[Exclusive] HUG Urges Making Money with Jeonse Fraud Villas... At the Center of New Villa King Yangsan

[Suspicious New Villa King: The Second Jeonse Fraud Scare]②
HUG Practically 'Recommends' Re-leasing Houses Victimized by Jeonse Fraud
Jeonse Fraud Issues Unresolved, Returning to the Jeonse and Monthly Rent Market
HUG's Deposit Recovery Performance Worsens Every Year
"If Deposits Were Properly Recovered, Would the New Villa King Have Emerged?"

The Korea Housing & Urban Guarantee Corporation (HUG) has been found to be encouraging the emergence of "Villa Kings," the root cause of the jeonse fraud crisis, by failing to recover funds despite receiving over 4 trillion won in government taxpayer support to manage the jeonse fraud situation. In particular, corporations that have only won auctions for jeonse fraud victim villas (multi-family and row houses) in court auctions are effectively being 'encouraged' to re-lease these properties, raising concerns about the risk of a second wave of jeonse fraud.

HUG Allowed Jeonse Fraud Housing Gap Investment Without Capital

According to the 'HUG Deposit Recovery Manual for Auction Property Winners' obtained by Asia Economy on the 16th through the office of Kim Eun-hye, a member of the National Assembly Land, Infrastructure and Transport Committee from the People Power Party, HUG allows auction winners to enter into new lease contracts or secure funds by other means to voluntarily repay (voluntary repayment) their debt (deposit) to HUG. This means that HUG is encouraging auction winners to re-lease auctioned properties.

As a housing guarantee institution, HUG returned the jeonse deposits that landlords failed to refund after the end of jeonse contracts to tenants (applicants for HUG's jeonse deposit return guarantee) following the jeonse fraud crisis that emerged in 2022. Subsequently, HUG acquired the claims (rights to receive money) of these tenants and attempted to recover the subrogation payment (deposit) by auctioning the relevant properties. From the auction winner's perspective, after paying the auction price to the court, they had to return the deposit supported by HUG (in cases where the victim tenant had both tenant protection rights and priority repayment rights and had registered the lease).

However, auction winners who acquired jeonse fraud victim villas re-leased them without repaying the funds HUG had provided to the previous tenants. Since there is no institutional mechanism for HUG to recover rental income from auction winners, these winners used the re-leased deposits to purchase other jeonse fraud villas. With inadequate legal measures and HUG not actively pursuing collection, these individuals became "Villa Kings" through gap investment without capital.

What Happens to New Tenants' Deposits if HUG Re-auctions?

If HUG attempts to recover funds in this situation, new tenants who have moved into the victim villas purchased by auction winners could be left homeless. HUG can re-auction the property to recover funds, but the rights of newly moved-in tenants to receive their deposits are relegated to 'subordinate' status, making it difficult for them to get their deposits back. If the new auction winner claims ownership through HUG's re-auction, current residents may be forced to leave their homes without any countermeasures.

Han Moon-do, a professor in the Department of Real Estate at Soongsil Cyber University, stated, "HUG, which has been sluggish in recovering deposits, can be seen as turning a blind eye to the re-leasing of victim villas by auction winners. Strong measures are needed to prevent tenants from moving in unless the auction winner fully repays the deposit to HUG," he explained.

Assembly member Kim emphasized, "A new form of jeonse fraud is emerging. Institutional improvements are necessary to block malicious auctioneers who exploit auctions as a means of jeonse fraud."

Among 8,929 villas in the Seoul metropolitan area (Seoul, Gyeonggi, Incheon) for which HUG applied for auction from 2022 to the end of September this year, only 547 villas (6%) had their deposits fully recovered from auction winners. Recovery procedures are ongoing for the remaining 8,382 villas (94%). The ongoing recovery process means that auctions are either in progress or completed, but deposits have not yet been recovered.

Lee Joo-hyun, a specialist at real estate auction and public sale company Gigi Auction, pointed out, "It seems that auction winners increased their purchases gradually after realizing they did not need to return deposits after winning one or two units. If corporations had to repay multi-million won deposits each time they won villas, they would not have been able to buy so many villas." He added, "HUG's complacent response to auctions of jeonse fraud victim properties has effectively created Villa Kings."

The number of auction applications is rapidly increasing, but the number of properties with full deposit recovery remains low. The full recovery rate dropped from 15% (233 out of 1,525 units) in 2022 to about 9% (303 out of 3,258 units) last year, and as of September this year, only 11 out of 4,146 units (0.3%) had full deposit recovery.

HUG has only re-auctioned 11 victim villas over the past two and a half years due to failure to recover deposits from auction winners: 3 cases in 2022, 4 in 2023, and 4 in 2024. HUG initiates re-auction if the auction winner does not voluntarily repay the deposit within six months. From 2022 to the end of September this year, there were a total of 1,244 cases where HUG failed to recover jeonse deposits through auctions and ended up 'self-winning' the properties. Of these, 659 cases occurred in Seoul, 361 in Incheon, and 223 in Gyeonggi (Bucheon, Gimpo, Goyang, Paju, Anyang, Suwon). There was also one case in Busan.

The government is facing criticism for failing to prevent signs of a second jeonse fraud crisis due to HUG's negligence and for wasting taxpayers' money. According to the office of Min Hong-chul, a member of the National Assembly Land, Infrastructure and Transport Committee from the Democratic Party, the government has provided HUG with 5.4739 trillion won in funds over the past four years to address HUG's fiscal deficit caused by the jeonse fraud aftermath.