[Exclusive] Lease Contracts Unknown to Owners on Mortgaged Apartments Raise Concerns of 'Kkangtong Jeonse'

Gyeongnam Hadong S Apartment, Over 20 Tenant Households Reside

Developer Entrusted 'Collateral Trust' but Contracts as Owner

Trust Company "Unaware of Contracts, Discussing Measures"

As the damage from jeonse deposit fraud spreads nationwide, concerns over ‘empty jeonse’ have arisen in Hadong, Gyeongnam, where apartment lease contracts were made without the owner’s knowledge.

It has been revealed that most of the 20 or so tenants of this apartment signed lease contracts with someone who is not the actual owner of the building, putting them at risk of being evicted without their deposits if the owner demands them to leave. How did this happen?

According to financial institutions and informants on the 10th, the lease contracts for S Apartment in Jingyo-myeon, Hadong-gun, Gyeongnam, were carried out by construction company A without the knowledge of the actual owner, Woori Asset Trust.

In 2017, A Construction borrowed housing construction funds from Busan Central Credit Cooperative (Central Credit Union) to carry out the construction of the multi-family housing.

Later, in 2018, when funds became insufficient and construction progress became difficult, A borrowed money from contractors and others to continue construction, but even after completion, they have not paid construction fees, leaving outstanding claims to this day.

To recover the construction loan, Central Credit Union provided a loan to company B using the completed multi-family housing as collateral, without having received repayment from A Construction.

Company B was established by the representative of A Construction for the purpose of managing and operating the multi-family housing. The collateral loan received by B was used to repay A Construction’s housing construction loan.

After establishing company B, the representative of A Construction entrusted ownership to the trust company and borrowed money from Central Credit Union through a ‘collateral trust’ method.

A collateral trust refers to a system where the management and disposal rights of real estate are entrusted to a real estate trust company, which issues beneficiary certificates and uses them as collateral to borrow funds from financial institutions.

However, Kang, the representative of A Construction, proceeded with lease contracts without the consent of Woori Asset Trust, which received ownership, and is repaying interest on B’s loan. Although the original purpose was apartment sales, since they did not have the authority to transfer ownership, A Construction appears to have resorted to leasing as a loophole.

According to financial authorities, out of a total of 26 units in S Apartment, about 20 were leased, and A Construction signed contracts with about 20 tenants, collecting a total lease deposit of about 500 million won and monthly rent of about 10 million won.

The problem is that when the trustee carries out lease contracts without the consent of the actual owner, the owner can make decisions regarding the disposal of the real estate.

A representative of Woori Asset Trust said, “We have never received a request from A Construction to proceed with lease contracts,” and added, “The company is currently discussing how to handle this.”

An informant pointed out, “Tenants who signed lease contracts believing A Construction was the actual owner are expected to suffer damages due to unauthorized false contracts.”

A representative of the creditor group that lent money to the developer, including Central Credit Union, said, “If interest payments are not properly made and bad loans occur, tenants who signed contracts with a ‘fake’ owner without authority will inevitably be forcibly evicted.”

The Hadong Police Station’s investigation department said, “No complaints or accusations related to jeonse fraud have been received so far,” and added, “If a case is filed, we plan to investigate based on the falsity of the lease contracts.”

The contractors and subcontractors of the multi-family housing have not recovered their claims from A Construction, and the representative of A Construction was sentenced to 1 year and 6 months in prison for fraud, with the appeal trial ongoing.

Creditors of A Construction are unable to exercise legal rights such as seizure on the building as ownership has transferred from A Construction to the trust company.

Meanwhile, suspicions have been raised that the loan to A Construction, which proceeded with the lease contracts, was refinanced through an irregular loophole.

A financial official in the Busan area claimed, “Since it was impossible for A Construction to get a loan under its own name, they established company B with the same collateral and took out a loan under B’s name to repay A’s loan. This is a ‘nominee loan’ and violates loan regulations.”