[Exclusive] After Bad Loans Burst, "Tenant's Fault"... Saemaeul Geumgo Faces 4.6 Billion Won 'Jeonse Fraud' Lawsuit

Seoul 'Jeonse Fraud' Triggered by Saemaeul Geumgo's Bad Loans
Many Tenants Evicted Without Receiving Deposits
Over 70 Tenants File 4.6 Billion KRW Civil Lawsuit Against Saemaeul Geumgo
Saemaeul Geumgo: "Tenants Should Have Verified... We Don't Understand"

It has been revealed that Saemaeul Geumgo and over 70 tenants are currently engaged in a civil lawsuit demanding the return of approximately 4.6 billion KRW in deposit money due to a 'jeonse fraud' case that began with Saemaeul Geumgo's non-performing loans. A significant number of tenants have already been evicted from their homes without receiving a single penny of their jeonse deposits, and the remaining tenants live in fear of being evicted at any time. Saemaeul Geumgo maintains that the incident occurred because tenants failed to properly verify documents and claims no responsibility.

According to a comprehensive report by Asia Economy on the 17th, amid growing financial sector instability including concerns of a 'bank run' due to Saemaeul Geumgo's recent non-performing loan crisis, it has been found that the number of victims caused by Saemaeul Geumgo's poor lending is considerable. A representative case is the jeonse fraud incident involving the Laf House buildings 1 to 3 located in the Dangsan-dong and Mullae-dong areas of Seoul.

At the beginning of the incident in 2018, there were 149 affected tenants with damages amounting to over 10 billion KRW. However, after six years of repeated cancellations and failures of building auctions, police investigations, and lawsuits, many tenants have given up their deposits. Currently, only about 70 tenants remain, filing a civil lawsuit against Saemaeul Geumgo and the trust company for approximately 4.6 billion KRW.

On the 6th, a notice regarding 'Protection of Savings and Deposits' was posted at the MG Saemaeul Geumgo Gyeonghuigung Branch in Jongno-gu, Seoul. Photo by Dongju Yoon doso7@

This jeonse fraud case, which occurred in the heart of Seoul, was triggered by Saemaeul Geumgo's non-performing loans.

Previously, the building owner, Mr. Lee, purchased three buildings of Laf House in Yeongdeungpo-gu, Seoul, in 2015 and obtained a loan of 5.4 billion KRW from Saemaeul Geumgo through collateral trust. At that time, Mr. Lee is suspected of submitting 'fake lease contracts' to Saemaeul Geumgo, which drastically lowered the jeonse deposit amounts of the building tenants to increase the loan amount.

In reality, the jeonse deposits for the one-room units in the building were around 60 to 70 million KRW, but the fake lease contracts stated amounts as low as 3 to 5 million KRW. This inflated the collateral value of the building excluding the jeonse deposits, thereby significantly increasing the loan amount Mr. Lee could receive.

Typically, financial institutions verify the authenticity of submitted documents by visiting the collateral property and interviewing tenants before executing loans, so such fraud attempts rarely succeed. However, Saemaeul Geumgo lent a large sum to Mr. Lee without detailed verification.

A deposit of 5 million KRW is an unreasonably low amount for a one-room deposit in Dangsan-dong, Yeongdeungpo-gu, Seoul. Moreover, four branches of Saemaeul Geumgo?Sangok 2·4-dong, Bupyeong Nambu, Singil 2-dong, and Nam Incheon?were involved in this loan, along with a trust company, yet basic document forgery was not detected.

After Mr. Lee failed to repay the loan to Saemaeul Geumgo, the institution attempted to sell the buildings to recover the principal, bringing the large-scale jeonse fraud case to light. Most victims are young adults just starting their careers.

Subsequently, Saemaeul Geumgo sold Laf House Building 1 in April 2019 and Building 2 earlier this year. Despite multiple attempts, Building 3 has yet to find a buyer. Existing tenants in Building 2 were all evicted around April to May this year without receiving any of their jeonse deposits back.

Since most tenants signed lease contracts after the collateral trust was established, they hold subordinate rights, so the auction proceeds went to Saemaeul Geumgo.

According to the Housing Lease Protection Act, small-scale tenants can receive a certain amount as a priority repayment even if they cannot recover their deposits in the first priority. However, the victims in this case did not receive even this.

One tenant said, "Our building's priority repayment amount was 32 million KRW, so we thought we would at least receive that before being evicted, but we did not get anything. Previously, it was said that tenants have the right to priority repayment, so auctions could not be conducted carelessly, but once the auction was successful, they said we were not legitimate tenants and could not receive priority repayment."

A civil lawsuit demanding the return of deposits between Saemaeul Geumgo and the tenants is ongoing, but the first hearing has not yet been held, so the outcome is uncertain. The lawsuit has been significantly delayed due to Saemaeul Geumgo repeatedly applying for and canceling auctions. Meanwhile, tenants have become exhausted due to litigation costs, marriage, job changes, and other personal circumstances, and the victims' emergency response committee has disbanded.

Saemaeul Geumgo is shifting responsibility for the incident onto building owner Mr. Lee and the tenants.

Saemaeul Geumgo claims it is also a victim of Mr. Lee's illegal loan, and that tenants are at fault for not properly verifying the registry and documents before signing lease contracts with Mr. Lee.

A Saemaeul Geumgo official explained regarding the non-performing loan allegations, "If (Mr. Lee) was determined to deceive, there was no way to avoid it," adding, "We also suffered losses by not recovering the interest."

Regarding the tenants, the official said, "If they had just made one phone call to Saemaeul Geumgo or the trust company when signing the lease contract, this would not have happened," and "It's hard to understand that tenants, who pay tens of millions of won in deposits, did not verify to that extent."

However, the tenants argue that Saemaeul Geumgo and the trust company effectively abetted Mr. Lee's fraudulent activities.

First, it is unreasonable that Saemaeul Geumgo was so negligent in verifying collateral when lending over 5 billion KRW to an individual. Because of this, tenants suspect there may have been improper dealings between Saemaeul Geumgo loan officers and Mr. Lee.

In fact, the police and prosecutors investigated the illegal loan allegations and indicted Mr. Lee and three others, including brokers, on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes. A Saemaeul Geumgo employee involved in the loan was also investigated but was not prosecuted due to lack of evidence of intent.

While the building owner who attempted the illegal loan and the broker who facilitated it were prosecuted, Saemaeul Geumgo managed to avoid legal consequences.

Even if Saemaeul Geumgo bears no criminal responsibility, analysts say it is difficult to avoid moral responsibility since the non-performing loan was the core cause of the large-scale jeonse fraud damage. Especially, the trust company sent an official document instructing building owner Mr. Lee to 'perform lease-related duties,' which contributed to creating additional victims of jeonse fraud.

Saemaeul Geumgo plans to proceed with the sale of the remaining third building once the controversial jeonse fraud issue, exacerbated by the recent real estate market downturn, settles down. If the building is sold, current tenants are likely to be evicted without receiving any deposit refunds. Mr. Lee is reportedly already financially incapacitated, making compensation difficult.