[Exclusive] Corporations 'Shopping' Hundreds of Villas Involved in Jeonse Fraud... Winning Bids by Collecting Monthly Rent Deposits

[Suspicious New Villa King: The Second Jeonse Fraud Horror]①
Comprehensive Analysis of Jeonse Fraud Victim Houses Auctioned After 2022
Small Corporations Bulk Winning Bids and Bringing in New Tenants
HUG’s Negligence in Recovering Victim Support Funds
Similar to Past Jeonse Fraud Villa King’s 'No-Capital Gap Investment'

Villa Re-auction May Cause More Victims
New Tenants Face Uncertain Deposit Repayment and Housing Instability

It has been revealed that villas (multi-family and row houses) affected by the jeonse fraud incident that occurred at the end of 2022 and flooded into court auctions were transferred in bulk to specific corporations. These corporations took advantage of the government's negligence, including the Housing and Urban Guarantee Corporation (HUG), in recovering the money owed by the successful bidders and acquired dozens of properties. A new form of 'Villa King' has emerged about two years after the jeonse fraud incident. Notably, they brought in new tenants to the acquired victim houses. The rental deposits were used to acquire other properties, repeating the typical 'zero-capital gap investment' behavior that was the root cause of past jeonse frauds.

Experts diagnose that the jeonse fraud incident, which has already caused over 20,000 victims, has entered a new phase. If the government proceeds with re-auctions to recover the deposits, new tenants may lose their deposits or be forced to leave their homes without any measures. However, the government is criticized for not even recognizing the situation, let alone having a sense of problem, and is instead contributing to the proliferation of Villa Kings.

Asia Economy visited the villa village in Simgok-dong, Wonmi-gu, Bucheon-si, Gyeonggi Province last July and confirmed that a new tenant is residing in a house that was a victim of a jeonse fraud. Photo by Kwon Hyunji

"Targeting only jeonse fraud houses" Villa Kings acquiring dozens of properties

Asia Economy conducted a comprehensive analysis of villas in the metropolitan area that went through auctions from 2022 until last month via the real estate auction specialized site ‘Gigi Auction’ over about four months since May. The analysis focused on properties with a winning bid rate (winning bid price compared to appraised value) within 30%. Following the tracking of jeonse fraud victim auction properties, it was found that a small number of corporations acquired dozens of villas.

Among them, Corporation S purchased the most jeonse fraud houses. From May last year (based on sale date) to July this year, it acquired a total of 49 villas affected by jeonse fraud within about a year. It secured properties evenly across jeonse fraud affected areas such as Gangseo and Geumcheon districts in Seoul, Suwon and Bucheon cities in Gyeonggi Province, and Michuhol and Seo districts in Incheon. Corporation L also swept up a total of 31 villas from September last year, starting with a villa in Gaebong-dong, Guro-gu, Seoul, to Michuhol and Bupyeong districts in Incheon, Bucheon city in Gyeonggi, and Gangseo and Yangcheon districts in Seoul by March this year. Corporation H focused on acquiring 30 villas from January to March this year. Corporations K and J also secured nearly 20 properties each through auctions. It is estimated that there are as many as 44 such corporations in the metropolitan area alone.

Due to the aftermath of the jeonse fraud, at least 9,000 victim villas in the metropolitan area have been auctioned from 2022 until last month. Housing guarantee institutions like HUG pay the tenants (those enrolled in the jeonse deposit return guarantee insurance) the jeonse deposits that the landlords fail to return, then auction the victim properties to recover the deposits. When acquiring such properties, the winning bidder must return to HUG the deposit amount (subrogation payment) that HUG supported to the victims, in addition to the winning bid price. For this reason, most jeonse fraud victim villas are repeatedly passed over in auctions, causing the winning bid prices to drop to within 10% of the appraised value, resulting in bargain prices.

Villa Kings exploited HUG’s lukewarm attitude toward deposit recovery to acquire dozens of properties without repaying the money. According to the office of Kim Eun-hye, a member of the National Assembly Land, Infrastructure and Transport Committee from the People Power Party, among 8,929 auction applications filed by HUG from 2022 to September 2024, only 547 cases (about 6%) fully recovered the deposits. The cumulative deposits recovered during this period amounted to about 37% (708.6 billion KRW) of the total (1.9029 trillion KRW). The representative of Corporation L said in a phone interview, "HUG is claiming subrogation rights, but we are not responding," adding, "There is no deadline for (deposit repayment)."

"New tenants live in houses where jeonse fraud has not been resolved"

Villa Kings rented out dozens of villas they secured again. Asia Economy confirmed this fact after sending mail and conducting on-site coverage at about 30 villas in Bucheon city, Gyeonggi Province, and Gangseo-gu, Seoul, in July and August. The representative of Corporation L said, "We won the auction for villas put up by HUG for about 5 million KRW and rented them out with a deposit of 5 million KRW and monthly rent of 300,000 KRW." Tenants who signed lease contracts with Corporation S last year and this year were also found.

In particular, Villa Kings brought in tenants by receiving rental deposits at the level of the winning bid price. These deposits were then used as funds to acquire other properties. They profited through the ‘zero-capital gap investment’ method, which is considered a major cause of the jeonse fraud incident. Corporation L bought a villa appraised at 150 million KRW (Bugae-dong, Bupyeong-gu, Incheon) for 2.26 million KRW and another appraised at 300 million KRW (Sosabon-dong, Sosa-gu, Bucheon city) for 9.05 million KRW, charging deposits of 3 to 5 million KRW and monthly rents of 300,000 to 500,000 KRW per unit. Corporation S purchased a villa appraised at 272 million KRW (Simgok-dong, Wonmi-gu, Bucheon city) for 11.24 million KRW and charged a deposit of 10 million KRW and monthly rent of 700,000 KRW. A newly built villa appraised at 233 million KRW (Simgok-dong, Wonmi-gu, Bucheon city) was acquired for 4.83 million KRW and rented out with a deposit of 15 million KRW and monthly rent of 600,000 KRW.

Asia Economy sent mail to about 30 villas in Bucheon-si, Gyeonggi Province, and Gangseo-gu, Seoul, in July and August to confirm that new tenants were residing in some rental properties affected by lease fraud. Photo by Kwon Hyunji

Corporations L and S are just the tip of the iceberg, and it is estimated that there are many more undisclosed re-leasing cases. The representative of S Real Estate Agency Office, whom we met in Wonmi-gu, Bucheon city, said, "People who acquire jeonse fraud victim houses through auctions either rent out the villas monthly to earn money every month or sell them at prices higher than the winning bid to gain capital gains."

Professor Kim Cheon-il of the Department of Real Estate and Construction at Gangnam University pointed out, "In the past, buying hundreds of villas through zero-capital gap investment triggered jeonse fraud, and a similar situation is happening again in the auction market," adding, "There are always such third-party auctioneers involved in auctions of jeonse fraud victim houses where the winning bid rate keeps falling."

In this situation, if HUG proceeds with deposit recovery, new tenants will be caught in a bind. Typically, previous victims set up 'lease rights registration' on jeonse fraud victim houses to recover their deposits. This registration is extinguished only when the auction winner fully repays the deposit to HUG. If the winning bidder fails to properly repay, the property can be auctioned again. When a new winning bidder emerges, the current tenant effectively experiences a change of landlord. The representative of S Real Estate Agency Office in Simgok-dong, Bucheon city, said, "When an auction proceeds with tenants living in the house and a winning bidder emerges, the current tenant may have to vacate the room," adding, "You should never move into a house with lease rights registration."

However, HUG is not even aware of the re-leasing. Regarding this situation, a HUG official said, "If the winning bidder does not repay the deposit to HUG, they cannot obtain ownership, so re-leasing is not established," adding, "Almost all deposits are received once the auction is successful, and the winning bidder cannot avoid repayment."

In this regard, Jeong Kyung-guk, a certified judicial scrivener (head of the Public Interest Judicial Scrivener Group for Jeonse Victim Support at the Korean Association of Judicial Scriveners), explained, "If the winning bidder sells the auctioned property to a third party or tries to auction it again, registration must be done, but if a lease contract is made, registration is not required."