Government: "Jeonse Fraud 'Prevention First, Recovery Later' Has Reduced Effectiveness"

"Jeonse Fraud Special Act Amendment, Low Feasibility"
Difficult to Fairly Assess the Value of Tenant Deposit Return Claims
"Forced Sale of Senior Mortgage Bonds to KAMCO is an Infringement of Property Rights"

Related agencies and industry experts unanimously agreed that the effectiveness of the amendment to the "Special Act on Support for Jeonse Fraud Victims and Housing Stability" (Jeonse Fraud Special Act), which includes the 'advance relief and subsequent recovery' measure for victims of Jeonse fraud, is limited. This is due to difficulties in valuing and recovering tenant deposit refund claims. Additionally, various criticisms were raised, including issues of property rights infringement related to the purchase of refund claims.

On the afternoon of the 23rd, Kim Gyu-cheol, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, delivered a greeting at the comprehensive discussion on the amendment to the "Special Act on Jeonse Fraud" held at the Seoul Gangnam Branch of the Korea Real Estate Board in Seoul.
[Photo by Yonhap News]

On the 23rd, the Ministry of Land, Infrastructure and Transport, the Ministry of Justice, and the Financial Services Commission held a comprehensive forum on the amendment to the Jeonse Fraud Special Act at the Gangnam branch of the Korea Real Estate Board in Seocho-gu, Seoul.

Kim Gyu-cheol, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, said, “The purpose of the advance relief and subsequent recovery in the amendment to the Jeonse Fraud Special Act is very good,” but added, “However, there is a problem that advance relief and subsequent recovery hardly occur.” He continued, “The procedure for evaluating the value of tenant deposit refund claims is not clearly defined, and the required funds come from the Housing and Urban Fund, which is temporarily entrusted by low-income households without homes for subscription purposes. If the claims cannot be recovered, other citizens may suffer losses.”

At the forum, Choi Woo-seok, Team Leader of the Jeonse Victim Support Planning Team at HUG, expressed difficulties in evaluating the value of tenant deposit refund claims. The amendment to the Jeonse Fraud Special Act states that when purchasing tenant deposit refund claims, it can be done “after a fair value evaluation according to the method prescribed by Presidential Decree.” Team Leader Choi said, “There are no standards for fair value evaluation, so it is impossible to properly assess the value of refund claims.”

He also pointed out the difficulty in estimating expected auction price rates even if the value of refund claims is evaluated. Team Leader Choi said, “An analysis of the annual auction price rate trends by housing type in Gangseo-gu, Seoul, shows a 30-40% difference between high and low auction price rates,” adding, “Due to the high volatility of auction price rates, it is impossible to set an expected auction price rate.”

There were also repeated criticisms that Jeonse fraud victims find it difficult to accept the evaluated value of refund claims. Lee Jang-won, General Manager of Victim Support at the Ministry of Land, Infrastructure and Transport, said, “Fair value is evaluated at present value, but it is realistically difficult for Jeonse fraud victims to accept this.” He added, “Assuming a Jeonse fraud victim’s deposit of 150 million won is evaluated and they receive 100 million won after three years, the actual amount the victim receives through advance relief measures is about 70 to 80 million won.” This is because the value of money decreases over time, resulting in victims receiving less money.

On the afternoon of the 23rd, Kim Gyu-cheol, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, is speaking at a comprehensive forum on the amendment of the "Special Act on Jeonse Fraud" held at the Seoul Gangnam branch of the Korea Real Estate Board in Seoul.
[Photo by Yonhap News]

There were also claims that the amendment infringes on property rights. Lim Young-jun, Macro-Finance Team Leader at the Financial Services Commission, said, “If there is a mortgage claim with priority over the tenant deposit refund claim, and the victim wishes, the Korea Asset Management Corporation (KAMCO) can request financial institutions or other claim holders to sell their claims,” adding, “Forcing the sale of senior mortgage claims like this may infringe on property rights.”

Even if senior mortgage claims are transferred to KAMCO, there are practical limits to supporting victims. KAMCO’s purchase of senior mortgage claims is intended to reduce the distribution amount during future auctions so that subordinate claim holders, i.e., victims, receive a larger distribution. Lim said, “KAMCO does not purchase all senior claims. If there are claims ranked lower than those purchased by KAMCO but higher than the victim’s claims, intermediate claim holders may receive a larger distribution, which is a limitation.”

Park Cheon-gyu, Head of the Housing and Real Estate Research Division at the Korea Research Institute for Human Settlements, said, “While discussions on victim support measures such as advance relief and subsequent recovery have been ongoing, discussions on preventing Jeonse fraud have been insufficient,” adding, “Since this amendment is a temporary law, efforts should be made to establish a stable rental market to prevent future victims.”

Meanwhile, the Democratic Party of Korea has announced plans to process the amendment to the Jeonse Fraud Special Act at the final plenary session of the 21st National Assembly on the 28th. Director Kim said, “Even if the amendment to the Jeonse Fraud Special Act passes, since it is a temporary law, we will announce institutional supplements as soon as possible to prevent future victims.”