Bank officials won’t be penalized for delaying auction of homes in rental scam

Financial Supervisory Service flag [Photo by Lee Seung-hwan]

South Korea’s financial regulators won’t penalize financial company employees who postpone auctions of homes rented by victims of housing fraud to protect the tenants from further harm.

According to sources on Tuesday, the Financial Supervisory Service (FSS) issued a no-action letter on April 19 to allow banks and other financial institutions to voluntarily delay auctions and sales of such houses in a timely manner. A no-action letter means that some practices which are not allowed under current regulations can be temporarily permitted only for a limited time under exceptional circumstances.

The FSS issued the letter in response to an urgent directive from FSS Governor Lee Bok-hyun to protect victims by postponing auctions and sales of their homes that were used in fraud schemes.

Under current regulations, banks and other financial institutions that fail to dispose of homes subject to auctions within the deadline or exceed the grace period for execution of collateral are subject to penalties for violating regulations.

The FSS said in the no-action letter that financial institutions can postpone the execution of collateral, including auction procedures, for homes used in fraudulent schemes if they are notified that the property is related to a victim of fraud to ensure the victim’s urgent housing stability and relief.

On April 20-21, 59 homes in Incheon’s Michuhol District that were scheduled for auction were all postponed except for four homes whose auction ended in a no-bid. On April 24, scheduled auction of all 38 homes was postponed.

The auction postponement by banks came after three cash-strapped tenants took their own lives in the city of Incheon, west of Seoul, in the wake of a massive home rental scam.

According to reports, the recent scam in Korea involved renting out highly collateralized homes to victims who provided deposits worth tens of millions of won. However, the masterminds of the scam ended up defaulting on their loans from financial institutions, causing the properties to be auctioned off. This left the victims vulnerable to eviction without any means of getting their deposits back.