HUG) or SGI Seoul Guarantee, you can recover your deposit from the guarantor if problems arise later. These institutions also review documents to check for any issues with the registration.

However, since you must submit the contract to subscribe to the deposit insurance, it is difficult to detect problematic properties in advance. To address this, include a special clause stating, “If the deposit insurance is rejected, the contract shall be null and void,” which can help prevent greater losses.