Unauthorized Jeonse and Wolse Contracts Unknown to Owners... Gyeongnam Police Agency Launches Investigation into 'Jeonse Fraud'

The Gyeongnam Provincial Police Agency has launched an investigation into the 'unauthorized jeonse and monthly rent contracts' that occurred at S Apartment in Hadong-gun (reported online by this publication on May 10).

The apartment in question is a place where the developer, A Construction Company, proceeded with jeonse and monthly rent contracts without the knowledge of the owner, Woori Asset Trust, raising concerns about 'empty jeonse' (rental deposits at risk).

According to the police and representatives of the S Apartment construction company, Company A began construction in 2017 after securing a housing construction loan from Busan Central Credit Cooperative. When faced with a financial crisis that threatened to halt construction, they borrowed additional funds in 2018 to complete the project.

Even after completion, the construction payment has not been repaid, leaving debts owed to the construction company and others.

The CEO of Company A established Company B, entrusted real estate management and disposal authority to a real estate trust company, issued beneficiary certificates, and borrowed funds from Central Credit Cooperative using a collateral trust method secured by these certificates.

Central Credit Cooperative, seeking to recover the construction loan, lent money to Company B?established by Company A’s CEO for the purpose of managing and operating the apartment complex?using the completed multi-family housing as collateral, despite not having received repayment from Company A.

The funds borrowed by Company B were used to repay Company A’s housing construction loan.

It is reported that the CEO of Company A proceeded with jeonse and monthly rent contracts without the consent of the owner, Woori Asset Trust.

According to financial authorities, out of a total of 26 units in the apartment, about 20 have been rented out. Company A reportedly signed contracts with about 20 tenants, collecting a total rental deposit of approximately 500 million KRW and monthly rent of about 10 million KRW.

The problem is that most tenants signed contracts with the CEO of Company A, who is not the actual owner of the building. If the actual owner, the trust company, demands eviction, tenants face the risk of being forced out without their deposits returned.

The Gyeongnam Provincial Police Agency is investigating unauthorized contracts involving tenants, the developer, and financial institutions.

A police official stated, “Although no actual damage has occurred yet due to unauthorized jeonse and monthly rent contracts, there is a risk that about 20 households could lose their deposits. We will conduct a thorough investigation and do our best to prevent related damages.”

Meanwhile, in the Gyeongnam and Busan regions, where jeonse fraud cases have been occurring consecutively, a total of 339 people were arrested in the first half of the year.

The Gyeongnam Provincial Police Agency conducted two special crackdowns on jeonse fraud from July last year to June 7 this year, booking 250 people, arresting 91 (transferred to prosecution), and detaining 15.

Following the first crackdown until January this year, an additional 50 people were arrested during the second crackdown until the 7th of last month, with 13 more detained. The number of investigation targets increased by 103, with a total of 110 cases uncovered and damages amounting to 22.8 billion KRW.

By crime type, there were ▲31 cases of illegal brokerage and appraisal ▲27 cases of deposit non-return including empty jeonse ▲21 cases each of false disclosure in real estate management and jeonse loan fraud ▲9 cases of unauthorized contracts ▲and 1 case of contracts exceeding delegated authority.

The Gyeongnam Provincial Police Agency classifies jeonse fraud as a 'malignant fraud' and is continuing investigations into the remaining 47 cases involving 159 people.

The Busan Metropolitan Police Agency announced that as a result of recent special crackdowns on jeonse fraud (first and second phases), 248 people were arrested on charges including fraud, with 12 detained.

During the first special crackdown from July last year to January, Busan police arrested 226 people, detaining 9. In the second crackdown, ongoing until July, 22 people have been arrested so far, with 3 detained.

By crime type, the largest group arrested was 128 people (6 detained) for deposit non-return including empty jeonse. This was followed by ▲false guarantees and insurance (87 people, 3 detained) ▲violations of the Licensed Real Estate Agents Act (12 people) ▲false disclosure of rights relations (9 people) ▲unauthorized contracts (6 people, 1 detained) ▲and no-capital or gap investment (6 people, 2 detained).

Busan police are currently investigating 32 cases (82 people) related to jeonse fraud. They are focusing on cases with clear damages such as deposit non-return including empty jeonse (36 people) and false guarantee insurance (26 people), while also concentrating investigative efforts on 12 people involved in false disclosure of rights relations.

Before court verdicts, the police are strictly responding to jeonse fraud by applying pre-indictment seizure measures that prevent suspects from disposing of or hiding illegally acquired assets such as real estate.