[Editorial] Preventing the increasing jeonse fraud

The government and legislative must come up with effective solution to prevent theft of valuable rent deposits.

A housing price plunge is making many homeowners de facto empty-handed if they pay off mortgage loans and jeonse, refundable lump-sum deposits. Jeonse prices have also been falling fast, making most of them hover below the rate of contract. This raises the danger of tenants being unable to recollect their full deposit.

The amount the state agency Korea Housing & Urban Guarantee Corporation (HUG) had paid tenants on behalf of delinquent homeowners reached 799.2 billion won ($614 million) in 3,754 cases as of October, sharply above the 579 billion won worth of 2,799 jeonse deposit subrogation claims of last year.

The market slump cannot be entirely blamed. Jeonse scams abusing the jeonse system have added to the woes. In one extreme case, a man in his 40s who had rented out 1,139 units of small multi-residential buildings by juggling one deposit with another recently died suddenly. About 500 tenants filed claims with the HUG. But they cannot notify a termination in their contracts to their landlord who died. The flat-rich person had been behind property ownership taxes worth millions of dollars. When the family relinquishes inheritance, the court can appoint a trustee to proceed with contract termination. But it would take six months to one year for a court manager to be named. President Yoon Suk-yeol has specifically ordered the government to form a task force to address the problem in case a court procedure takes time.

There had been similar cases. One owner of 3,493 units of small multi-family residences was arrested for failing to return the deposits. In another case, the landlord of 136 homes fled with deposits after putting up two daughters as leaseholders. All of them were able to become home-rich without that much of the necessary capital through financing with jeonse deposits. Since they leased out hundreds or thousands of homes, they could not have kept up with landlord’s duties in maintenance and others. They can only be suspected of being frauds.

There are bills pending at the legislature calling for greater knowledge about landlords. Under the outline, the details of overdue taxes must be documented, and real estate agent on behalf of tenant can demand necessary information from landlords. For multi-family residences that do not specify unit number, tenants must be able to check prior lease details. They also should know whether their landlords own multiple other homes. If the landlord owns homes beyond a certain number, one should have suspicion. The government and legislative must come up with effective solution to prevent theft of valuable rent deposits.